Sept-28 Recap commodities: Gold Coal Oil and others

People asked me whether I am still bullish on coal and other resource stocks, so I would like to recap this a little bit.

We know the market is basically a cyclic business: Once something was quite bullish in the near past, it may turn to bearish in the future. At least this turn over has higher probability. Coal stocks have amazing performance, which is NOT normal at all, so to me, it is unlikely to have another spike in the short term. The same thing holds for fertilizers. If you check the historical agriculture price, e.g., corn, there are spikes every decade, it's quite a long period due to the nature of agri-business. Big money does NOT likely to flow into one particular product in short term as short of common interest.

Let me tell you a story how the price is kicked up dramatically in short-term. Chiefs in Wall Street have lunch with each other in the steak house, talking about: Hey, you know there is some shortage of Coal in South Africa and Australia, don't you? I guess the price may go up a lot... bla bla..., the information has been exchanged all the time so that big money and smart money flow into the market. We, more precisely, tarega and I, saw this change when Coal stocks outperform markets for two weeks with huge volume, therefore we sent out the signal. Although Oil spiked a lot but we didn't cover many oil stocks, as I think coal stocks are going to outperform due to smaller caps and limited resources. The fact proved this.

However, these are past. In the foreseeable future, I personally only bullish on Gold and light metals. We all know why Gold is valuable for past thousands of years and this won't be changed. If you want to say away from stocks, you can consider an ETF GLD and an ETN DGP, the second one is a note published by Deutsche Bank which tracks 2x gold price. For light metals, I like them for long term as demands from China. In the past, China can provide sufficient light metals such as Aluminum, but this may change in the next two years. The high speed train and commercial airplane business will significantly increase the demand of light metals so China will become an importer instead of exporter of Aluminum soon. Everything needed by China is expensive, think about iron ore. Given the low price of Aluminum stocks, it is worthwhile to add them to your watch list. 

Remember, every bull market starts with low commodity price and we are close to this point. My strategy will be to accumulate quarterly in the next 12-18 months can wait bull market.