It's Time To Get Real

We are now entering the "let's get real" phase of the commodity runup.

Recall that commodities and commodity stocks have outperformed the overall markets since March on 1) the weak dollar, and 2) strong buying of commodities by China, which prompted momentum buying from speculators.

The "let's get real" phase is evident in fertilizer stocks this morning. They had been rallying on the hopes that farmers would begin replenishing inventories, and some hopes that Latin American growers would put in orders ahead of the spring planting season.

But it's not happening. German fertilizer producer K+S came out this morning and said:

1) demand for potash remains very weak;

2) current prices are unsustainable;

3) they are continuing to reduce production.

But the Street has not been waiting for this news--they have been taking down commodity stocks for the past five days.

Commodity stocks

(from last week's highs)

    • Potash down 17 percent
    • Alcoa down 15 percent
    • US Steel down 14 percent
    • Consol Energy down 15 percent
    • Cabot Oil down 13 percent

Bottom line: if bulls are correct, this is merely a pullback as traders got in a little too early on the turnaround story. If this is right, we should start to see support a few percentage points below these prices.



Questions? Comments?