October 19, 2021

Commodity Insight: Air pockets of foolishness

In the months of September and October it is not unusual for all kinds of markets, stocks, bonds, currencies and commodities to act wild and crazy. The only explanation I can offer to explain such market movements is to blame it on history.

Based on history, September and October are the two most bearish months of the year for stocks and, at times, commodities. And though this month is young, it seems there has been an unusual number of instances that are best described as air pockets of foolishness here in September, a notoriously bearish month.

Take the cattle futures market, for example. In late August, December cattle futures kissed $138, a five-year high, but 11 days later prices hit $128.60, a three-month low. Cattle prices simply rolled over and crashed and did so nonstop.

It was a classic example of a “waterfall decline” that battered the bulls without mercy. After peaking out, there was an air pocket under values and prices succumbed to the laws of gravity.

The corn market performed in a similar fashion. A month ago, December corn futures rallied to $5.94 a bushel on the heels of a bullish U.S. Department of Agriculture report that indicated current yields and ending supplies were far tighter than expected.

The market jumped 28 cents a bushel on the news, but that was as good as it got. This week the market fell as low as $5.04 and a whopping $1 a bushel off the report high.

Needless to say, there was an air pocket under values with prices succumbing to the laws of gravity. The bulls were battered.

Bitcoin is another example of a market being subjected to an air pocket of foolishness. The Bitcoin Law was passed by the Legislative Assembly of El Salvador on June 8 giving the cryptocurrency Bitcoin the status of legal tender within El Salvador after Sept. 7. The general consensus was the law in El Salvador making Bitcoin legal tender was flat-out bullish.

However, the day the law went into effect, Bitcoin futures dropped $10,000 from high to low and dragged all other cryptocurrencies lower, as well.

At the close of trading, the top 10 cryptocurrencies suffered losses of at least 10%. Two other cryptos, XRP Ripple and Polkadot, were down 20%.

An editor’s note with “Top Cryptocurrencies See Red After Bitcoin Suffers Flash Crash” on Forbes.com stated: “Investing in cryptocoins or tokens is highly speculative and the market is largely unregulated. Anyone considering it should be prepared to lose their entire investment.” I salute the Forbes editorial department for such a frank statement.

Then again, not all the foolish air pockets the past few weeks have pushed values south. Crude oil prices were boosted higher in face of more and more stories about the recent surge in coronavirus, COVID-19 and now the Delta variant of COVID-19. Over the past year and a half, crude oil prices have dropped sharply when coronavirus cases spiked higher.

In recent weeks, however, crude oil prices have suddenly rallied as high as $70.62 cents a barrel from a low posted in late August around $61.82 a barrel. Investors and traders pushed crude oil to a three-month low because in the past a spike in coronavirus cases led to lower prices.

But all those crude oil bears were caught leaning the wrong way and the dramatic and logic defying rally was due to an air pocket of foolishness to the upside, not the downside.

Note, too, that the past two columns I posted in this newspaper were titled “Stocks and cryptocurrencies poised to get a haircut” and “Eerie similarities.”

In both columns I made an argument that in the September-to-November period stocks and cryptocurrencies could tumble badly based on history. And on the first day of this week I noted several other market analysts making the same forecast as yours truly.

A paid post for ICapital Network on CNBC, “Asset bubbles — it could be déjà vu all over again,” said: “Cautionary signals are flashing, and they call to mind the bursting of prior bubbles in which investor optimism exceeded investment fundamentals. No one can predict with certainty when a market correction will occur, and bubbles can persist for extended periods.”

An old saying when it comes to investing and trading is, “One day does not make for a trend.” Needless to say, neither does one week or one month.

But when “air pockets of foolishness” are popping up all over with markets of all kinds, old sayings can be thrown under the bus.