Oil vs Stocks

Too many people are betting commodities would drop and stocks would rise. The question is, how loaded are their portfolio on this strategy, and what are they willing to let go to accomodate their account? I said a while ago that my original strategy said stocks would bottom first before commodities topped. And I still believe that. But the problem is, entire world knew it, and stocks bottomed and ran up. Commodities haven't topped yet. Commodities will top when it becomes illegal to hoard a can of gas in your garage for your lawn mower. And Costco starts limiting people to buying no more rice than you can physically carry on your back (without the aid of a cart).

It's a secular bull in commodites. Given the population being integreated into the first world economy and FIAT currency this could be the most powerful commodity bull of all time. My guess is it's sometime in the third or fourth inning. History has shown these things to last 15 to 22 years or so. Also, corrections in commodity bulls have been brutal so if and when one comes we could see a major swing wave down. So far the corrections have been by sector. I follow the GS group indexes (ag, livestock, energy, precious metals, industrial metals). There has been correction and rotation withing the group--one or two groups get hot for a while while the other base or correct. The LT charts are telling me commoditeis are in a bull while financial and retail is in a bear. Until the LT charts change there's no reason to trade against the trend unless the time frame is short enough. I've seen CNBC calling this stuff a bubble for 2 years. Many managers are doing the same. Lots of skepticism on this board, too. Any time you have a major trend like this amongst so much skepticism you have a great opportunity. I started shorting some retail today along with LM. I'm only building positions on rallies with stops based on the SPX, RTH and XLF weekly charts. I agree with your premise, though, that too many thing commodities are topping and stocks (financials, retail, other groups) are bottoming. Look at the multiples of the financial and retail and compare them to energy. I'm talking about forward multiples based on analysts consensus estimated. They still have recovery built into financials and retail and disaster built into energy and commodities. Then again the analysts have gotten this stuff wrong the past several quarters. Of course you don't notice cause they jack their estimates rapidly in either direction beginning a few weeks before a companies estimate. Compare the estimate history of GM verse APA for an example/case study.

There will be no top in commodities before a significant cooling in the economy since it is an inflationary growth like Cirrus said.

Here's an out of date image, but it is obvious...



Instead of correcting the equity prices, it is correcting the commodity prices up...

Outstanding chart Arbman...thanks.