Gartman is Goldless, and I Still Itch for Commodities
By Dr. Duru written for One-Twenty
August 11, 2008
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In late June, I had high hopes for a new break-out in gold. It is now flat for the year again and sits at critical support levels (see chart below) as new hopes surge with the dollar bulls.
And just as I lick my chops for a new entry point in gold, I discover that the venerable Dennis Gartman has purged himself of all his holdings in gold (see Fast Money, August 8, 2008). I have mucho respect for Gartman's opinion, especially his calls on commodities of all stripes and shapes. So, I find myself gulping hard and forced to review one more time my bullishness on gold.
I will next take a look at two more commodity charts: SLV and DBA.
Silver, as represented by the SLV ETF, broke through support on Friday. It is a move that gold seems destined to follow. Silver is now flat for the year. Note that silver has more important industrial uses than gold, so its breakdown could have an even more important story to tell about the health of the global economy.
Silver miners like Pan-American Silver (PAAS) look even worse than silver itself; PAAS is now down 25% for the year. I am licking my chops at even lower prices for PAAS.
Just four months or so after it seemed like all the world's food was running out and panic grew across the globe, we now find ourselves with plummeting prices for all types of crops. DBA, the PowerShares agriculture fund, looked like it was forming a double-top back in March. After trending down for three months, DBA found new life and challenged that double-top in a one-month sprint. And almost as fast, it retreated and renewed its slide. DBA has broken support and is now flat for the year (notice a theme?).
So, prices continue to slip quickly in the world of commodities. Rather than filling with fear, I cannot help but instead fill out my wish list and start scraping my pennies together. This latest correction feels more like another liquidation event by big institutions who find themselves trapped in crowded trades as the dollar bounces. This has been accompanied by a massive rotation of funds from commodities to technology and to many financials. I am not yet sure what will trigger an all-out buy signal for me, but I will look for the kind of deep negativity that I used to trigger purchases of (non-commodity) equities in mid-July. For now, there is still plenty of confidence around that the global growth story will remain intact. I would also prefer an entry-point that provides reasonable risk/reward in case the next run in commodities stops cold at current highs.
Every now and then, I also see short-term opportunities in commodity-related names. Last time, it was BUCY. I am out of that one much sooner than expected. While I was bullish on a rebound when I established the position on August 5, I was quite taken aback by the immediate 8% surge the following day. Given how quickly gains can come and go in this volatile market, I set a tight stop. It was triggered within pennies on Thursday, and on Friday BUCY retraced about half of Wednesday's nice gain. Despite all this, BUCY remains on my commodity buy list, and I will be on the look-out for a new entry point.
(In case you are curious, some of the names I track most closely are X, CLF, NUE, SCHN, FCX, MOS, MON, POT, AGU, and USO. I am eyeing MOS and MON for a pair trade. I just bought back into IPI. I am also trying to stay on top of infrastructure plays related to commodity-extraction and usage like FLR, SGR, FTI, FWLT, and SLB. I am mostly bearish on coal for now. Finally, I have been "early" nibbling away at various natural gas names, but I am looking to the "Pickens Plan" to encourage more natural gas consumption and support prices in the future. SJT is my favorite because of its large dividend yield. I just bought back into that one).
Be careful out there!
Full disclosure: Long GLD, UNG, SJT, IPI. For other disclaimers click here.