Commodity Train

Commodities have entered the death dive price phase which always is a part of the their life cycle. The downside action is an event that becomes almost comical when observed first hand. Offers (pools) grow during the session on limit down days and traders wait for some sign of intra-day recovery or opportunity for any spread side action. Trading limits are a polite way to avoid total panic. But like someone waiting for there named to be called before they can go through a fire door during an inferno, limits can create even greater anxiety.

What started this sell off was a rally grown old, but oddly enough, the Bear Stearns collapse played a part. You see there is nothing that bothers a commodity trader more than a real event of price deflation. A sudden change in supply/demand can have quick and powerful result in price. When BSC went from 30 to 2 in one trade, that bothered anyone holding any speculative contracts of any kind. A slight nudge from margins or cashing up circles is enough to created a one way highway south.

Extending Gains

Markets need a boost on the upside. Feb 1 and Feb 26 closings had the same look as Mch 18 but really marked the end of short covering. Substantial gains today would go a long way to establish a base to work from during the Q2.

Rally Day

Rally covered the whole day and closed 'like a bull' as they say. Since the SP500 and NQ100 did not take out Friday's highs, the bears have some hope if they can get the SP500 June futures under 1316. Otherwise another leg up is looming. DJI however powered through the Friday high and has a potentially strong price set up for continued gains.

No Diving At This End

Both DJI and NQ100 avoided taking out last week's lows and the commodity markets were hit with heavy selling. Those positives elements are what is needed to work through the current market mess. An early rally provided enough courage to fight off a mid session break. Much has been made of the Morgan play and the reasons for it but it is clearly an absolute benefit to have Bear Stearns off the screen. Look for liquidation to be absorbed readily as long as there are no new big revelations. Real nervousness is prevalent for the first time in years and the super bears are convinced the current declines are not deep enough. Hmm. Sounds like the makings of a bottom. No one is happy except JP Morgan who has historically been a part of some significant lows.

Before Opening

Indexes down hard this AM, off there lows as of this post and tough to convince most traders to initiate shorts down here. The natural inclination is to look for a buying op and play that into something more. BaseOp2 programs seeing hands off indicators on opening but Gbase1 looping trend side model is friendly.

Tricky Play

When you have to sell, it can be very ugly. When you are forced to sell, you get $2.00 bucks a share. That is what Bear Stearns got at the end of an 80 year run. Now the boys at the Fed have crap all over their shoes and are in a battle to convince everyone they mean business when they say they will defend the markets. They have to punish the sellers some how and that is heavy lifting. Can they do it? Absolutely. But a what level? They seem willing to let the air out of the markets slowly if they can and have the PPT boys help with the ballast. Tricky stuff for anyone.

100 Year Flood / The Waterline on Risk

JP Morgan one hundred years later in the middle of a rescue plan to save the markets from internal meltdown as it did during the Panic of 1907. Just as then, the waterline on risk has been raised on financial instruments. The transactional hunger which drove the subsequent positions based on sub-prime executions are coming into the the transparent light of the marketplace and are an example of how the markets will continue to move from opaque to clear trading. However, even given the additional clarity, the edge for traders will continue to move into the value created by analytical methodology as knowledge based trading flattens. The cost of information will continue to be driven towards zero as will the cost of transacting business based on that information.

Tough Week / Sweet Deals

Interesting week. Indexes finished unchanged or higher on the week with NQ100 have a outside week higher close. But the action was dramatic with swings against troubling new from investment bank Bear Stearns and others. It seems there was a run on BSC when the likes of legendary fund manager John Simons of Renaissance Technologies decided to move billions out of BSC to another location. Simons, who had taken pipe of about 9% in August was not going to let this one get away from his once top dollar hedge fund of 30 billion. This and other events created enough worry to get Bernanke out of bed in the wee hours and create a battle plan. First, the Fed, JP Morgan, and BSC invented a financial wonder. The deal works this way; BSC gets a line of credit from Morgan, Morgan borrows the money from the Fed on the cheap, and the Fed guarantees the the money. Nice.

Discussions of where to put the money goes on continually now as managers struggle to understand what is 'investable' in this risk adjusting environment. There is serious talk by some that commodities, hard assets, present reliable alternatives. World demand has created a need for a range of commodities, it is reasoned, as price action has demonstrated. But it seems the reason for investing is merely that they are going up and any idiot can tell you piling onto a directional trade will give you misery as a return, as it did in tech stocks and real estate of recent times. Commodities are a trade, not an investment. Jim Rodgers, the ultimate commodity bull has been wrong for most of his entire life. He has been touting commodities from the day this trader walked into a trading pit in 1981. He is finally seeing a big run. It only took twenty seven years. Great call Jim.

This coming week, Fed rate reduction may leave traders looking for some catalyst for direction. Markets will just have to grind it out unless a mega price move points to market direction for the balance of the year.

Still Mixed

Markets recovered from steep sell off but in the end resolved little as to the recovery bottom or the downtrend. Standard and Poors announced that it thought the write downs for sub prime were about finished or half way through. Why should anyone believe any analysis of theirs since they have trouble judging risk as a business anyway. Friday is wide open for any direction and Monday will be a wait day for the Fed.

Failed Weekly Highs

Indexes could not put together a killer day and ended the session being chased on the downside. Lower highs and lowers low on the weekly price action are the current look for the DJI, SP500, and the NQ100 and that needs to be changed to get some type of traction. The overall mood is decidedly bearish and the cover stories about bad paper highlight a tremendously bearish attitude. The bears will try to set the table for a Friday rejection in hopes of sending the indexes lower for the third Friday in a row. The DJI is net just over two hundred higher on the week and well within disaster range.