Sand Spring Advisors LLC
A Potentially Nasty Structure: CRB
February 10, 2002
by, Barclay T. Leib
Within the commodity complex we have previously been long gold and now consider ourselves flat. We also previously espoused a bullish looking reversal pattern under way in soybeans. But to date, soybeans have done little but meander.
Could we have gotten the gold move right, but end up being wrong on soybeans? It wouldn't be the first time something in ag-land threw us a curveball.
Indeed, just to play devil's advocate a bit as a way to advise caution, look at the two charts above. The one on the left is the way the Nikkei has declined to date. The one on the right represents the CRB decline over the past several years. Although far from a perfect "pattern match," could it be that the weak Nikkei has delivered us a "roadmap" so-to-speak for new lows still ahead on the CRB?
In our hearts we hope that is not the case, but we have to allow for this possibility. After all, Japan -- via its weak yen policy -- is effectively working to export their domestic deflation to other countries. Thus a bit of economic causality may even exist between these two charts: the lower the Nikkei goes, and the higher dollar-yen trades, then the weaker global commodities become -- transpiring simply on a lagged basis. Soybeans are specifically in the process of piling up in Argentina as a "poor man's gold" desired by merchants and farmers as a safe-haven asset to hold during that country's ongoing monetary crisis. But someday these beans will of course hit the market.
So before subscribers start to lose any money on our previously bullish soybean advice, we think it important to "scratch" that trade for the moment, and take our commodity chips off the table here for a bit. We want to just watch the price action of soybeans and the CRB a bit more. We'd love to eventually see the CRB turn higher, but with gold already into its resistance zone, and the potentially ugly "pattern match" above, we do not wish to be caught "willing" a rally to occur before the time is actually ripe for such to occur.
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