Commodities and equities are taking a steep dive today with the turmoil in Libya.

Please see Libya’s Deputy Ambassador Calls for “No-Fly Zone Over Libya”; Crude, Gold, Silver Futures Spike, Equities Hit; Oil Companies Prepare Exit for more details on Libya.

Gold and silver are in the green but well off the highs. Energy is struggling to hold on to its gains. Here are a few screen snapshots.

click on any chart for sharper image

Grains

Metals

Energy

Financials

Indices

Items of Note

  • Agricultural commodities were blasted across the board. Corn was limit down. Most trading at or near the lows.
  • Gold and silver are in the green but both are well off the highs.
  • Energy is particularly interesting given Libya is the 12th largest energy exporter. Libya produces light sweet crude. Brent crude spiked to 108.57 and is now barely in the green. WTI (West Texas Intermediate) a light sweet crude, spiked by $8.44 but has given quite a bit back. WTI is now up $5.03. I had expected convergence between WTI and Brent and this is a big step in that direction.
  • Treasuries are up as one might expect in a flight-to-safety trade. The US$ index was green by a modest amount but is now flat.
  • The VIX is up nearly 28% to 21 as I type, but 21 is hardly a measure of severe fear

Big Reversal Day or Another Dip to be Bought?

The one big question on nearly everyone’s mind is: “Should I buy the dip tomorrow or should I wait for two days?”

Indeed dip-buying is so firmly entrenched many dip-buyers are probably loading up today.

I do not know if this is just another dip to be bought or the start of a major trend reversal. However, no one else knows either.

What I do know is history suggests it is not prudent to be in this market without significant hedges. Optimism in general and earnings expectations in particular are at insane levels, and PEs are priced well beyond perfection.

I presented the bearish case for equities in Negative Annualized Stock Market Returns for the Next 10 Years or Longer? It’s Far More Likely Than You Think

If you haven’t read it, please do. If you have read it, you may wish to give it a second look.

Mike “Mish” Shedlock
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