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Joshua "MauiTrader" Hayes is CEO, President and founder of Big Wave Trading Inc., a Maui, Hawaii-based stock market advisory service. Hayes is a well-respected stock trader who combines fundamentals, technicals, psychology and money management to trade professionally for his personal,... More
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  • Commodities Point to a Troubled Economy 0 comments
    Sep 25, 2011 10:24 PM | about stocks: CRB, JJC, SPY

    Over the past few months we have seen the stock market on the verge of a bear market, a Greek default, and a historic September collpase by the Boston Red Sox. One ominious sign has been the price action going on with commodities. Commodities are the foundation of an economy and it is always a good practice to take a peak at their price action to get a sense for the economy.

    Our economy is more than just the United States, it is global. The global economy is complex and trying to figure out every correlation is quite daunting. One way, an eaiser way is to check out commodities. Here is the current CRB index.

    This isn’t the prettiest chart out there and screems for lower prices. Supply and demand is easily measured by price. Charts help plot out the movement of prices and given the CRB chart prices have been coming down. There hasn’t been too many oversupply situations, you’d see prices jump if we had big supply shocks. However, it is the demand side of the equation. Demand simply is falling and commodities are showing it. We are in a precarious situation with falling commodities prices and likely an economy to follow.

    Copper can be found in just about every piece of electronics to your copper piping supplying your house with water. It is an important metal for production and its price action is very telling of what kind of market we have.

    A slowing economy will bring down earnings estimates and a possible contraction in multiples will bring down the market over the long run. The S&P 500 has been under distribution, but its wide and loose price action points to lower prices for the index.

    Ignore the noise from the media outlets and pay attention to the price and volume action of the leaders and the stock market. How to invest here is not difficult, you stay on the sidelines! We have taken advantage of the downside moves with shorts, but if you are a new investor it is wise to keep with cash. Cash is king!

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
    Stocks: CRB, JJC, SPY
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