Some thoughts on today's wild ride

Last evening I posted a chart detailing a spread between the CRB index and the CCI (Continuous Commodity Index) about which I remarked could be seen the reallocation of hedge fund investment money towards the energy sector and away from the broader commodity sector in general, namely foods and metals.

That seems to have been the theme of today's action as well based on that spread chart. Today, the grains, most notably, wheat, were down, cocoa was lower, coffee was lower and the hogs and most cattle contracts were lower. Cotton was limit down as well. While crude oil settled well off its peak near $103 and gasoline faded from its best level near $3.03, the energy sector still fared better than some of the various commodity markets.

It is clear that there is some position reallocation taking place among the hedge funds towards a larger exposure in the energies. This might be partially responsible for removing some of the bids that we saw today in both gold and silver.

Later in the afternoon, it seemed as if hedge fund money flows into the commodity sector dissipated somewhat particularly as crude faded with money flowing back into equities once again. That took the broader stock market well off its worst levels of the session and might have put a damper on safe haven related buying of gold and silver.

There is a great deal of uncertainty and confusion reining across all of the markets currently as no one is sure where events in the middle East are going to end up going next. That has traders very jumpy and reacting, strike that, overreacting to the least bit of changes in price. No one wants to be caught on the wrong side of a development. Be careful trading therefore and do not get your position sizes too large for the size of your trading account, no matter what you may or may not think things should be doing. You might be right, but if you are not, you will pay very, very dearly for being wrong and quite possibly will not be around to play the game the next time.