In my 30-years in the investment business, I don’t know if I have ever seen such a wide variety of opinions. One group seems to think the economy is showing some signs of economic growth, the other camp is greatly concerned about the administration and the global economy, feeling the economy is about to become like a bug on the windshield, of a speeding car.
Copper is frequently viewed as an asset that rises and falls ahead of the economy. On 4/12 I suggested to watch the price of the worlds largest Copper producer (FCX) for signs of “GREEN SHOOTS” of growth, in the economy. I suggested to BUY FCX on an upside breakout of resistance. FCX did break resistance and I was able to pick up a 19% gain in a few weeks. (see post here).
That is the past…what is the message per Copper and FCX now???
What happens at (2) in the chart above, will go a long way towards telling which camp is on track. Keep a close on eye on FCX as a “financial weather vain” for the economy!
Emerging markets (EEM, EWZ) did not bounce back too well today compared to the 500. In John Hussman’s weekly he stated that QE2 would hurt US imports and emerging markets, while not helping US exports much. Alot of the stimulus spending apparently went to emerging markets because QE1 did not devalue the dollar enough – possibly accounting for how well they have done so far, but that could be changing with QE2. Something to keep an eye on – EUM is the inverse play.
William,
There aren’t a lot of businesses that aren’t impacted by rising commodity prices. There was an article in the WSJ a few days ago about how the jump in cotton prices was pinching some retailers.
The real crux of it is probably the crowding out of the consumer’s dollar. Each penny rise in the price of gasoline costs consumers $100M/month. For a lot of people, that means spending that much less on clothes, eating out, etc.
And EEM is probably 50% commodity importers, China, Korea, Taiwan, India.
Who knows what will happen, but it won’t anything earth shattering if commodities continue to rise and equities stall.
William,
I recieved numerous emails yesterday asking about buying inverse commodity and international 200% inverse etf’s and I discouraged the idea, because of the idea that “one day didn’t make a trend” per a dollar rally nor a stock market decline.
Other than resistance, which is in play in the Dow and 500 index, hardly any negative price action is taking place! See new post on Trucking and Rails as an example.
Numerous times I have shared my belief that the price action of high yield mutual funds is something to watch closely. At this time, they are still reflecting positive price action.
Bob, that would happen for those impacted by high commodity costs, but I think you’re already seeing that to a certain extent with companies like Tyson foods. Or, just look for evidence in the outperformance of EEM versus SPY (commodity rich economies vs. the latter).
I think at some point, the positive signal from rising commodities can mutate into a negative drag on commodity consumers, and most of the big economies are commodity consumers.
It wouldn’t be odd if the dollar were to continue its fall and commodities rise while equities drift lower.
Chris, right you are, sir. The trader in me has been selling calls as I anticipated that the market would have a time going through this resistance and that I could take advantage of time decay. The pig in me just always wants more….oink oink. 🙂
Hey William
did the “fakeout/breakout” post on the dollar, sharing that “one day a trend doesn’t make, which applied to the decline yesterday.
Shared in the “What happened” yesterday…that not much, just the markets dealing with resistance.
Three areas that are NOT reflecting weakness beside FCX, high yield mutual funds still acting well, as well as the railroad and trucking indexs.
minor observation today…some of the commodities aren’t bouncing as high today as the decline of yesterday.
Bob,
Great info and accurate! Once FCX started falling, the global scene and commodites tanked.
Over the past year and a half I like this action in FCX…
FCX bottomed in December 2008, 500 index in March 2009. FCX broke resistance in July and has continued to move higher,higher lows, stocks hit a low the first of september.
I remember seeing that post, but not having the money to commit to the trade at the time. I’m glad to see it turned out well for you. By the way, my charts don’t have DBC having broken support on its upward move.
Looks like selling more calls against my positions yesterday is making me wince today. Oh well,… For me, the way the charts are going, we need something around 1190 before the bulls can declare victory as 1183 seems to be the line in the sand. I’m hoping we go sideways for a while, thus making those out of the money/in the money calls I sold worthless……
In 2007/2008, FCX (and copper) peaked about 6 months after equities.
Once that gap is closed in FCX – along with the more significant one in SPY, QQQQs and DIA from yesterday – then the real bulls can step up and show their strength.
Great eyes Chris – thanks as always for the heads up!