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Playing the Ponzi
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Why “Playing the Ponzi”? I view the entire monetary and financial system as something of a Ponzi scheme. Starting with currency that is created as debt, and running straight through a global economic model that is based on infinite growth in a finite world. This won’t end well. I’d go a step... More
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Playing the Ponzi
  • Commodities Break Out 0 comments
    Feb 21, 2014 10:26 AM | about stocks: DBC, JO, SLV, GLD, GDX, GDXJ, SPY

    I posted this about a week ago on my blog, and never copied it here. However, I think it still holds true and my over-riding view of current market events:

    The S&P (NYSEARCA:SPY) bounced off support to continue its upward grind within the rising wedge I noted a week or two ago. It looks to me like a pattern that could break down at any time. But I wouldn't want to bet much on it. So I am pretty agnostic about the broad U.S. market right now. Major topping formations have formed in all of the major American indexes, but nothing has broken down. However, one sector has grabbed my attention: commodities.

    Unlike most equities, which have been rampaging higher for the better part of five years, commodities and commodity-driven stocks have struggled over the last two-plus years. It has been a steady beat-down for most things affiliated with agriculture and mining. But alas, that tide may be turning. The broad commodity ETF, DBC, has broken above a falling line of trendline resistance.

    (click to enlarge)

    Without making any prediction, I do think it's worth noting that commodities broke to the upside in 2007 just as the market was making what proved to be its multi-year top. With all the liquidity sloshing around global markets, it strikes me as possible that once again commodities will attract hot money as it flees equities in a low-growth environment. Below is a chart of the 2007 top, with S&P in black and DBC in pink.

    (click to enlarge)

    With that pointed out, have a look at some of the more specific commodities that look like attractive to me a this time.

    Coffee (NYSEARCA:JO) appears to have clearly broken to upside of a multi-year beat-down.

    (click to enlarge)

    Silver (NYSEARCA:SLV) is still near its support line, but has popped above its resistance trendline. Gold (NYSEARCA:GLD) has too.

    (click to enlarge)

    Gold miners (GDX and GDXJ) also appear poised to move higher.

    (click to enlarge)

    (click to enlarge)

    Grains (NYSEARCA:JJG) have also broken above resistance.

    (click to enlarge)

    I think the gist has been communicated.

    I am short some things (namely financials and Japan), but am long (utilities, Treasuries), so I don't feel like I have big directional bet at this time. Except for commodities: I am bullish. This is about as bullish as I have felt about anything in quite a while. That probably means this sector is doomed. :) But we shall see.

    Disclosure: I am long JO, SLV, JJG.

    Additional disclosure: Long call options (as opposed to stock) for JO and SLV

    Themes: commodities Stocks: DBC, JO, SLV, GLD, GDX, GDXJ, SPY
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