On July 1, a Monday, I broadcast the following on
barchart.com: “The market volatility across the board is heating up like no
other time in history. Daily and nightly, markets are rising and falling with a
fury. Blame it on high frequency trading or whatever, but the bottom line is
this: Market volatility is heating up.”
I also stated: “Historically, nothing kills markets quicker
than volatility. No other force ends bull markets and ushers in a period of
lower prices quicker and with more violence than excessive volatility. The
volatility has become so intense, there is no time to sleep. And I am not
exaggerating the situation in the least.”
In addition, I also wrote: “I am going to stick my neck out
and forecast record-setting volatility for the entire Big Four: stocks, bonds,
currencies and commodities for the months of July, August and September. If I am
correct, stiff, stiff rallies moving forward should be viewed as selling
opportunities. I would simply avoid the long side of the markets from now until
the fall and concentrate on where to ‘get short’!
“Obviously, there are a handful of markets worthy of playing
on the long side of the ledger. Cattle, for instance, have great upside
potential down the road at some point. But otherwise, there is nary a market I
favor. I am turning very bearish for the entire Big Four — stocks, bonds,
currencies and commodities — due to my growing fears that volatility is on the
rise and it will kill the entire board.”
I composed the information above more than four months ago.
Here are some capsule reviews of the Big Four and how they have been doing since
* Stocks — The Dow closed on July 1 at 15,033, but rallied
to 15,550 before falling back down to 14,700. But then the market turned north,
hitting 15,650 before slipping back to 14,650. Over the past four to five
months, the Dow is caught in a 1,000-point trading range and this past week was
in the middle of that volatile range. Markets at mid-range remind me of the old
saying, “Never diddle in the middle.”
* Bonds — Treasury bonds closed on July 1 at 134.10. Since
then, the market closed over 134.00 on three separate days. It has traded as low
as 128.12 but not once traded back over 134.00 since July 1. The market today is
a tad higher than mid-range. And mid-range markets are not to be diddled
* Currencies — The U.S. dollar index closed on July 1 at
83.48. The market spiked upward the following four sessions, but since July 10,
not once has the dollar closed over the July 1 settlement. The dollar slumped to
79.72 earlier last week and is currently hovering around 80.50. The dollar, at
the lower end of a trading range, is far more bearish than bullish.
* Commodities — The CRB Index, which is to commodities as
the Dow is to stocks, closed at 277.90 on July 1. Over the following weeks, the
market rose with a fury and touched 296.46 on Aug. 28. After posting that
multi-month high, the market began to erode, hitting a low of 282.99 last week.
It is now trading around the 285.00 range, no higher and no lower than where it
was last April, but above the levels of July 1. For all intents, the index is
mid-range, no man’s land.
* Gold — On July 1, gold closed at $1,258 an ounce and ran
up to $1,416 on Aug. 28. This past week, the yellow metal was back down to the
$1,268 level, flashing weakness, to the chagrin of the bulls. And my downside
target for gold prices sometime in the next 12 to 18 months remains $850 an
* Grains — Yields for corn and soybeans are coming in far
better than expectations and in the absence of crop problems this season in
South America or next summer in the U.S., the line of least resistance for
prices remains lower. Any and all rallies should be viewed with skepticism.
However, high-quality milling wheat, the Kansas City variety, is in such great
demand that U.S. supplies are being whittled down far faster than anyone
expected. If that situation continues, a major bull market should unfold
sometime after Jan. 1, with Kansas City wheat the strong link in grain
* Livestock — On July 1, December cattle futures closed at
$128.07 and November feeder cattle at $156.02. Since then, both markets have
climbed higher with feeders hitting an all-time historic high and now trading
around the $169.00 level while December live cattle posted multi-month highs,
trading around $132.25 level. My upside target for feeders of $170.00 or higher
is well within reach.
* Soft or Tropical Markets — Other than cocoa that just
posted a new, two-year high, all other market markets such as coffee, sugar,
cotton, orange juice and so on are locked in trading ranges with prices
mid-range or a tad lower. Cocoa acts well but the other markets are mid-range, a
point where one should not diddle.
My bias toward the Big Four has not changed much since July
1. There are only a handful of markets worthy of a long position.
To repeat what I wrote four months ago: “I am turning very
bearish for the entire Big Four — stocks, bonds, currencies and commodities —
due to my growing fears that volatility is on the rise and it will kill the