Happy Days for Now | Stock Market Investing

Thursday, May 29, 2008 | Home | Andy Mayo

Commodities are down.  Stocks are up.  Happy days are here again.

Well, maybe.  Bespoke Investment Group reported today that short Interest in the major brokerage firms, which has an historical average of 2.31%, has hit 7.16%, about 2 percentage points higher than in mid-March.  Can this be the crowd that is missing the turn?  Short interest is normally thought to be a contrary indicator.

It's particularly significant because brokerage firms tend to lead the market.  Something to keep an eye on.

For now, the story is the declining price of commodities as seen in the Reuters-CRB Index.  But this isn't spelling the end of the commodity bull run, not yet.  As the charts below show, commodities have a long way to fall (the red line, below) before that happens.



[The CCI is 17.6% energy, 17.6% grains & oilseeds, 11.8% Industrials (copper & cotton), 11.8% livestock, 17.6% precious metals and 23.5% "softs" (cocoa, coffee, orange juice, sugar).]

Gold is beginning to trace out a large triangle pattern indicating investor uncertainty; however, the probability for a breakout from the triangle goes to the previous trend, which was up.



In other words, this may be a brief decline in commodity prices and a brief upsurge in stocks, setting up the unwary for missing the switch back to the commodity bull and the stock bear markets.  We are still in a bear market for stocks, as this chart demonstrates.  Keep those stop-losses in place. 



Charts courtesy of StockCharts.com.

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