Commodity Futures Trading

[Pro-Life]

Bearish Month Has Arrived
Saturday, October 03, 2020

by Jerry Welch

https://www.insidefutures.com/article/3134249/Bearish%20Month%20Has%20Arrived.html

Below is an article I wrote on October 1, 1997, entitled, Bearish Month Has Arrived. It comes from my book, Haunted By Markets. Based on what unfolded this week for the CRB Index, crude oil and copper, I thought it timely to post what I rambled about 23 years ago. I hope you find something of interest.

"October, one of the most bearish months of the year for the entire Big Four, stocks, bonds, currencies, and commodities, has arrived. The question is, "how bearish can this October be? That is assuming of course, that October does indeed turn out to be ugly for a wide variety of markets.

However, many markets have already been struggling for weeks long before October arrived.

It is hard to imagine that things could get much uglier than what we have already seen. But they could. December live cattle futures, for instance, have dropped from contract highs of 70.05 on July 29, to contract lows of 67.07 by September 30. Cattle prices continue under pressure thanks to the largest number of cattle on feed in 24 years, along with declining demand. If the U.S.D.A. is correct, cattle prices will continue under pressure for several more months.

Placing additional downward pressure on cattle prices is a hog market also on the decline. Hog futures actually peaked back on April 24, at 73.90. Since that lofty level was hit, December hog futures have worked their way lower with futures trading down to the 63.42 level on the final day of September. Cattle and hog prices are now at their lowest levels in six months. Livestock traders and producers want to know if critter prices can go even lower now that October has arrived. Time will tell.

Grain prices have also been working lower into October. In just the past few days, corn prices have dropped to a one month low while wheat prices are hovering at their lowest levels in two months. The same can be said for soybean meal and oat prices. And though soybean prices are doing a bit better than wheat and corn, an IO cent break or so, would place that grain at its lowest levels in months, as well.

In other words, long before one of the most bearish months of the year has arrived, grain and critter prices have already been trending lower. Once again, "do prices work even lower here in October?"

Sugar prices have also taken a hit lately with nearby futures now at levels last seen in late July. And orange juice prices continue to remain within striking distance of a 15-year low. Coffee prices are still flirting with a one month low. Here too, if prices for these commodities are weak now, what happens in October? Above all, let us not forget what has happened down through history for the mighty Dow Jones industrial averages.

For the Dow, the month of October can be a nightmare. The best example of how ugly a break can take place for the equity markets in October was in 1987 when the Dow fell 200 points one day and 500 points the next. And that was back when the Dow was under the 3000 level.

For the U.S. equity markets, October is by far the most bearish month of the year, but there is a "flipside" to a bearish October that should be kept in mind. An especially bearish October simply offers bold traders and producers some excellent long term buying opportunities.

What happens is this. Panic selling pushes a market below what is commonly known as, true economic value." When that takes place, bold traders and investors can scoop up some pretty good bargains. For example, on the very day in October of 1987 when the Dow fell 500 points in one ugly day of hectic trading, soybean prices fell 20 cents a bushel to their lowest levels in weeks. But that turned out to be a major low for soybean prices. And by the spring of 1988, thanks to Mother Nature, soybean prices were in excess of $10 a bushel.

The point is this. Yes, October is one of the most bearish months of the year for the entire Big Four. And yes, I fully expect additional weakness for a number of markets now that October has rolled around once again.

More than likely, this October will present bold traders and investors with some bargain basement prices. Before October comes and goes, I am guessing that several commodities will be under, "true economic value." Those commodities should be probed from the long side.