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Your Daily Profit

June 29, 2009

*****As the News Cycle Turns

*****Correction for Commodities?

*****This Week’s Economic Data

Fellow Investor,

The positive headlines are everywhere this morning. On Bloomberg alone, we read that the worst is over for Treasury bonds, factory output improved in Japan for the second straight month and home values in England remained stable for the second straight month.

It’s enough to make you think that there’s an economic recovery underway…

Of course, the best news of all would be some price stability for homes here in the U.S. It appears that we’re close to that point. 

*****The rally that began on March 10 was largely about economic recovery. Or maybe it’s more accurate to say that the rally began as investors surmised that the economy wasn’t getting worse and that a complete financial meltdown had been averted.

But in the ultimate irony, now that we are about to start the 3^rd Quarter, you know, the quarter where actual growth is expected to return to the U.S. economy, traders are starting to question valuations, especially in the commodity space.

Bloomberg reports that commodities rose 14% in the 2^nd Quarter (April-June). Now, many expect prices for some commodities to fall by as much as 30%. That’s because producers have expanded supply and investors have bought with little regard for fundamentals.

*****Now as you know, I have been bullish on commodities, especially oil. But that doesn’t mean that prices will make a one-way move higher. Commodities are called “cyclical” for a reason.

In the good economic times prices rise as production expands to meet demand. Once supply and demand reach some level of parity, prices start to drop and producers reel in production.

The phrase “buy low, sell high” describes commodity investing to a tee. I’ve advised my SmallCapInvestor PRO readers to take some gains in oil stocks, but we’ll be looking to buy back at some point this summer, because any price correction for oil and other commodities is all but certain to be brief.

*****Now let’s have a look at the economic calendar this week. Remember, the 4^th of July is on Saturday this year meaning the Federal government and the markets will be closed on Friday the 3^rd. Many will treat this day as a holiday, including yours truly.

Tomorrow, June 30^th, we get Consumer Confidence, The Chicago PMI manufacturing survey and the Case-Schiller home price index for April.

Clearly, the home price index is the big one. Expectations are that home prices fell another 18% in April. Any improvement will be bullish, as home prices area integral to economic health.

Wednesday, July 1, we get construction spending, the ISM Index, truck and auto sales, pending home sales and oil inventories.

Then, on Thursday, July 2, we get factory orders, initial unemployment claims, factory orders, average workweek (a measure of productivity), and the big one – non-farm payrolls.

Of course, it’s possible for payrolls and jobless claims to expand at the same time. Traders will look to non-farm payrolls as an indication that businesses expect better times ahead. 

*****If you missed Jason Cimpl’s video chart analysis on Friday, you missed a great discussion about a potential head-and-shoulders pattern playing out on the Russell 3000. Here’s the LINK again if you want to watch it. (Or go to trademasterstocks.com/videoreport/)

*****As always, please write and share your thoughts and comments: editorial@247investor.com. I’ll talk to you tomorrow.

Ian Wyatt

Editor

Daily Profit

P.S. Over the weekend I sent investors some information on dividend stocks and how to use them to shore up your retirement funds (whether you’re already retired or it’s still some years away). I’m following with my Top Stock Insights service. In case you missed it, you can get that information HERE.