Cat 310 Pump

The Windy City Trader 8/9/11

This Week’s Commentary

This Week: It seems almost pointless to even guess as to what may happen today or tomorrow, let alone this week or month for any of the groups of commodities. I have done this for too long and seen too many panic induced moves over the years to think that I or anyone knows exactly to what level these markets may ultimately trade to before bottoming. I have spouted for many months now that the stock market action and pricing was in no way indicative of REAL economic conditions in the USA. I think the the political banter during the debt talks brought to the surface just how bad a situation our economy is in as unemployment remains abysmal, and two major industries, housing and manufacturing are the worst I have seen in my lifetime. This probably explains why the market actually started breaking even after a debt deal was completed. That, and the fact that the extra spending comes now while the cuts, if ever, will be years down the road and Europe’s problems not being an easy fix either is highly contributory. So in reality I look at the debt downgrade this way. The doctor comes in and tells the patient’s family, “He has cancer, paralysis, and has lost most of his senses. But what really worries me is that hangnail on his big toe”. The debt downgrade is the least of our worries and is merely the culmination of our many economic woes. It is not what is making the market fall as it has. Besides, the S&P rating company is the same one who gave AAA thumbs up to the shenanigans that Goldman Sachs, AIG, and Fannie Mae were pulling off a few years ago with the subprime mortgage scam so are they really one to judge? So if I were to venture an opinion based on seeing this type of action many times over the years it would be this. I believe we will see a “dead cat bounce” rally”, perhaps back to 11200 for the Dow and 1175.00 for the S&P but the first rise would be a false rally. Most analysts you see on the various “entertainment” business shows are forever and a day bullish. When the market is going up it’s a good time to buy and when the market tanks, it’s a good buying opportunity. This bounce is a likely to be a sucker rally and will induce bottom pickers to jump in. Once this fizzles I would expect one more new low as these late longs exit. I would think that would be the 9800 – 10000 area for the Dow and the 10000.00 level for the S&P and about 1800 for the Nasdaq futures. That should even up the REAL value of the indexes and not the inflated values we have been seeing for the past couple of years. I would expect a few weeks of consolidation at those levels and then a slow creep back up. This would not be like the 2008/2009 rise but much slower as our economy has many problems to work out. But keep in mind we fell to 6400 for the Dow and 660.00 for the S&P at that time so they had a much bigger potential of a sharp rebound. Don’t panic. When things seem the worst, it is often near the bottom which I believe we will see within a couple of weeks of consolidation. Gold: You know I love the old Honeymooners line “To the moon Alice”. That pretty much sums up gold action for the past 3 days as December gold soared to $1782 last night from the $1640 we saw late last week. Last week I mentioned a breakout might take us to $1750-$1800 and this is a very overbought market right now. A rebound for stocks may bring gold back to $1650 but much as with the Swiss, traders have decided this is the safe “happy” place to be right now against weak world currencies. Once the stock consolidation appears to be forming, an October 1600 put option may be the way to go. Silver: Silver has become the neglected step child in this group as traders focus on buying gold. Realistically speaking silver is primarily an industrial metal so as world economies stutter and demand or at least the perception of demand weakens it is not surprising that silver has actually dropped from near $42 an ounce to this morning’s low at $37.50. If you really like the long side of metals I would stick with gold. Copper: Copper has been highly overbought since it broke above 320 last summer. The move to 450 was absurd and counted on some huge anticipated demand. Counting on huge demand at a time when the housing industry here is at a snail’s pace and China is raising rates to slow their economy is poor judgment at best, and akin to believing in the tooth fairy and Easter bunny at worst. We hit 381 this morning for September copper and rebound or not for stocks, this market should test 350 short term and perhaps 320.

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