Been a while since I wrote my thoughts on the commodities market or the bond market or the currency market, and there is a reason for it. I am not getting a clear signal in terms of what is going on in the market in the short term. For instance gold market had a sizable pull back ( form $1025/oz to $850/oz), similarly Silver pulled back from around $21/oz to $16.25/Oz. All things being equal, I think this is a buying opportunity, you know pull back in a strong bull market, that is when you buy. But I am staying away and chances are I am going to miss this move back to old highs and beyond. The reason I am on the sideline is because I see great divergence out there. Gold , silver have pulled back but Crude at $136/ barrel is still making new highs, there has been no meaningful pullback so to speak. This animal has rallied from $90/barrel to $136/barrel in a heart beat. The parabolic move means the correction is also going to be very painful, very steep and you don’t want to touch it with a 10 feet pole. Given that the various commodities usually have a highly correlated move, any correction in crude will likely drag all the other metals- gold, silver, copper,platinum..you name it. These commodity markets are notorious for sharp swings both ways. As early as last summer (2007) silver had a precipitous decline, in 2006 natural gas ,silver, gold all had sizable decline resulting in the busting of Amarnath hedge fund. I am thinking when crude corrects, all these markets including currencies will correct( Euro particularly I think has gotten ahead of itself). Euro can easily correct to 1.40 from the current 1.56 or so. As they say in financial markets “trees do not grow to the skies”, these markets will eventually correct, question is when? That would really be a clear signal to me, and be a good buying opportunity, till then I am staying out.

The long bond yields have been creeping up ( both 10 years and 30 years), and given that Fed is still on holding pattern means yield curve is getting steeper by the day, unmistakable signal that the market is finally pricing in the inflation concerns. I shorted the 30 year bond when it was flirting with $118 price level just few weeks ago( now at $112-$113) , now I am again on the side line. I think this market needs to consolidate here, although all indications are that the steepening will continue. What happens next with the bond prices is hard to say. I think both sides ( bulls and bears) have strong emotions. The bond bears point to inflation, whereas the bond bulls point to a slowing economy, a recession in the air, the China trade surplus, the petro dollars and so on. Me, I am not going to get trampled in this bull and bear fight, let them fight it out, eventually one side will come out victorious and a new trend will emerge, and I will be happy to join in. For now,my mantra, avoid this.

Last point, S&P futures, Dow futures, what about these? Dow has been flirting with 12000 level to the downside, really scary in here. I am constantly hedging my portfolio with the help of options, writing some covered calls, buying some spreads and so on. I sure hope 12000 works as support and we bounce from here, but you just never know. Lots of skeptics out there who believe credit crises is not done yet, and the market has yet to price these in. Gosh, if that happens Dow can easily go back to 11K in a heart beat, wouldn’t surprise me a single bit! I am staying defensive!

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Been a while since I wrote my thoughts on the commodities market or the bond market or the currency market, and there is a reason for it. I am not getting a clear signal in terms of what is going on in the market in the short term. For instance gold market had a sizable pull back ( form $1025/oz to $850/oz), similarly Silver pulled back from around $21/oz to $16.25/Oz. All things being equal, I think this is a buying opportunity, you know pull back in a strong bull market, that is when you buy. But I am staying away and chances are I am going to miss this move back to old highs and beyond. The reason I am on the sideline is because I see great divergence out there. Gold , silver have pulled back but Crude at $136/ barrel is still making new highs, there has been no meaningful pullback so to speak. This animal has rallied from $90/barrel to $136/barrel in a heart beat. The parabolic move means the correction is also going to be very painful, very steep and you don’t want to touch it with a 10 feet pole. Given that the various commodities usually have a highly correlated move, any correction in crude will likely drag all the other metals- gold, silver, copper,platinum..you name it. These commodity markets are notorious for sharp swings both ways. As early as last summer (2007) silver had a precipitous decline, in 2006 natural gas ,silver, gold all had sizable decline resulting in the busting of Amarnath hedge fund. I am thinking when crude corrects, all these markets including currencies will correct( Euro particularly I think has gotten ahead of itself). Euro can easily correct to 1.40 from the current 1.56 or so. As they say in financial markets “trees do not grow to the skies”, these markets will eventually correct, question is when? That would really be a clear signal to me, and be a good buying opportunity, till then I am staying out.

The long bond yields have been creeping up ( both 10 years and 30 years), and given that Fed is still on holding pattern means yield curve is getting steeper by the day, unmistakable signal that the market is finally pricing in the inflation concerns. I shorted the 30 year bond when it was flirting with $118 price level just few weeks ago( now at $112-$113) , now I am again on the side line. I think this market needs to consolidate here, although all indications are that the steepening will continue. What happens next with the bond prices is hard to say. I think both sides ( bulls and bears) have strong emotions. The bond bears point to inflation, whereas the bond bulls point to a slowing economy, a recession in the air, the China trade surplus, the petro dollars and so on. Me, I am not going to get trampled in this bull and bear fight, let them fight it out, eventually one side will come out victorious and a new trend will emerge, and I will be happy to join in. For now,my mantra, avoid this.

Last point, S&P futures, Dow futures, what about these? Dow has been flirting with 12000 level to the downside, really scary in here. I am constantly hedging my portfolio with the help of options, writing some covered calls, buying some spreads and so on. I sure hope 12000 works as support and we bounce from here, but you just never know. Lots of skeptics out there who believe credit crises is not done yet, and the market has yet to price these in. Gosh, if that happens Dow can easily go back to 11K in a heart beat, wouldn’t surprise me a single bit! I am staying defensive!