This is when they return to their rightful owners,” an ace in this business told me once when I was cutting my teeth trading my first few odd lots. I cannot help but think about him as I connect a few dots on charts and overlay them against rather unchanged supply versus demand data underneath on many commodities markets and related equities.
The noise all around an underlying shift often turns out to be just that. Now that commodities are no longer the subject of cable TV specials and have lost some eye-room for their quotes in blinking boxes -- appropriately called “the bugs”-- perhaps a secular story can quietly trump noisy sound-bites once again.
A few other things have disappeared as it turns out. According to one of my commodity research firms, at least 16 ethanol plants were in the process of bankruptcy this month. One of them, Alternative Energy Sources, could not raise money for an ethanol plant in Iowa. Even more telling, it had to shut down operations of its consulting business that apparently ran out of projects to help management of other ethanol producers. The entire firm shut down.
Thankfully I will not have to pay on this bet I offered two years ago on Minyanville: “I’ll wear a Cornhusker hat to a Longhorn rally if we look back 3-5 years and say ethanol was a tremendous investment opportunity.” It was as polite an answer as I could give to a question I had received about Pacific Ethanol (PEIX) which was trading around $20 at the time. Now it's on the non-green side of $2 a share.
Through it all, I was a secular bull on grains’ demand outstripping supply. I began buying before the ethanol myth was a factor, and will be after it has finished bankrupting late arriving longs. Below is the December '08 corn contract.
The violent retreat over the past month of many of these components has sent the index to an interesting spot. As I Buzzed about earlier this week, if I’m right about a multi-year secular uptrend driven by fundamentals, you don’t get too many technical setups of this kind along the way. And when, not if, I’m wrong with trades I choose to be taken out with tight stops while maintaining a basket of core longs.
My trading diary is quite clear about the fact that the key to a secular shift is surviving to see it happen. So I trade all the technical indicators away in a heartbeat for one set of strict sell disciplines based solely on my P&L, instead.
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