Stock indexes and most commodity market continued in their downtrends today. Oil has retraced most of the earlier uptrend for the year. The grains have been crushed. The Euro has lost all ground gained in the last 12 months. The high flying ag stocks are in freefall, as are most metal and other basic material stocks. I had been warning of the coming collapse in the commodity sector for many months now. The collapse is now very clear, but at the tops of these moves many famous analysts and traders were advising everyone to load up. I have to think they were distributing their position while encouraging the public to keep buying. Things never change. The downtrends across many of these markets are becoming well defined and will most likely last for some time, with many false rallies pulling in traders who still believe. There will be new uptrends someday, but no evidence yet. Although sentiment is starting to get a little too bearish in the very short term.
I’m staying away from stock indexes for now. The indexes are trading in a very strange way at the moment. There’s a sense of thinness in the market depth, or volume at various prices levels on the bid and the ask. The overall volume may be high, and the ticks are coming in fast, but something just doesn’t feel right taking positions here, at least in the stock indexes. The swings are just to violent for my style of trading. I’m sure there are many traders that are able to handle this type of market, or at least they will tell you so after the fact. Sentiment is getting very negative again, and there is risk of sharp retracements, as has been the case recently. I have no business trying to pick a bottom, and I don’t want to chase the short side with sentiment as negative as it is. So I wait, and hopefully can scalp a few daytrades once the intra-day swings smooth out and market depth improves. But there are many potential bargains starting to become available, as everything is getting hammered in this downtrend. It is interest how Berkshire Hathaway as been moving up recently, as I pointed out in a previous post. They are able to pick up some bargains with their huge pile of cash. There were times when stock were flying and BRK was stuck in the mud. Now stocks are tanking and BRK is in a nice uptrend.
Instead of showing the usual stock index chart, I’ve posted the Baltic Dry Shipping Index. This is a weekly chart with the usual double stochastic in the sub-graph. You can see this index has been in a straight downtrend since the big double top, and is now trading at levels not seen for over two years. I recall at each of the two peaks in that double top the ceo of Dryships was on CNBC giving reasons why the cost of shipping dry goods was going to keep climbing, and there’d be no downside to shipping prices with the shortage of ships and the increase in demand from China, etc. etc. However, the China bubble has long since popped, and their reported growing needs for dry goods had been greatly exaggerated. This index is not showing any signs of global demand for commodities. The cycle in the sub-graph had produces very clear and even cycles, but now the indicator is just staying in the oversold zone, which is very negative. There is a clear implication of a slowing global economy. Some will argue that part of this drop can be attributed to the drop in oil prices and the rise in the US Dollar, which is true, but only a small part. Changes in this index can sometimes be a leading indicator of world wide economic activity. If this index keeps contracting it will be hard to imagine a sustain bull market in global stocks.