12:26PM EST

Over the year, I’m become more and more interested in commodities and the cycle in which it moves.  With this dramatic Fed move to save our financial system, the view on the dollar has changed dramatically.  Perhaps the rate in which it slows will slow if that’s a good thing or not, it’s up to you.  But with the drop in the dollar comes the rise in the commodities complex.  Unfortunately during the rally and raids last week, I neglected to position myself in gas which I’m very disappointed in myself but I barely had enough time to think let alone trade.  But fortunately for me, the trade is far from over.  It is actually getting started.  A whole lot of commodities funds and positions were blown out because of the precipitous drop and the redemptions that caused much of the sales but it seems that it is now over so the demand and supply for these positions are beginning to consolidate to a new cycle.  It may be a little bit late to get into gold at this time but it’s definitely a much safer play now.  I wouldn’t mind but the risk reward is minimized now.  Where do I see growth?  Well natural gas again.

Looking at the chart, you can see that it has been totally killed and it’s not even funny.  It’s hit a one year support for the ETF and if you look at the last leg down when it hit $33 or so, there was huge capitulation.  And now that the commodities trend is ramping up again, there is once again opportunity on the upside with limited downside.  I’m actually going into CHK as an alternative to the trade as the returns are higher.

I would also look at steel stocks and gold stocks now.  Also the XLE would be safe and one beaten down sector would be shipping.  Shipping probably has the hugest upside but shipping volumes growth is somewhat in doubt.

Disclosure: Short: PLD, Long: CHK

Let’s not all run out and start wasting oil and commodities already.  All commodities from oil to natural gas to corn to copper has dropped precipitously the last month or so.  Now we are hearing some people recommended natural gas under $9 but there seems to still be a huge bearish on oil.  There is also seemingly some noise about agriculture and metals.

Ok let’s look at oil first.  Do we still need oil?  Yes.  Are there alternatives?  Absolutely.  Actually there are tons of alternatives.  The list is endless.  Did anyone ever hear of the electric cars?  What about natural gas vehicles?  What about hydrogen cars?  What about just electric cars powered from power from wind or solar?  Oh wait what about ethanol based cars?  Ok it seems there are a lot of options but gas is no longer king.  It may run for one last march but it’s days are over.  Keep in mind that this will not be a quick transition.  Long term, the growth of other energy such as coal, natural gas, ethanol, solar, and wind will come at the expensive of petroleum.

Ok let’s look at agricultural commodities.  Do we still need food?  Yes.  Are the alternatives to food?  Well, no food is food.  With the growing population, food will be more and more in demand.  In fact in many parts of the world, there is a shortage.  Is food becoming more difficult to obtain?  Well no and yes.  Technologically, we’ll grow more but global warming is changing the game as areas that used to be good for certain foods are no longer available.  The growing preference for better foods and meat will drive food demand all over the world.  The world is fast becoming middle class.  So is the story for corns, soybeans and pork bellies over.  Not by a long shot.

Ok let’s look at metals.  All the steel, copper, and metals stocks were devastated the last few days.  Cleveland Cliff hit $88 and Freeport McMomoran hit $76, resulting in PEs of under 6!!!!  Of course the market realized the errors of it’s ways because now CLF is at $95 and FCX is at $87.  But is demand for metals really dropping?  Let’s take a real life example.  Steel price contract were renewed at more than 60% higher prices.  That doesn’t sound like demand destruction.  In fact that is a real life justification of higher demand.  Is finding oil easier or mining a precious metal.  For oil, we can just drill deeper but for mines, we can’t dig much deeper because unlike a liquid, it’s difficult to bring to the top.  Huts and shacks are out, condos and buildings are in!!!!  So long term, it seems that we still need metals.

There are two drives for the market right now – oil and financials.  Keep those in mind while trying.

Disclosure: Long: CHK, MON   Short: MAN, COF

Almost all the sectors of the market are down except for healthcare which is holding on. The commodities fall have been pretty extreme. Corn finally rallied. Now that the pricing pressure on inflation is starting to go down like food and gas, the Fed is talking about raising rates which will help the falling dollar which in this bloggers opinion is still in a downtrend regardless of what the fed does. A rising dollar will probably drive down oil a little more spurring a false sense of recovery. But many gas analyst are calling for an uptick of gas into August and September. The market has the catalyst of earnings at this time but as the weeks go on, the catalyst will go back to macro economic factors and seeing the unemployment claims rising – we can see the economy is waning not stablizing. The main factor goes back to real estate prices, once it stabilizes, we are in the clear. But there are many factors stopping real estate from stablizing. One, rates are going up. Two, wealth destruction from equity declines and real estate declines. Three, inflation. Four, lack of credit – did you notice every one exiting mortgage lending and lines of credit loans (and no, we cannot buy a house on a credit card). Five, the savings rates for Americans are negative. The fact is Americans don’t have enough money to buy our homes until the prices drop more. That’s the final conclusion and that will not turn any time soon. But the market will continue to rally until earnings end it seems.

An interesting note is that natural gas hit a major low today. 33% correction hitting resistance levels. There may be a trade here in natural gas. Taking a look at the chart, natural gas has correct much more than regular gas from the chart.  But we have to keep in mind that natural gas has gone up as significantly.  This chart compares the natural gas etf (UNG) and gas etf (USO).

UNG hit a low of 41.70 today with the natural gas hitting $9 which is support. There may be a lot of volatility but at least for the short term, natural gas looks to go up. Next post will feature good healthcare ETFs that may be helpful for the rest of the year.

An interesting note is that there seems to be a huge short interest in GRMN as I was not able to short shares today. Just an FYI.

Disclosure: Long CLF, CHK (increased position), Short: GME

This is a follow up to the last post in regards to commodity related equities. In this speculator’s opinion, the end may be close but not quite there yet. In the natural gas ETF, UNG, the current volume seems to be on pace to hit record volume over over 6M when the previous record was 5.1M. At this point with a little less than 4 hours in the trading day, the volume is at 3.4M with average volume of 1.9M. Could this be a capitulation point?

The high of the UNG as $63.90 and today is about $49.90 so the fall is about 22% according to my new TI-84 Plus calculator. The natural gas prices had an high of $13.68 and current price of $11.39 resulting in a drop of about 17%. Most of this drop occurred in the last two weeks, so is it too much too fast of a drop? Is it a bottom in natural gas? It maybe be close but with any hurricane or geo-political tension, it can rise but it seems the trend is still down for now.

DISCLOSURE: Blogger currently long of CHK