This Commodity Trade Is Laughable

This Commodity Trade Is Laughable
By Jeff Clark
June 04, 2009

"Ladies and gentlemen," booms a voice over the loudspeakers, "the Peking University Laugh Factory is proud to present the comedic musings of Mr. Tim Geithner..."

The audience erupts with applause as the U.S. Treasury Secretary takes the stage and grabs the microphone. "Good afternoon, everyone," he starts off. "I just flew in from Washington D.C., and boy are my arms tired."

The audience screams with laughter.

"Hey," Mr. Geithner continues, "did you hear the one about the strong dollar policy? I can assure you your dollar-based assets are safe."

The students at Peking University nearly bust a collective gut when "Shecky" Geithner pulled that punch line this week. After all, anyone can look at the following chart and realize the government's "strong dollar" policy is a total joke...

The dollar has lost about 12% of its value since peaking in early March. Long-term Treasury bonds have suffered a similar decline. So our Treasury secretary and resident comedian felt some urgency to travel to China and reassure the world's largest buyer of dollars and Treasury bonds that their investments were in safe hands.

The students laughed at his comments.

The dollar did rally yesterday. Looking at the chart, though, it appears the rally is simply an oversold bounce off an obvious support area. The dollar index is in a new trading range with support at about 78 and resistance at 83.

Yesterday's action may have kicked off a short-term rally phase for the greenback, and it may have several more days of upside ahead. That's good news for the Chinese, but it's bad news for investors in commodities like oil and gold – which fell sharply yesterday.

Notice, however, that there's absolutely no positive divergence on the Moving Average Convergence Divergence (MACD) indicator. This momentum indicator is moving in the same direction as the dollar index chart (down). That means the downtrend is strong and unlikely to reverse anytime soon.

This Market Is Weaker Than a Wet Paper Bag

Weekend Edition: You Don't Have to Be Afraid of Inflation

So the dollar may bounce higher for the next few days, and commodity prices may fall in response. But it won't last.

Smart investors should use this short-term correction as an opportunity to establish or add to commodity positions. Then, when Mr. Geithner reiterates the government's strong dollar policy, you can laugh, too.

Best regards and good trading,

Jeff Clark

Outstanding quote from Doug Casey on the U.S. government...
Why Obama & Co. have guaranteed an American disaster.

Trading opportunity: This market indicator just went off a cliff
When these stocks decline, the market almost always follows...

This business will die... soon
Just experienced "worst quarter in modern history.

•	Mortgage REITs break out to new highs... Anworth, Capstone, and Hatteras all surging.
•	It's a downtrend in beef... cattle ETF hits new 52-week low, down 36% in the past year.
•	Refiners clobbered yesterday... high oil prices and weak demand crimping margins, all major players down more than 10%.
•	Earnings today... Guess, Krispy Kreme, Teekay, Vail Resorts.

	Last	Change	52-Wk
S&P 500	931.76	-1.37%	-32.37%
Oil (USO)	36.25	-3.62%	-63.98%
Gold (GLD)	94.41	-2.02%	+8.67%
Silver (SLV)	15.14	-3.87%	-8.72%
U.S. Dollar	87.95	+0.16%	+19.30%
Euro	1.42	+0.04%	-8.27%
VIX	31.02	+4.69%	+53.26%
HUI	374.71	+0.00%	-10.12%
10-Year Yield	3.55%	0	-0.32

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National Presto	NPK	appliances
World Fuel	INT	fuel storage
Brink's	CFL	security
Metavante	MV	credit services
BWAY	BWY	packaging
Hilltop	HTH	insurance
United Refining	URX	acquisitions
Sports Prop	HMR	acquisitions
Trian	TUX	acquisitions
KBL Healthcare	KHA	acquisitions
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Hemispherx	HEB	biotech
Shanda	SNDA	online games
Changyou	CYOU	online games
P.F. Chang's	PFCB	restaurants
Data Domain	DDUP	data storage
Pegasystems	PEGA	software
Tessera Tech	TSRA	semiconductors
Applied Signal	APSG	telecom
MYR Group	MYRG	construction
ArcSight	ARST	software
Texas Roadhouse	TXRH	restaurants
TiVo	TIVO	TV recording
ShoreTel	SHOR	telecom
Orthovita	VITA	medical devices

Company	Sym	Industry
Sapphire	FYR	acquisitions
Triplecrown	TCW	acquisitions
SP Acquisition	DSP	acquisitions
Alternative Asset	AMV	acquisitions
GHL Acquisition	GHQ	acquisitions
Western Goldfields	WGW	gold
BPW Acquisition	BPW	acquisitions
Global Consumer	GHC	acquisitions
Global Brands	GQN	acquisitions
Capitol Acq	CLA	acquisitions
Prospect	PAX	acquisitions
GSC Acquisition	GGA	acquisitions
Hadera Paper	AIP	paper products
Overture	NLX	acquisitions
China Holdings	HOL	acquisitions
APP Pharma	ABII	biotech