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"Commodities with some exceptions are primarily based upon the continuing growth, expansion and success of Asia including China, Japan, Indonesia, Korea, and India. What happens to this legendary buying power when their stock markets correct and sell-off? Will those economies slow down into recession? Which commodity sectors will lose and which ones will win? Which ones continue at a subdued pace? On-going strength of these varies market sectors and their buying-using customer countries make this determination."- Traderrog
Copper is required for most of all of new industrial and light commercial growth. It’s used for nearly everything including electronics, retail, construction, housing, automobiles, health and medical, and agriculture. Due to its widespread demand, copper prices are the canary in the coal mine to signal a faltering or expanding growth outlook.
Weekly Copper December Futures are Trading nearly $.04 under Current Front
Month of July, 2007. We Forecast Weaker Base Metal Prices for this fall, 2007.
The other market is energy including crude oil, unleaded gasoline, heating oil, jet-A fuel, bunker oil-coal for ships and power plants, propane and natural gas. When these energy products are in a rally so normally are the buyers of them. (See oil chart next page).
The bond or debt markets are more difficult to pinpoint for Asia but newer index products and ETF’s provide us with better tools for this on-going evaluation. When the Chinese stock market has a major correction, and it will inevitably arrive, some of these commodities will stop rising. In our view, the first group to slow will be base metals including copper. An Asian recession would not necessarily induce a commodities collapse in these markets but rather a slowing in their growth. On the other hand, a deeper recession-or depression would create a lesser demand WITH DEEPENING EFFECTS. Either of these dimensions is possible.
An Asian recession would slow usage of energy commodities but since this group remains under-supplied, a growth reduction in China and India might provide some seller relief and not necessarily create a smothering blanket of lowering prices. At last report, we saw crude as being near parity on supply and demand with a smaller 1-2% negative or shortage bias based upon 85mm barrels per day delivered. While Asia is a comer in energy usage, in the bigger world-wide picture, their percentage of energy usage if in marked decline, would not break the back of these sectors in our view.
What traders need to be careful of is a nasty stock markets smash this fall which could take down most of the global markets to some extent. This kind of pressure would sell all varieties of stocks, bonds, derivatives, debt instruments and futures and commodities markets. After such an event, we think those markets in precious metals including stocks; futures and cash prices would level off and rally again. The bonds are going to keep selling and the U.S. Dollar sliding beneath 80.00 is a danger to the entire global financial system. We predict Japan will grudgingly help prop the dollar when its apparent failure is imminent.
In our view, almost all nations of the world no matter what their feelings toward the USA would work in concert to prop the dollar. If the dollar takes a really big smash, we think everything goes down including even some of the best fiat currencies like the Canadian Dollar, Euro, Swiss Franc, New Zealand, and Australian dollars. This is simply unacceptable for not only those in power within the United States but in other nations as well. A crashing dollar would slop-over into most markets and the foreign dollar holders would take an unprecedented beating.
One of our excellent analyst friends has suggested the United States Treasury and Federal Reserve could chop the U.S. Dollar in half deliberately to reduce by 50% the debts of the United States. This is a really scary idea as it could have unconsidered ramifications and a substantial blow-back from other hidden aspects of finance. Trader Tracks takes the fall cycle of 2007 seriously and we will be devising an elaborate plan for risk control based upon our forecasts and market expectations. HIGH RISK AHEAD.
Fall Selling for Stocks, other Markets Becoming Visible with Early Signals
"Our fall 2007 markets predictions are showing signs of shaping-up as we have forecast. The large stock index markets should be selling and precious metals ought to be in a strong rally. We remain quite observant and respectful of the Plunge Protection Team and their abilities to twist and bend these markets to different trends. Never underestimate these market fixers and their power to temporarily make trouble for precious metals traders." - Traderrog
Bonds turned a few days ago moving to higher yields and lower bond prices. Look for bonds to predict a stock market down-turn by 90-120 days. Weaker energy products can also forecast selling but are now in a divergence with copper. Core inflation is on the decline while food and energy continue to inflate. This stagflation was apparent in the early 1970’s and 1980’s coupled with recessions. We flatly state the United States has entered a recession and certainly hope it doesn’t get worse but we fear that it will.
December, 2007 Weekly Crude Oil Futures Rallied Over $68, a Normal 50% Correction from Our Floor at $58 Support. There is Strong Resistance NearToday’s Price $71.70. Note Longer Basing Resistance Trend in May-June, 2007.
Fast Stochastics peaked in April and during this month. Weather and Refineries are the next factors for oil prices this summer.
Gold and silver traders should be careful to observe the difference in price moves for the shares versus the metals. In the pasts few days, shares are in a mini rally as the metals remain in a choppy trading range. We are not totally convinced the belated "Sell in May and Go Away" event is over with. There is potential for another blip in share selling before flattening into a summer trading range. Be careful.
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Roger Wiegand is Editor of Trader Tracks Newsletter and his soon to be opened Daily Tracker for active gold, silver and energy traders. Roger provides recommendations for short and longer term trading using stocks, futures and commodities with specifics.
Contact Claudio Bassi, at Trader Track’s New York City publishing offices for a trial subscription. Call 718-457-1426 Monday through Friday, 9:30am to 5pm or, e-mail cbassi@miningstocks.com
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