Here's the thing: mainstream economic wisdom is NOT completely flawed. Fundamentals can influence the near-term trends in financial markets, especially commodity markets. The key word here is "NEAR-TERM."
Commodities are physical assets with finite quantities, so it follows that such markets can conceivably react to news of supply disruptions, adverse weather, and the like. However, save for an irreversible crisis, these responses are temporary at best. When it comes to deciding the LONG-TERM trends in commodities, fundamentals fall shorter than a pygmy in the NBA playoffs.
Case in point: In early June 2010, live cattle prices were getting butchered. From their May 5 peak, cattle prices had plunged 10% to a six-month low. And, according to the usual suspects, the market had been thrown by every bearish factor in the book. Here, the following news items from the time say a moo-thful:
- "Cattle Futures Fall as wholesale beef prices slumped for a 14th straight session, the longest slide since February 2009. There is uncertainty of what tomorrow is going to bring, so a long position is not the place to be."(Bloomberg)
- "The overriding factor in the cattle complex is lower cash prices. I don't see that going away for balance of this week or next." (Associated Press)
- US Labor Department reveals "slower-than-expected-jobs-growth. The jobs report was disappointing and people correlate that with a loss in beef demand." (Bloomberg)
- "Cattle Lower On 55% Drop In Export Sales. People saw the number and it was a little like throwing gas on a fire that already there. It just added to the downside momentum." (Businessweek)
Yet, by week two of June, the momentum of cattle prices turned UP in a powerful rally to the three-month highs we see today.
In the end, fundamentals will always be a subjective measure of market behavior, swayable to the whims and wills of the media. We at EWI believe that the only truly objective indicator of financial trends is social mood, which unfolds in calculable Elliott wave patterns on price charts.
And, in the August 4 Daily Futures Junctures, EWI's chief commodity analyst and Futures Junctures Service editor Jeffrey Kennedy observes a telling pattern underway in the three major meat markets: Live Cattle, Feeder Cattle, and Lean Hogs. In that publication, Jeffrey presents labeled price charts, in-depth commentary, and live video analysis of the near-term trend underway.