Pin-Striped Pork Bellies

Jerry Welch, Commodity Insite!
Call me at 406 -682 -5010
Ennis, Montana 59729

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In the month of December of last year, Dow futures fell approximately 4,300 points, bottomed the day after Christmas and promptly rallied 4,100 points thru and including this past Friday. Thus, in 21/2 months, Dow futures have moved nothing less than 8,400 points. The Nasdaq has actually done even better. And stocks per se are off to their best start to a new year in 32 years.


However, the average bear rally based on history is approximately 11% and now, we are about 11.5% off the low for the Nasdaq. The Dow is doing nearly the same. The rally with stocks is impressive but based on history, the bounce is not without precedent.


Still by any measure, stocks are wild and crazy and acting as if they were a commodity. Yes, a commodity. But that is not a new observation on my part. Below is a chapter from Back To The Futures entitled, Darth Vader Zaps Pin-Striped Pork Bellies. Yes, in the 80s stocks futures were called pin-striped pork bellies because they were so volatile.


Here are a few paragraphs from chapter above. And please look at the level where the Dow futures were back then when it was wild and crazy and moving around as if it were a pork belly. Anyway, from Back To The Futures regarding pin striped pork bellies

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The world is learning first hand why stock index futures contracts are known as pin-striped pork bellies. The S&P 500 futures index, for example, fell $26,000 per contract from October 5 through October 17. In nine trading days, stock futures went from a five-week high to a one-year low.


The selling was so intense on October 17 that the Dow was down as much at 147 points before a modest rally occured. Nevertheless, the Dow ended the day 108 points lower on all-time record volume. The trading volume on that Friday was a staggering 338 million shares; that eclipsed the old record set on January 23 of 302 million shares.


The stock markets plunge on Friday knocked about $145 billion from the value of American stocks. The only consolation for the bulls was the fact that the decline was only the 76th largest in percentage terms. For the week, the Dow was off 9.5 percent, and since the Dow peaked on August 25th, the average is coming down 17.5 percent.


There have been some interesting comments about the mighty Dow Jones since the slide in prices began. A managing director at Oppenheimer and Company said, The only thing thats up is the anxiety level. Its panic selling. Its the Darth Vader market. I dont know when the fat ladys going to sing! I think her voice is gone!


An analyst with E.F. Hutton said that its an extremely emotional market. People are dumping stocks with reckless abandon. And a Vice President with Josephthal and Company said, everybodys being killed.


I really cannot disagree with those comments. There is panic out there in Stock marketland. I am not sure, however, that the break in the Dow can be blamed entirely on Darth Vader and his cohort, Reckless Abandon. S

Subscribers to Commodity Insight are well aware of my thoughts regarding the stock market. I have made them quite clear over the past ten months. In the September 10 issue of my newsletter, I discussed what could and should happen when the Dow finally rolled over. I decided to reprint some comments that I made in that issue of Commodity Insight in hopes of refreshing everyones memories regarding my forecasts for the Dow and for the stock indexes.


A normal break in the Dow would be approximately sixteen percent from its high. That would equate to about a 432 point drop from the 2700 Dow. Therefore, based upon past historical performance, the Dow could drop to the 2200 to 2270 level and still be considered a bull market with its trend intact.


Stock indexes have never experienced a break of that magnitude since they have been in existence. Over the past few years, there have been several breaks that amounted to $20,000 to $30,000 per contract. But if the Dow falls 432 points, then its possible for the S&P 500 futures contract to fall $50,000 per contract.


The Dow could remain in a bull trend while stock indices could experience an unprecedented collapse. Traders will need awful deep pockets to withstand a market that can go against them in as much as $50,000 per contract. My goodness, that is a margin clerks nightmare!


A Dow of 2200 or 2700 is reasonable based upon how the market has performed during other price breaks. As I have said before, the Dow could drop sixteen percent off its high and still remain a bull market. Based upon the bond market, however, I believe it is still possible for the Dow to drop below the 1900 level before the current break runs its course.


Those are just a few of the statements regarding the Dow that Ive made over the past few months. But based upon todays bond market, I have lowered my downside objective for the Dow Jones to 1500. I now believe that the Dow is in deep trouble.


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You can find both my books, Back To The Futures and Haunted By Markets at www.commodityinsite.com. Check them out because to my knowledge there are no books similar in that they touch on the history of the futures markets from the 1980s to 2015. And if you dont know history and markets have behaved in the past, you are making mistake. A big mistake.


The time is Sunday, February 17, 7:04 a.m. Chicago




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