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May 14, 2008

Post-Vacation Thoughts

Just a few quick notes as I try to get back into the groove of things after my trip to Ecuador (which was quite delightful and enlightening, by the way):

We saw two frustrating head fakes in silver and sugar over the past week. Silver posted a bullish candle on Friday as it recovered strongly from an initial scare. Price followed through on Monday, giving the impression that silver was due for at least a decent corrective recovery, if not a new run higher. However, silver bulls were thumped over the last two sessions as the metal forfeited 60c per ounce. Ouch.

Sugar has behaved no better. After putting in a nice bottoming formation and finding support at the 12c level (looking at October sugar), sugar rallied up to 12.70. I glumly rode this move from 12.23 to 12.70... and back down to 12.20 as sugar sputtered at its attempt to break out. The sweet stuff was down another 20 ticks today. The fact that sugar cannot get things going in the face of substantially higher oil prices is not a good sign.

So, the saga of false breakouts in the commodities world continues. I have become convinced now that too many people (myself included) are trying to jump onto the next commodities train. Usually, this type of behavior must be flogged out of the system before any substantial run can ensue. For this reason, I now expect to see one more serious washout before commodities head to new highs.

Oil is experiencing a parabolic run. This run will come to a hard stop sometime soon, but it's impossible to say from what price. However, I suspect the next substantial correction in oil to coincide with the aforementioned washout. At that time, I will begin rebuilding my commodities portfolio.


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