Professor Elam

Thursday March 7 2013

Commodity Fuds experienced sharp gains yesterday while some blue chips are looking toppy. 

XME

A 3.3% gain after weeks and weeks of downtrend is impressive. Funds who are short must eventually buy back positions. And money is beginning to shift from the blue chip favorites. 

The polar opposite of XME GDXJ COPX is surely Google, not the totally opposite CCI at bottom of these two charts.

Google

A seven dollar drop is not much for a $840 stock but then there aren't many $840 stocks. Remember in the final stages of an equity bull market funds and the public crowd into fewer and fewer stocks, this is precisely why those stocks are still rising. But with such a concentration, once selling begins, there are few to no bids, there is no one left to buy. And the air pocket drops being, witness AAPL and RAX as we have  said. 

GDXJ Two Hour Chart

There is a clear five waves down and then a reversal on big volume. 

So, the transition will take some time but it appears it has begun. We listed several articles on how Central Banks around the world will flood their economies with money trying to get things going. But spiking commodity prices is the more likely result. 

Obama's popularity was peaking as he went into the Sequester. I suspect that his popularity peaked with trying to convince the country that a 2% cut would have disastrous consequences. it figures that would happen at maximum mood for equities which should be occurring over the next month or so. Recall our analogy to 1973-74. Nixon was re elected in a landslide in November 1972 and peaked at his inauguration. Obama is running about one month behind that schedule. Nixon could not imagine he would be shunted form office 18 months later. And mood is similarly high at the White House now. This will be an interesting parallel to track for politics and the markets. Successful markets make leaders appear successful. Bill Clinton had the phenomenal luck that his term ended just before the peak in the dot.coms in March 2000. Jimmy Carter, Richard Nixon, and now Obama were not so lucky. 

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