Stocks lower, Commodities get crushed

I haven’t updated this blog for a few days. The stock indexes have been difficult to comment on as they have been going back and forth with wide swings, basically starting to form a sideways channel. Some analysts have called for a bottom. Sentiment is about as negative as its been for some time, and some support areas have attracted some buying interest, and some severely beaten down stocks have had some nice bounces. The way I look at the markets I just don’t see evidence of a bottom yet. The above chart shows the Nasdaq composite with its advance/decline ratio in the lower sub-graph. You can clearly see the steep downtrend in this ratio. It started down, with a major divergence, at the rally high last October, and has been declining since then, despite price rallies. The best bottoms historically seem to form when price washes out to the downside accompanied by a higher bottom, or divergence, in the advance/decline ratio. This would be much like the inverse of the divergence last October. This divergence certainly doesn’t have to happen, but it usually does. The S&P has a similar chart.
corn0804.pngCommodities really got crushed today. The chart to the right is one example. I usually don’t show individual commodities other than oil and gold, but the September Corn chart shows how bad the decline has been over the last few week. Right at the double top at the end of June there was a major divergence between price and the double stochastic in the lower sub-graph. The trend quickly turned down with a gap, and the only rally which occurred at the end of July failed in the last couple of trading sessions (the very last small down-bar is the after hours action today, with the larger bar preceding it the day session.) This market, and many other commodity related markets look like they are falling out of bed. Many of the commodity related equities that have been the big winners recently have been hit even harder than the underlying commodities. Many of the oil stocks, gold and copper and metal stocks, ag and fertilizer stocks look to be in clear downtrends. I had been waring of the bursting of the commodity bubble for many months now. I thought that the trigger would be a collapse in oil or a big rally in the dollar. The dollar has yet to put in a good rally, but it does appear to have stopped going down, with the trend now appearing to be sideways. Oil has fallen, with the trend now appearing to be down, but it hasn’t collapsed yet, as have many of the other commodities, however many oil related equities are now in steep downtrends, far more severe than the price of oil. As usual, when all the momentum traders are on the same side of the boat, it is time to exit despite what is being said on CNBC and the bulletin boards about how this time it’s different and that prices are only going to go higher.

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