And We All Go Down Together

"Money cannot buy you happiness, but it does bring you a more pleasant form of misery." - Spike Milligan

"The only people who buy at the lows and sell at the highs are .... liars." - Baruch

"The investor's chief problem, and even his worst enemy, is likely to be himself." - Benjamin Graham

Part of what I do on a daily basis is trade the futures and commodities markets.  While I do not trade in all of them I do trade a wide variety namely crude oil, natural gas, S&P 500 Index, Gold, Silver, Copper, Corn and Soybeans.  I do not trade currencies as the government manipulation (and I am not just talking about the US government but all of them) makes it too difficult to predict a trend and for the time being I have stayed out of the financials market.  My trading style is agnostic as to the price direction.  I am just as willing to short a market as I am to buy it which serves me in good stead regardless of market directions.

The trading philosophy is based on my proprietary algorithm which spits out signals which I use to enter or exit trades.  These signals are not influenced by CNBC or any of the other squawk boxes and therefore provides signals that can sometimes seem counter intuitive.  Needless to say the system works incredibly well and has provided an excellent rate of return for me over the years. Now the reason I bring all of this up is not to pat myself on the back but to alert you to something very interesting.

Starting at the end of July the price of crude oil began to fall.  At the time going short crude oil with all of the world's crises (particularly in Russia and the Middle East) seemed completely the wrong direction but as it was a signal and rule one is to obey all signals, I sold short a position in crude.  Right behind that came a short sale in Soybeans followed by Silver and then Gold and then Copper.  Furthermore the long position that I had in the S&P 500 was stopped out (meaning that the price fell sufficiently to trigger my sell signal) and since then the market has continued to slid lower along with all of the above commodities.

It is not since 2008 that I have received so many sell signals all at once and while the market is still a while away from another sell signal it certainly seems to be heading lower.  One thing to remember is that these trades are normally pretty short term and they can turn in an instant which is why I do not normally post anything about trading but when everything starts to go down together it is a real eye opener and so for this blog I thought I would alert you as to my current findings.  Whether this is the beginning of a decent market correction or just another short term trend is unknown but one thing I do know is that until these markets can turn around it is not looking to good for the stock market.

It is also interesting to note that the bond market has also been falling all month.  Normally in these types of markets you would see bonds rallying but with the Federal Reserve starting to talk about inflation and possibly raising interest rates even this safe haven is leaking.  This rise in interest rates is starting to have a negative impact on the housing market but it is too soon to gauge whether this is a secular move or just a slow down before winter.  Only time will tell.

As I mentioned in last week's blog a lot of these moves are being caused by the meteoric rise in the dollar index and while that has taken a breather this week it appears that it has done a lot of damage in a very short time.  The export of weakness from Europe, Japan and China is being felt in the United States and we will see if it feeds into the results of the S&P companies but I would imagine that it will in the quarters ahead unless there is a sudden reversal of dollar strength.  So at present, unless you are short pretty much everything it certainly appears a time to keep your head down and your eyes on the dollar.