By Sherry Slater
The secret to predicting the stock market’s direction lies in understanding the commodities market, an Iowa-based author says.
Glen Ring, an analyst and speaker, will offer his insights to local investors Thursday and Friday as he explains how various markets interact. The evening, introductory session is free. The day-long, advanced session costs $199. He expects about 50 people to attend the first and about 30 to go on to the second.
Ring is bringing his market analysis to Fort Wayne to fulfill a promise to some long-time clients.
The one-time farmer and former editor of the Trends in Futures Newsletter said he sees connections in how the markets behave.
“I use my 32 years in business and my analytical skills to show people how the marketplace functions, to show people how what happens in the hog market is important to what happens in the stock market,” he said in a telephone interview last week from his office in Cedar Falls, Iowa.
The value of the U.S. dollar – after a lag time – tends to affect commodity prices because when the dollar increases over a sustained period of time, the cost of goods to overseas buyers also increases. As a result, demand falls.
Commodities are those things you can pump, mine, grow or feed corn to and include oil, gold, silver, corn, wheat, lumber, sugar, coffee, cocoa, cotton, cattle and hogs.
In turn, commodity prices tend to affect interest rates because when commodities go up, the price hikes tend to be seen as inflationary, which prompts interest rates to rise.
And interest rates tend to affect the stock market because higher interest rates increase the cost of doing business. Profits and share prices tend to shrink as a result.
“Ultimately, commodity prices tend to lead the stock market,” Ring said.
But the connection is complex. When commodities prices trend down, stock market trends higher, Ring said. He sees the markets – there are more than 20 major ones – as all part of a giant jigsaw puzzle with some pieces wielding more influence than others.
Historically, he said, the 1970s were a heyday for commodities. The 1990s were a heyday for stocks. The cycle is starting to repeat, with 2000 making the beginning of a return to commodities, Ring said. The terrorist attacks on Sept. 11, 2001, happened as if on schedule, he said, marking the beginning of a new three-generation cycle that turns toward security.
Investors feel more secure when they put their money in tangible goods that focus on food, fiber and shelter, he said.
Ring has also tracked weather cycles, which indicate that droughts are probably coming. When some crops are destroyed, the remaining ones fetch more in the marketplace, making them a good investment.
Jon Kenney, a corn and soybean farmer and trader living in the northern Illinois community of Dixon, has been working with Ring for a couple of years after attending one of his seminars. He credits Ring with having a gift for teaching.
“I’ve learned so much from him,” said Kenney, who’s been trading for 30 years. “My learning curve really increased when I got hooked up with Glen.”
The farmer has made some changes in his trading program and has reaped more success as a result. Ring has taught him about money management and the mental aspect of commodities trading, Kenney said.
“The most important thing is attitude,” he said. “You need to have tough mental discipline to succeed.”
Federal regulations don’t allow Ring to make specific recommendations. He’s an analyst, not a broker. But he tries to demystify how the markets work and recommends investors consider commodities mutual funds, which spread the risk by putting money into more than one market.
Ring described his full-day session as detailing the step-by-step process of investing in commodities.
“It takes a lot of work to make money in this business, and I show them what they need to master,” he said. “I’m not a broker. I don’t have any investments to sell them.”
One key to success is learning to identify a trend, which has 30-to-1 odds of continuing on any given day, he said. Up trends can be spotted when markets are reaching higher highs and lower lows, he said. Any time a market has received a lot of attention, however, investors should avoid putting money in it.
Ring also looks at what constitutes a mistake in trading. Savvy trading is based on the philosophy that “the trend is your friend,” he said.
“Trade with the trend,” he said. “Cut the losers short, and let the winners run.”
Source: Ft. Wayne Journal Gazette