The stock market ripped higher on Monday after investors apparently decided that they had over-reacted to Ukraine-Russian hostilities on Friday. The first half of the session was a big “never mind” for the action last week, and the second half was a measure of relief that nothing more happened over the weekend to upset the psychological balance.
Unless the geopolitical gremlins in the eurozone or Middle East rear their bratty heads again, most of the focus this week will be on the Friday confab of the globe’s top government economists in Jackson Hole, Wyoming. It’s Woodstock for the GDP set, minus the pot smoke and electric guitars. Also due this week are minutes from the July 29-30 Fed meeting.
The Wall Street Journal got sentiment rolling Monday morning with a report that, despite fears the Federal Reserve will fall behind the curve and allow inflationary pressure to develop, central-bank officials believe they can be patient before beginning to raise rates. This thinking is in line with previous reporting that suggested that Fed chief Janet Yellen and her inner circle are determined not to raise rates too early and risk damaging a fragile recovery.
There was some good data supporting the better mood, as U.S. homebuilder confidence in August was better than expected. Chinese economic data, meanwhile, was modestly disappointing. New home prices fell in 64 out of 70 cities in July. This was the highest level since January 2011 and an increase from 55 cities in June. Also, foreign direct investment in July was down 17% year-over-year to $7.8 billion, which was the lowest monthly amount in two years.
Reports from four-way talks (Ukraine, Russia, Germany and France) of some diplomatic progress have also been met with optimism. The talks focused on humanitarian aid and a possible cease-fire. However, there were numerous reports that Russia continues to send men and material, including armored vehicles, to separatists.
Down in the Middle East, the latest reports indicate that the Islamic State, formerly known as ISIS, faces sustained pressure. The Kurdish peshmerga, with the support of U.S. airpower, have retaken most of the Mosul dam complex. There are also reports that major Sunni tribes, including some in Anbar province, are preparing to fight IS forces located in their areas. That would be a major positive development, as Sunni protection has helped IS spread.
One day I hope to write my reports without saying anything about Ukraine, Iraq or China. To be honest, I probably could, as Wall Street proved today that it just does not care. There is no getting around the fact that U.S. investors retain a narcissistic focus on the improvements in the United States by bidding up prices here while the rest of the world is experiencing a sort of depressing entropy.
I still think better prices lay ahead, so for today’s Trade of the Day I’m recommending a long trade on the Teucrium Commodity Trust Corn Fund (CORN).
CORN is an exchange-traded fund that represents the daily action in corn futures. Corn has been picked on mercilessly over the past two years, which you can see in the weekly chart, as good growing conditions have led to bumper crops and oversupply. However, technical work suggests that CORN is ready to stabilize at current levels and move back up, perhaps back to its falling 30-week average at around $31.
Buy CORN at current levels for initial target $27.50 (set up to sell half there); my second/final target is $30.50.
Jon Markman operates the investment firm Markman Capital Insights. He also offers a daily trading advisory service, Trader’s Advantage, and CounterPoint Options, a service that helps individual traders make steady, consistent profits with volatility-related instruments.
