Sell-Off in Commodities

oil prices dropComing into trading today, there was a lot of worry and speculation about the markets as, yesterday, China had its biggest drop in their markets since mid-November, mostly due to worries of the government tightening up credit. During trading today, the market was down nearly 90 points at one point, but once again we saw our "coincidental" end of day massive rally that we tend to get on critical trading days, which ended up closing the Dow just down 26 points. However, as the trend has been lately, today's news tells a much scarier story than today's market performance.

Oil prices got crushed today based on new numbers showing weakening demand and a surplus of supply. Oil prices closed under $64 per barrel, which is the lowest we've seen in a while. In addition to that, we also saw big weakness in metals and other commodities. Such moves is right in line with my deflationary expectations, which if we do start to see a down spiral here shortly, would most likely spark serious selling pressure on the markets.

Another scary indicator we saw today was the extremely large drop in durable orders. After a market expected 0.7% loss in orders, we saw the actual number come in at a loss of 2.5%, more than double the expectations! Considering the recent extreme favoring of analyst's expected numbers, such a surprise is really upsetting for investors. Demand for commodities is definitely in jeopardy.

If that wasn't bad enough, we also had to deal with The Treasury selling $39 billion in debt today, which was the largest sale ever. Due to the large amount, interest rates took a bit of a jump today to enable selling of the debt. As this continues, the future value of the dollar gets put into serious questioning.

We are seeing the data coming in right in line with my expectations, however, there is a bit of lag with the reaction of the market. Eventually, as it finally did in March, both will coincide. I greatly worry for the future of this market and that we could see some serious selling pressure if deflationary signals continue. In a few weeks, we will know if such problems are here, but until then I remain very cautious. At that point, I expect some big gains in my account. Happy Trading.

PS - Tonight's premium podcast (subscribe here) will be posted later.


  1. Anonymous Says:

    i have the feeling we are just in the eye of the hurricane.


    Its another selloff alright.