Corrections vs. Trend reversals

Okay so we have before us the long awaited correction in commodities. Look at past posts to show we expected this we wanted this we relish this. Another chance to get long the commodity train as it pulls out of the station.

So the logical question that I am getting asked is "how do I know this is not a trend change a reversal in commodities".

I even went so far in one post to say that these corrections can appear as reversals and to not lose hope.

One thing about corrections is that they always occur. You can count on them like clockwork. They indicate a healthy trend. But trends do change and reverse and we want to make sure we are not stubborn and end up on the wrong end of a trend.

1) Mega trends that I like to follow typically take at least10-20 years. The commodity trend is in its infancy of only 8 years.

2) Not that I am by any means a technical trader, but trend reversals typically have double tops. Look at the mega bull in equities. Topped out in 2001 had another basic top in Oct of 2007. So if we get to 147 a barrel in oil again and gold at 1,000 an ounce and have a massive correction like we are in now, that would be time to sit up take notice and re-evaluate our trend.

3) Mega trends usually blow off with a mad rush of mass hysteria and buying. Dot.coms were going to make everyone millionaires if you remember, Houses were the next gold mine, and when we hear the man on the street making millions in commodities, then we know this too will have run its course and ready for a trend reversal.

4) When you watch a game show and the contestants tell you they trade commodities for a living, then definitely get out.

So all the pundits may have this one right. We may be in a reversal. I even read yesterday someone spouting that the oil bubble is losing its air. Oil isn't even at its inflationary high, so why would I expect this to have been a bubble?

If you have never been in a correction trading, it can be scary. This is where the opportunities are made more than any other time. We will look back on 115 or even less barrel of oil with woulda shoulda coulda.

If you remember the equities, '87 was a killer and yet look at them now. In fact any blind buy and hold cling to this as proof, not realizing the gig in equities is up for many years to come.

If you cannot stomach the corrections even though we spell them out for you, then wait until the trend is obvious again and get in. You will not get the gains that are possible, but then sleeping at night is much more important.

This is why we trade with long term options being on the right side of the trend at the same time selling options to smooth the corrections that come our way. I wish there were a way to avoid corrections that always seem to appear as trend reversals, but then these are the buying opportunities.