Behind the Money

Oil, Goldman Sachs Pops Confirm This Market is For Traders, Not Investors

Today’s (and yesterday’s) action confirms this is a market for traders — not investors — as oil and other commodities lead a rebound in the related share prices. Consider the case of Freeport-McMoran, the largest publicly-traded copper producer in the world. From the stock’s early January peak until its late January low, the shares fell about 20 percent.

If you’re a trader, then you may consider picking up some Freeport here on the notion that a drop of that magnitude, happening that fast is due for a pause. If you’re an investor, you need to be buying because you believe a global recovery led by China will continue unabated despite efforts by their government to slow it down.

You also need to believe that the dollar (the currency in which most commodities are priced) will continue to go lower. The consummate trader, Dennis Gartman of the Gartman Letter, understands why oil and other commodities are rising here.

“There is little question but that crude oil, and nat-gas too for the matter, and coal also had become uncommonly over-extended to the downside late last week and was over-due for a correction,” wrote Gartman in his widely-followed street missive this morning. “We doubt very seriously, however, that crude shall have the ability to rally far beyond $77-78 a barrel, and our propensity to sell crude shall be high and rising as we approach those levels.”

Turning from global growth to another crucial sector for the market, financials, you’ll find that their share prices have had a nice bid lately as well, with Goldman Sachs opening higher today. This despite the fact that President Obama’s economic advisor Paul Volcker is set to rollout today his guidelines entitled: “Prohibiting Certain High-Risk Investment Activities by Banks and Bank Holding Companies.”

If you’re a trader, you’re buying Goldman Sachs this week because it’s down 14 percent from its early January peak on fears about this so-called Volcker tax and you believe that these rules will not end up being as restrictive as Volcker may indicate today. Josh Rosner, managing director of Graham Fisher & Co. and a well-sourced Washington insider, believes that these Volcker reforms are essentially “operationally untenable.”

So the group may be a good for a trade here, said Rosner, but if you’re an investor in banks, you need to believe that the still lingering toxic assets that have yet to be wiped completely off the books by the aptly named Toxic Asset Relief Program will magically disappear this year. Also you need to believe that housing data, such as pending home sales figures released today, will show that people are back to paying their mortgages on time and eager to buy new homes.

Gartman is using any approach by the S&P 500 futures to the 1089 level to bet against the market again and go short those futures. If you’re a trader like Gartman, you may want to use this bounce to buy an ETF like the ProShares Short S&P 500, which will essentially do the same thing as his trade. But if you’re an investor, whiplash moves like this week prove you probably shouldn’t be in this confusing market in the first place.

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