Stocks and Commodities

Stocks have confirmed a likely intermediate and possibly a major high. The current decline has lasted longer than any since the July low. This suggests a higher order top has occurred than any since that time. Expect continued intermediate term downside, though a breather rally could occur at any time here.

I have posted for the last couple months that commodities were topping. As is the case often times, once it is, you don't have lots of time to get out of the way before the market has proven it to you. Expect continued intermediate to longer term (1+ yrs) downside.

The recent news driven rally of oil is likely a last gasp that drew dumb money in and will ultimately lead to a lengthy sell off in oil and commodities. As seen in the chart below, large speculators, the big money that drives trends, have gone record net long oil. And the commercial hedgers are record net short. This goes back decades longer than the chart shows. It is a new record. Yet oil is off the all time highs substantially. This indicates a huge build up of long positions that will have to be sold off and open interest will have to contract dramatically before price is stable. Based off the data, my suggestion is that oil will decline below the 2008/2009 lows prior to the next bull market.

Click on Chart to Enlarge

I continue to view cash in US dollars as a reasonable investment for the next few years. It has not heated up yet, and that does surprise me a bit with the weakness in commodities, but I think we will have to see that at some point, particularly as oil weakens. It is the way the markets are fundamentally linked.