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Redux: Cautious and Hesitant


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The data and opinions in this report are for general information use only and are not

intended as an offer or solicitation with respect to the purchase or sale of any futures

contracts. Although all information and opinions are believed to be reliable, we cannot

guarantee its accuracy or completeness. The open trade and previous recommendations

were suggested, but that does not necessarily mean any individual followed the trades

exactly as recommended. This newsletter has been prepared without regard to the specific

investment objectives, financial situation and needs of any particular recipient. Past performance

is not necessarily indicative of future results. There is a significant risk of loss associated with

trading futures and options. It should be noted that the impact on market prices due to seasonal

or market cycles and current news events may be reflected in current prices.

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

Follow me on twitter@commodityinsite

I intended to post my weekly column from October 27, yesterday, a Sunday here on Inside Futures. But I had senior moment and forgot to do so. Anyway, here it is today, a Monday.

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Cautious and Hesitant

Stocks are doing well this year but commodities are not. Unless something unfolds in the final months of the year to reverse that scenario, 2017 will be one where, stocks ruled and commodities drooled. Then again, that is how it has been for 6 out of the past 7 years which means nothing much has changed in the price relationship between stocks and commodities. And that relationship is now the widest, greatest most pronounced in history.

To fully grasp how great the discrepancy is between stock and commodity values here are a few facts showing just how powerfully strong shares, equities and so on are compared to the hard asset markets. According to CNBC, The Dow Jones is the most overbought in 117 years by as measured by the, RSI, the relative strength index.

According to CNBC, The relative strength index, a classic momentum indicator in gauging whether a security is "overbought" or "oversold," measures the speed and range of average gains and declines over a given period of time. The RSI has been and is used to measure the strength or weakness of all markets, not simply stocks. It is used regularly by investors and speculators and viewed as a reliable indicator for the future.

CNBC went on to state. In this case, the 14-day relative strength index, which uses a scale of 0 to 100, comes in at just over 85 and near the top of "all observable daily [relative strength index] readings since 1900," But CNBC went on to claim, ...in bull markets, you tend to get overbought and you stay overbought for extended periods. In other words, the RSI may be the most overbought in 117 years but it may remain there or go higher yet because the bull trend remains fully in place.

Then there are the commodity markets and in particular, the ag-markets. Bloomberg News recently posted an article entitled, There is So Much Pain in Agriculture That Traders Are Leaving. Here are a few sentences I, cherry picked from that article. The success of modern farmers has become the misery of traders at the worlds biggest agricultural merchants. Some are leaving to test their luck elsewhere, while others have thrown in the towel and retired. Big changes are ahead for agriculture trading...The best will thrive, but the pack will suffer.

And here are the two sentences that leap off the page of the Bloomberg article and helps explain how the price relationship between stocks and commodities is the now the widest, greatest and most pronounced in history. A glut of crops has helped push the Bloomberg Agriculture Subindex down 50 percent from a peak set in 2012. A 60-day measure of the gauges price swings is about half the level it was six years ago.

It is interesting to note the words of Fed Chair Janet Yellen when she touched briefly on the topic of inflation. Speaking to the National Economists Club dinner in Washington, D. C., she said, "We've had a series of weak, soft readings on inflation, core inflation, beginning in March and the reasons for that are not immediately clear," Reasons for low inflation were "pretty understandable until this year. This year has been a surprise."

The year has been a surprise to yours truly as well. After all, the five years leading up to 2016, commodities per se closed lower, something never before experienced. In 2016, however, commodities rallied nearly 12 percent which many (me!!) believed would lead to much higher prices in 2017. But here we are with commodity values down this year nearly as much as they were up in 2016. To quote Ms. Yellen, this year has been a surprise and a bearish one at that.

This week ended with the tech heavy Nasdaq hitting a new all-time historic high with sharp gains also seen with all other stock indexes.. Plus, the US dollar closed at its best levels in five months. Even the U.S. debt markets posted a gain after tumbling to multi-month lows.Thus, paper assets, stocks, bonds and the dollar closed out the week and the month on a solid note.

Here is what makes this week interesting. Commodities as measured by the CRB Index also closed the week on a solid note. The CRB ended at its best level since mid-April. Can it be, is it possible that commodities per se are finally starting to improve after being in the tank for the past 7 years?

Only with the benefit of hindsight can that question be answered accurately.. But moving forward my lean is to be cautious and hesitant about buying any paper asset and equally cautious and hesitant selling any hard asset.

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The data and opinions in this report are for general information use only and are not

intended as an offer or solicitation with respect to the purchase or sale of any futures

contracts. Although all information and opinions are believed to be reliable, we cannot

guarantee its accuracy or completeness. The open trade and previous recommendations

were suggested, but that does not necessarily mean any individual followed the trades

exactly as recommended. This newsletter has been prepared without regard to the specific

investment objectives, financial situation and needs of any particular recipient. Past performance

is not necessarily indicative of future results. There is a significant risk of loss associated with

trading futures and options. It should be noted that the impact on market prices due to seasonal

or market cycles and current news events may be reflected in current prices.





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About the author


Jerry Welch has been in the futures industry since the late 1970's and is a true veteran of the markets. He has been quoted often in Wall Street Journal and is author of Commodity Insite, one of the longest commodity futures newspaper columns in history. His weekly column has been published each week since the mid 1980's and is one of the most recognized names in the world of commodities.

Mr. Welch is also known widely as a, "so so" flyfisherman.  

His column is published by the Illinois Agri News in La Salle, Illinois, Cattle Today, in Fayette, Alabama as well as Consensus, in Kansas City, Kansas.

He can be contacted at 406.682.5010 for a view of his, "twice a day" market column that includes price forecasts and trading suggestions.

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