Hiring Up, Commodity Prices Down – Is This A Game Changer?

George Brooks  |

Brooksie’s Daily Stock Market blog: An edge before the market opens.

Friday, May 6, 2011 9:24 am EDT

DJIA: 12,584.17
S&P500: 1335.10
Nasdaq Comp.: 2814.72
Russell 2000: 829.24

April Non-farm payrolls advanced far more than expectations with a jump of 244,000 vs a projected 185,000 employees. While government jobs declined 24,000, the private sector hired 268,000 workers. The Unemployment rate stands at 9.0%.

Wall Street liked the numbers, as U.S. stock-index futures jumped sharply, suggesting the market will open on the upside with a gain in the DJIA of 90 to 110 points by 10 o’clock.

Yesterday, the DJIA and S&P500 rebounded from my projected support levels and today will challenge overhead supply (potential sellers) starting at DJIA 12,700 (S&P 500: 1348) .

If the surprise jump in hiring is not an aberration, one of the prime concerns in America is in the process of changing for the better – a brighter future for people seeking jobs AND less worry about keeping the one those employed have.

The plunge in commodity prices is big news for both consumer and corporation, for the former it means lower gasoline prices, for the latter, it means a smaller pinch in raw material costs.

Correction/Consolidation - does this change my position ?

It comes close to being a game changer. Clearly, the big picture can be changing here, since employment and inflation have been weighing heavily on the economy and the stock market.

The market will tell us in the next day or two, as it cuts into resistance at the level noted above.

The news definitely tempers the downside momentum set into motion this week and at worst suggests a consolidation in coming months rather than a nasty correction.

Commodity prices are undergoing more than a greenstick fracture, in some cases like cattle, hogs, sugar, lumber, and cotton, it looks like a full scale break.

Can others be far behind ?

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Soybeans, wheat, cocoa, corn, copper, aluminum, lead, nickel, and zinc are beginning to weaken. It looks like gold and silver are peaking, as well.

What’s more, it looks like the price of crude oil has peaked, with a double-digit plunge so far this week alone. The average price of gasoline nationwide is currently $3.99. That may be on the verge of changing.

Several factors contributed to its spiral, including Mid-East tensions, speculation by traders, and the weakness in the U.S. Dollar. Stabilization and a rebound in the latter stands to add momentum to oil’s retracement.

I don’t believe this crap about the demise of the U.S. Dollar. Sure we have our excesses, but they are being addressed and we will be stronger for it. There is a price that is paid for quality of life and the preservation of freedom from tyranny, and this country excels in both. En route to achieving that, mid-course corrections are necessary, and confronting a spiral in our national debt is a priority right now.

The following quote is from Brooksie’s blog – April 14, 2011:

– “I think we have to be alert to a plunge in commodity prices. While I have written about them and interviewed key players, it is not an area where I feel comfortable making projections. They can be highly volatile, though and have had a big run.

My point here is, a plunge in commodities would cool the fears of commodity driven inflation, one of the concerns plaguing the stock and bond markets going forward. Wouldn’t it be nice to get two negatives off the table over the next three to six months – addressing the nation’s debt spiral and reducing the fear of inflation.”

Was it a stroke of brilliance to make a statement like that a month ago when it seemed nothing could stop the surge in commodity prices ?

Absolutely not !

I’m not brilliant - people close to me will attest to that.

It is, however, an indication of how important it is to think contrarily when any trend is in high gear and the urge is overwhelming to jump on board. It doesn’t work every time, and there is always the question of how high is high – how low is low ?, but exploiting extremes is an important part of the “buy low – sell high” equation. It isn’t easy to do, since it goes against human nature to go against the grain.

George Brooks

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