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Jul302010

Ag Rallies

DateFriday, July 30, 2010 at 05:52PM

Agriculture commodities had been in a downtrend from the start of the year through the end of the second quarter.  In July, however, ag made a big comeback and made up a significant part of its 2010 losses.  Below is a chart of the PowerShares Deutsche Bank Agriculture ETF (DBA).  As shown, the ETF moved well above extreme overbought territory (the red zone) this week.

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The emerging market financials, EMFN, rallied on June 10, 2010 from 23.43, as Ralf Grahn reports that the EU Commission announced the EFSF Monetary Authority to issue EUR 440 billion in debt to preserve the financial stability of Europe. Beginning on June 10th, 2010 there was a run of capital into emerging market financials, EMFN, supported by investment in emerging market bonds, EMB, and emerging market currencies, CEW. From then to July 31, 2010, there was a 12% increase in Emerging Market Financials, EMFN, compared to a 2% rise in Financials, XLF. And a 20%, rise in the European Financials, EUFN, which were strengthened by a rally in the Euro, FXE, and the announcement of the European Bank Stress Tests, and their presumed well-being.

What I call the European Rally can be seen in the chart of EEH compared to EWL, EUFN, and XLF. The US large caps, EEH, have for the last 90 days, experienced greater comparative deflation, than Switzerland, EWL, and the European Financials, EUFN, as these two have rallied on a carry trade rally with the EUR/JPY maintaining investment liquidity on, as opposed to off.

I believe that debt deflation will commence again in August 2010, sending World Currencies, DBV, Emerging Currencies, CEW, Stocks, ACWI, Bonds, AGG, US Government Treasuries, TLT, US Government Notes, IEF, Corporate Bonds, CFT, Emerging Market Debt, EMB, all lower. Yes currency deflation, stock deflation and now bond deflation, that is credit deflation, will likely commence in August 2010.

Base Metals, DBB, have rallied strongly, with copper JJC, taking the lead. When currencies fall lower, carry traders will take their profits, and commodity prices will fall. The question is by how much. Associated Press reports that Growth In Chinese Manufacturing Continues To Slow, so yes base metals are going lower. Base metal commodity price deflation is at hand. But how much lower will prices fall is the question.

I ask: Will agricultural commodity prices, seen in the Stockcharts.com daily chart, and in thee Yahoo Finance quarterly chart, and in the Finviz weekly chart, be sustained?

The daily chart shows three white soldiers, a reversal pattern, suggesting that a correction is at hand. The rally in the agricultural commodities, has largely been due to a number of carry trade rallies coming from a rise, on an oversold Euro, FXE. So if currencies do fall lower once again, as they did on April 26, 2010, agricultural commodities, are likely to fall lower; but the question is for how long?

The weekly chart shows Agricultural Commodities, RJA, has risen to strong resistance at 7.94; support is lower a 7.60 and 7.40.

As currency deflation resumes, one thing I am certain of, is that the price of agricultural commodities priced in at the individual’s budget, in every currency major such as the FXA, FXE, FXM, FXC, ICN, FXB, FXS, SZR, FXF, CYB, BZF, XRU, FXY, BNZ, and the $USD, and emerging, such as the Huganrian Forint, will increase, as physical wars such as the one in Afghanistan and the Congo increase, and as other new ones develope. And as trade wars develope. And as world-wide deflation and employment cuts into household budgets for food.

Numerous reports document that food prices are exploding in India, I expect the trend to continue unabated as the population there increases, and the country seems to have desperate and debilitating cycles of floods and drought.

August 1, 2010 | Unregistered Commentertheyenguy

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