Well that didn’t work out at all. Investors had a full weekend to think about the details of the worldwide plan to save markets. And then they became terrified. They sold shares and bought commodities.

It shouldn’t be that surprising. And perhaps it wasn’t terror. Maybe it was just plain old common sense. You can’t short stocks anymore in some places. But you can buy commodities! With the global supply of dollars on the verge of a huge increase, investors declared for gold and oil yesterday.

The Dow lost 372 points in New York to close just above 11,000. The S&P 500 shed an impressive 3.8% nearly half its gains from the last two giddy days. So it turns out the ban on short selling in the financials doesn’t keep stocks from falling. It just reminds investors there are some very good reasons for selling.

Meanwhile, the Reuters/Jeffries CRB commodity index posted its biggest one-day gain since 1956, when iron ore exports were still capped in Australia because no one really knew how much ore there was in the Pilbara. This confirms our basic thesis that “stuff” is currently a much better bet than “paper.” Liquid stuff was the real star yesterday.

The October crude oil futures contract was up 16% (on the day) to close at US$120.92. It was up as high as $130-oil’s biggest done day move since crude futures began trading in the early 1980s. Can a ban on speculation be far away now?

If you’re a trader, this is the blessing of the times we live in. With immense volatility comes incredible opportunity. You just have to know what you’re doing to spot these things.

We’re glad to have our technical analyst Gabriel Andre in the office for just this purpose-although we should take a moment to let you know Gabriel and his wife have just welcomed their first child (a little girl) into the world over the weekend. Congratulations!

Gabriel will be back next week, presumably to tell us how to play all of this volatility in the commodity patch via the Aussie share market. He’s calling it a technical swarm. He says he has 14 swarm trading tactics. We have no idea what it means, but will keep you posted.

Dan Denning
The Daily Reckoning Australia

Source: Nervous Investors ‘Short’ the Market By Buying Commodities