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Life forces us to make many choices. Friends, food, medical, technical, and of course financial. Normally when you have a serious medical problem you tend to seek professional medical advice. You would not go to your local plumber for pneumonia. Many financial advisers are really not that well trained in reading markets. They are in a very beuarcratic world and normally follow a mandate from head office. If you have an advisor that has better returns than the market it might be an idea to keep him around.

This endless trail of administration can take away insight from reading the markets. Afterall most mutual funds under-perform the indexes. We like to see what the big money is doing in order to make long term decisions.  One way is to look at commitment of traders reports. This is done through the futures commodity markets and should be graphed over at least a 3 to 4 year period. Here are some definitions you need to know.

Commercials: These are the elephants of the commodity world. The Exxon’s in oil, the BHP’s of copper, and Barrick’s in gold. These corporations have billions of dollars that buy the best advisors and market makers. They tend to have long term outlooks in mind. This is their business. This is what they use or produce everyday. They need to make well educated decisions and have the best people to help them.

Non Commercials: Commodity trading funds that buy and sell to make money. Much like mutual funds, they tend to be trend followers, not makers, and collect commissions. They do not produce or use any of the products.

Non-Reportable: Speculators who buy and sell in order to make money for themselves. Most loose money, so you tend to use them as a contrarian indicator.

Bullish Consensus: This is a poll of leading analysts and advisors and is expressed as a percentage of bullish sentiment.  Much to your surprise bull markets tend to start with the lowest consensus.

Please refer to our gold chart provided. Lets start with bullish consensus. Notice how most peaks in gold tend to be at tops of our consensus graphs. Also notice most market bottoms tend to have large commercial buying.

Reverse Psychology

People tend to be followers and therefore often get in and out of markets at the wrong times. Recently oil was around $140 per barrel and word in the mainstream media was oil was going to $200. Now that oil is around $50 many people are saying it is going down to $30. We still believe that oil is tremendously under priced and over sold due to forced liquidation. In order to out perform the averages you must do things different. Buy when the world looks like it is falling apart, and sell when people feel absolutely nothing can go wrong. Now if you look at our charts provided we see the lowest consensus in years with some of the largest commercial long positions. This is why we have chosen many of our companies that produce or own these commodities.

We also feel that the stocks that mirror these commodities have been oversold much more than their underlying assets. This is why we feel we are very close to market lows in which we see the continued bull market for years ahead. Buy Buy Buy! And remember that the biggest risk in life is never taking one.