CTS Spotlight for the week of April 22nd, 2011

Hello and welcome back to CRI's CTS Spotlight,

04/22/11: In a week that saw the US Dollar almost hit its downside target (73.516) there appears to be a lot of cross currents effecting the broader commodity market. For example - Gold & Silver continue to move higher even though Platinum, Palladium and Copper are not. The tech. heavy Nasdaq is breaking out yet the broader market proxy, the S&P 500, isn't. And lastly, Cotton prices have topped in earnest (the focus of this week's CTS Spotlight) yet most other grains have not. Considering gold's lagging indicator status and the proximity of the US dollar to its well established downside target - aggressive long commodity traders ought to temper their enthusiasm heading into the seasonal topping zone in May.

This week, I thought we would take a look at the Cotton market from a weekly and monthly perspective. Here we can clearly see the dramatic bull market that has dominated for the past 2 years. Would anyone in 2009 have expected a 5 fold increase in price - NO! In fact, I would argue that Cotton represents an excellent example of the old cliche, Markets can remain illogical far longer than any of us can remain solvent'. The question I pose to those 'investor' out there is - does being long (given the recent price breakdown on a weekly basis) seem rational? 

Of course not - In fact, this is a great example of how dramatically commodity prices can swing and can literally destroy a small investor. Keep in mind that within the heart of the financial crisis, one could have bought all the cotton one wanted in the $.45/pound range. Now, for some unknown reason, that same pound of cotton will cost you well over four times that price - go figure. Having said that, there are those that are suggesting one ought to consider any pull backs as buying opportunity. I, as a rational investor, would disagree. For those considering a purchase, I have specifically included cotton this week as an example of coming to a market too late. Yes I would have endorsed a buy from the significant breakout (in 2010) at or near $.90 but now that the market has broken on a weekly basis, I might argue that long positions should be tempered until we see a nice weekly bottom come back in. This consolidation may take months to develop and may come in at substantially lower levels - one just never knows. For now - the bull run is over, so cool your jets bulls and new prospective investors - keep that powder dry! 

That's all for this issue of the CTS Spotlight,
Brian Beamish FCSI
the_rational_investor@yahoo.com
http://www.the-rational-investor.com