Two Softs Looking Firm

“Soft” commodities include coffee, cocoa, sugar, corn, wheat, soybean, fruit and livestock. The term generally refers to commodities that are grown rather than mined. Many, due to deflationary pressures, have been in a downtrend since 2016. As the economy chugs along, risk asset prices in the stratosphere and interest rates climbing, based upon our understanding of economic cycles, it makes sense to see commodities gain strength.

A couple that look very interesting and setting up for big future gains are cocoa and sugar as you can see in the charts below. As you can see they look very similar. Both topped, sugar later than cocoa, fell almost 50% and have based for more than 5 months. In addition, both have formed positive RSI momentum divergence and are in the process of creating a higher high while attempting to break above prior resistance. Some important first steps necessary for a trend reversal to the upside.

When trying to identify bottom reversals, I prefer to see a wide base, something north of 6 months. Because cocoa is working on 10 months, is nearer a breakout, and above its 200-day moving average I find it a more compelling opportunity. Sugars chart looks as if it’s not quite ready for prime-time yet, but worth keeping an eye on as they both could be setting up for a big climb higher

A Real Growth Stock

As economic cycles are reach their late stages, it is the energy, health care and materials sectors that typically outperform. Scanning hundreds of charts I see a number of very bullish setups especially in those areas, none more interesting than CF Industries, CF. This company is a major player in the nitrogen fertilizer market aiding farmers in growing their crops.

You can see in the shorter-term time frame daily chart below, price formed and recently broke out of an extended, deep, cup and handle pattern on large volume last Friday. With RSI momentum in the bullish zone and price above a rising 200 day moving average this is a very bullish setup.  What makes it so compelling is the depth of the cup base which provides the pattern target its 30% upside target.

When switching to a longer-term view, the weekly chart is just as interesting and more so as Friday’s close marked a breakout from an inverse head and shoulders reversal pattern. While the right shoulder is not as symmetrical to the left as I would prefer, the upside target is even more persuasive than the daily as it points to a 40+% gain.

With a breakout of bullish patterns on two time levels, barring any corporate hiccups and If the market continuing its run higher, I find CF an extremely compelling opportunity as it is set up to lead the market with out-sized gains.

Investment Truths

1. If you need to spend your money in a relatively short period of time it doesn’t belong in the stock market.

2. If you want to earn higher returns you’re going to have to take more risk.

3. If you want more stability you’re going to have to accept lower returns.

4. Any investment strategy with high expected returns should come with the expectation of losses.

5. The stock market goes up and down.

6. If you want to hedge against stock market risk the easiest thing to do is hold more cash.

7. Risk can change shape or form but it never really goes away.

8. There’s no such thing as a perfect portfolio, asset allocation or investment strategy.

9. No investor is right all the time.

10. No investment strategy can outperform at all times.

11. Almost any investor can outperform for a short period of time.

12. Size is the enemy of outperformance.

13. Brilliance doesn’t always translate into better investment results.

14. “I don’t know” is almost always the correct answer when someone asks you what’s going to happen in the markets.

15. Watching your friends get rich makes it difficult to stick with a sound investment plan.

16. If you invest in index funds you cannot outperform the market.

17. If you invest in active funds there’s a high probability you will underperform index funds.

18. If you are a buy and hold investor you will take part in all of the gains but you also take part in all of the losses.

19. For buy and hold to truly work you have to do both when markets are falling.

20. Proper diversification means always having to say you’re sorry about part of your portfolio.

21. Day trading is hard.

22. Outperforming the market is hard (but that doesn’t mean it’s impossible).

23. There is no signal known to man that can consistently get you out right before the market falls and get you back in right before it rises again.

24. Most backtests work better on a spreadsheet than in the real world because of competition, taxes, transaction costs and the fact that you can’t backtest your emotions.

25. Compound interest is amazing but it takes a really long time to work.

26. Investing based on what every billionaire hedge fund manager says is a great way to drive yourself insane.

27. It’s almost impossible to tell if you’re being disciplined or irrational by holding on when your investment strategy is underperforming.

28. Reasonable investment advice doesn’t really change all that much but most of the time people don’t want to hear reasonable investment advice.

29. The best investment process is the one that fits your personality enough to allow you to see it through any market environment.

30. Successful investing is more about behavior and temperament than IQ or education.

31. Stock-picking is more fun but asset allocation will have more to do with your overall performance.

32. Don’t be surprised when we have bear markets or recessions. Everything is cyclical.

33. You are not Warren Buffett.

34. The market doesn’t care how you feel about a stock or what price you paid for it.

35. The market doesn’t owe you high returns just because you need them.

36. As Yogi said :It's tough to make predictions, especially about the future.

Spending More?

The Wealth Effect – The relationship between personal wealth and consumer spending. According to the wealth effect consumers have a tendency to spend a larger proportion of personal income as their wealth increases. The wealth effect was used to explain increases in consumer spending in the late 1990s when stock prices boomed.

Higher equity prices will boost consumer wealth and help increase confidence, which can spur spending. — Ben Bernanke, 2010.

Household Net Worth continues to rise and like most stock markets, made another new all-time high closing out Q317.

September 2017 Charts on the Move Video

With 3/4 of the year in the books, the US stock market is moving towards a very bullish seasonality period. If nuclear bombs and Washington tweet bombs cant bring it down are we setup for a year-end barnburner? My recap of September can be seen in the video link below.

https://youtu.be/YcmxMQ4ZC-g