Bernie, The Commodity Dragon Slayer.

As most of you know, commodities went through an overdue correction last week. This shouldn’t have been a big deal.

Here’s the problem. As a result of that correction, some folks are making assumptions that don’t make sense. In fact, some of these assumptions are downright dangerous.

For example, the media and others are giving Federal Reserve Chairman Bernanke credit for “putting an end to commodity inflation” with his brilliant strategies. On March 21st, Bloomberg stated that “the biggest commodity collapse in at least five decades may signal Federal reserve Chairman Ben Bernanke has revived confidence in financial firms.” ..That's a whole load of crap ! This is faulty thinking. To imagine that Bernanke deserves credit as "commodity dragon slayer", even as he lowers interest rates and continues to stoke inflation, is mind-boggling.

So what exactly caused the vicious sell-off in commodities? When all was said and done, by last Thursday’s close, gold had its biggest weekly loss since August 1990. Oil had plunged almost $10 over three days. The corn market was off by 9%.

There were a number of things that contributed to the sell-off. First, the commodity markets had gotten ahead of themselves, and were in a classic “overbought” situation. Second, derivative trading losses and shrinking credit lines forced hedge funds to liquidate their winning trades -- many of those trades in commodities -- in order to free up capital. There was also fear the Commodity Futures Trading Commission, or CFTC, was on the verge of raising margin requirements for commodity positions. This happened at the end of the last big commodity bull market, when the Hunt brothers were forced to liquidate their silver positions -it wasn’t pretty sight. Furthermore, the dollar was oversold and ready for "a bounce". All these factors combined to create a swift break, which has now taken many commodities back to more attractive buying levels.

To say the commodity bull market is over is just, well, a bunch of bull. Let’s take a look at the facts. Well, the big picture has not changed. We still have central banks pumping money like mad into the global financial system. This is long-term inflationary. Bazoooka Ben is not going away. Nor is his one-trick strategy to save the world - running a printing press. This is long-term bullish for gold and silver.

When discussing the general supply-demand imbalance for commodities, I am referring to a very, very big trend. In fact, we now have two “megatrends” colliding. Thirty years of restrained and neglected natural resource supply are coming face-to-face with three billion people intent on discovering capitalism. Irresistible force meets immovable object? We haven’t seen anything yet!

The commodity bull market is alive and well. Last week’s correction let some much needed air out of the balloon, that’s all. It would be healthy at this point to see some consolidation, but we might not get it. Already it looks like commodities could be off to the races once again.

Trader's Rhapsody.

Is this the real trend..?
Is this just a fantasy..?
Caught in a credit crunch..
No escape from volatility..
Open to risk..
Looking for probabilities..
I'm just a trader, I need no buy and hold..
Because it's easy come.., easy go..
Little high.., little low..
Anyway the wind blows doesn't really matter to me, to me........

When studying the S&P going back to its inception in the 1940’s, one can see that many cycle bottoms have occurred in March.

This has been particularly true since 2000. March 2000 was the peak of the bull market. March 2001 was a turning point that saw the S&P rally from 1080 to 1315. March 2002 was a peak prior to a waterfall decline into July 2002. March 2003 was the beginning of a 5-year-plus advance, the first leg of which ended prior to a consolidation in March 2004. March 2007 marked the bottom of a quick, sharp, 100-point S&P multi-week shakeout prior to the beginning of the blowoff into July 2007.

W.D. Gann placed a lot of emphasis on the need to find the zero point, or the beginning point, in measuring time and price. In Gann theory, the beginning of spring and the Spring Equinox on March 21 mark an important inflection point, that's "zero degree". It appears that last week marked an important test of the January low.

At the January lows, I stated that my cycle work suggested that January would be the low for the year. Although those intra-day lows were violated this past Monday, the S&P has not scored a closing low below the January intra-day lows. Consequently, this past week’s large range outside week up with a close at / near the highs of the week suggests a successful test has occurred.

W.D. Gann also liked to say that the tendency of the market is to “put in some time on the side.” In other words, after cyclical tops or bottoms it is common to see the market consolidate in a period of accumulation or distribution before trending in earnest.

Last week’s large range outside up week in the S&P is in fact the first outside up reversal week since the week ending November 30th, 2007. In tracing out three higher weekly highs, that upside reversal week in November turned the three week chart back up. That defined a high on the week ending December 14, 2007. That high at 1523 looks like a right shoulder of the bull market. The low of that week at 1467 should be serious resistance. It is interesting that the 200 DMA is in that vicinity, currently at 1456.

On Monday, the strong surge may be a place to look to lock in some profits as the market is still subject to another shakeout or liquidation; especially if many hedge funds are going out of business before quarter end. However, I would warn against becoming too aggressive on the short side: with many poised to buy pullbacks, if the market doesn’t come in we could see a runaway upside move.

So I'm left with the proverbial $64,000 question of “Was last week 'A' bottom or 'The' bottom for financials?” If this was the bottom, other than “events” like Long Term Capital Management, it would be the fastest bottom to occur in modern economic history. Heck, the last time I checked, economists hadn’t even agreed that we are in a recession. And now, we're declaring “the bottom”?!

To be clear, although I don't believe a bottom has been reached, I neither wish for nor foresee a systemic crisis. In fact, I give the Federal Reserve and U.S. Treasury high marks for their crisis management. And importantly, I believe their aggressive actions will avert the kind of global failure that some might expect.

At the same time, though, I believe there are significant further declines ahead as the weakest firms fail, and the stronger are buttressed through coordinated government intervention and even nationalization. But to those who believe this can occur without further significant common shareholder dilution, I would offer modern banking history as caution.

So, it this a bottom? ..Yes. THE bottom? ..Not close.

Look... Mum, Dad! Look, Wat We Got Back! - Our Way Of Life !

Petshop Boys'- Go West. MP3:http://www.komura.com/urawa/music/Go_West.mp3

Bulls see red in KLCI..Deeper losses expected !

The KLCI plunged last night, as persistent foreign selling activities outweighed any local buying power. For once, the “last-minute Calvary” did not emerge to “falsely prop-up” just a handful of KLCI counters for the previous few days. The market breadth was negative.

The support zone at 1,338 and 1,354 will be much weaker, whilst some very heavy liquidation at the resistance areas of 1,368 and 1,390 will cap any KLCI’s rebound. The March 2008 KLCI Future contract is now dealing at a larger 11.27-points discount against the KLCI cash index.

Investors will dispose on rallies. The KLCI made a key all-time high at 1,524.69 (a Bearish Engulfing Monthly Candlestick pattern) on 14 January 2008 and is the final Wave 5 high of a Flat-pattern that rose from the 547.72 low (April 2001). As a result, selling on rallies will be the best strategy for investors.

Due to the DJIA’s plunge of 314-points last night, the KLCI will remainvery weak. Most sensible fund-managers will trim their portfolios ahead of any imminent “pre/post-election2008” downturn. I expect the market to plunge below the key 1,338-1,340 neckline supportof the obvious “Head & Shoulder” pattern. A sustained break below this level (whether on a pre or post-election basis) would open up great and vast possibilities (85% chance) of my preferred downside target areas of 1,251, 1,155 and 1,137. It is time to move to cash and remain ultra-cautious. Looks like the outcome of the election is less than desirable! - Makkal Sakhti ! ("power to the rakyat!")