The top chart is the daily bar, showing the violent trend break last week. The bottom is a 1-hour bar.
TD Ameritrade
From a quick search in the Mining Almanac, here are a few stocks that primarily target platinum group metals (click to enlarge):
SPX futures are looking wobbly, and gold and silver are looking downright weak. I took profits on my equity, euro, CHF and GBP longs and JPY short and have built a modest short position in crude, copper, silver, gold, palladium and GDX (gold stock etf).
Here’s ES as of the open (1-hour scale). A set-back today may be likely, but I would still probably expect stocks to recover and inch higher a while longer. RSI is weak on a 5-min scale but still strong on the hourly.
Yes, the “inflation/risk trade” is moderately oversold, but when oil, copper and the like start to fall, they can just slide straight down for months. I believe that the commodity rally of the past 15 months was just a dead cat bounce correcting the crash after the massive 2007-2008 bubble.
Now that we’ve had that correction (and then some when it comes to the metals), there is little reason for prices to remain elevated. The supply/demand situation today certainly doesn’t justify $3.00 copper or $1.00 nickel or zinc, and demand will be even weaker in a year when the construction bubbles in China, Australia and Canada are over.
Here’s a pattern I see in crude. Now that the uptrend (higher highs, higher lows) is busted (we made a lower low), all rallies may be short and weak:
TD Ameritrade
Copper’s uptrend is still technically intact but very weak(see RSI), and it could play out the same way:
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Of course, if a large rally does develop, it will just be more fodder for the bears. I’ve entered a short on copper at $3.13 today, and am prepared to add to the position. I’ve also just picked up some July puts on crude futures (expiry June 17). I don’t like near-term options, but these got cheap today and will pay off 25:1 if oil is $55 three weeks from now.
If another broad-based rally in risk assets develops, I’m covered with longs on stock futures. However, I would not be surprised to see stocks (and the Euro) rally for a while here while commodities decline. When trends start to exhaust correlations can break apart.
It would be nice and tidy if this morning’s 1036 print on ES turned out to be the low for a couple of weeks or even a month or two. Stock indexes made a price extreme unaccompanied by new highs in the VIX or yen or new lows in the euro, pound, copper, silver, gold and many bellweather stocks. The later rally was fast, furious and broad.
Here’s how this week in ES looks to me in the scheme of things. A right shoulder would be beautiful here:
TD Ameritrade
To re-iterate, I’m a huge bear for the 6-18 month horizon (my SPX target is an indecent number well under last year’s lows). I’m bullish for the 1-6 week horizon — I anticipate scaling back into a heavy short position in stocks, copper and oil on any rally here.
Trader sentiment on the grain complex (corn, wheat, rice and especially oats) has been very bearish for weeks, but prices have stabilized and RSI is turning up. This could be the set-up for decent rally, especially if general risk appetite comes back for a couple of weeks.
Here’s a chart of wheat going back to 2003, weekly scale:
TD Ameritrade
And here are oat futures:
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You can see in these that the grain complex went through a mania in 2007 and early 2008 with the rest of the commodities, but that froth was quickly blown off in the crash. Prices are in rather neutral territory on a longer-term basis, which you can see for yourself by checking 25-year charts on indexmundi.com or futures.tradingcharts.com.
SPX futures are looking pretty oversold here, and you could say there’s a bit of negative divergence on the hourly:
TD Ameritrade
The US markets are actually among the least oversold around the world. Japan, Australia, China and lots of Europe are down a lot more, which tells me there’s room for a corrective bounce here.
Here’s Australia’s main stock index, for example:
Bloomberg
Of course, I think all stock indexes are going to make deep new secular lows in the not-so-distant future, and the land down under will finally be welcomed to the depression as its real estate bubble pops and commodities decline again.
Here’s the interview with Eric King.
Fleckenstein makes excellent points about the “jihad” against the bullion banks, explaining the ridiculousness of the GATA-type theories. He points out that they are often net short futures simply to hedge their long positions in physical, and that lots of people who work on those desks are PM bulls. He knows a few market makers at the big banks, and says they have been bullish all the way up.
Despite the supposed manipulation, gold is up 4-5X since these theories took hold in force. Why haven’t the supposed shorts “blown up”? As for the central banks, they thought gold was worthless and sold tons near the lows, but now they supposedly think “it’s so magical” that they have to keep the price down?
The futures manipulation theories are just a “loser’s lament,” as Jim Grant says. Get this: he says that big-time short seller Jim Chanos is on the PPT! I can’t confirm that, but would be very interesting and put to bed a lot of nonsense if true.
The discussion of manipulation starts about 3/4 of the way through (to jump to it, place the marker over the “t” in Fleckenstein).
Fleckenstein seems to be a huge silver bull, expecting physical demand to soar. He entertains the possibility of silver reaching some “silly” price level. The wealthy have not taken big physical positions in silver, but if they did, the market could go “wacko.”
Also discussed: the US health care bill, inflation, bailouts, Greece, and home foreclosures.
The trend was smartly broken back in January, and now this bounce looks like it’s exhausting right about where the old support line would be. These are the various popular commodity indexes, from Bloomberg:
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You can see this loss of momentum in the former leaders: gold, silver, oil, copper, sugar and cocoa have all failed to make new highs as stocks have surged over the last month.
This is a strong sign that the urge to speculate is fading. Without that, there is nothing to keep prices up, since demand is very low for everything from oil to wheels of parmesian cheese (remember the cheese bailout in Italy?) compared to the 2008 commodity peak. When commodities fall, they often drop straight down. No class of assets declines faster. See this weekly chart of sugar for a case in point:
futures-tradingcharts.com
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If you are looking for short ideas among commodity stocks, this is a neat tool: miningalmanac.com (I think so anyway, but then I’m part of the team that’s building it).
Select the exchanges you trade on, then look for stocks without a lot of “burn time,” in other words those that may be running out of money. Or look at the “financial strength” tab to see who has too much debt and too little cash. Right now this beta version has mostly Canadian companies, but it’ll have almost every mining stock in the US, Canada and Australia before long.
(First published 3.3.10, 1:27PM EST)
I’ve noticed lately how well the 60-min RSI (relative strength index — a measure of oomph in price movement) has been doing, so today I decided to quantify it. The result is simply spectacular, even with a mechanical buy/sell decision that always had you in the market either long or short.
Here is a 60-day chart of the Dow, by 60-min bar. The circles are negative RSI crosses (red arrows on the bottom) and the boxes are positive crosses (green arrows). The numbers are the Dow points one might achieve by riding Dow futures from the previous signal using the signals alone, with no stop-losses. Additional signals do not add to the position, and the trade is reversed on the next opposing signal.
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I tried to be conservative with those point totals (not buying or selling top or bottom tick), and some of those moves may have been missed due to opening gaps (where the price has already moved so far by the time of the opening bell), but you get the idea. It comes out to 1425 Dow points, even having been short for the whole 500 point drop in late January, which a stop-loss could have prevented. A single mini-dow futures contract, symbol YM, requires a margin of $6825 and is worth $5 per Dow point.
Now, this is hardly a perfect reflection of actual trading, but just mechanically trading a simple signal is infinitely superior to trying to outguess the crowd based on mumbo-jumbo like the Greek situation, Barney Frank, Obama this or that, oil prices, GDP, consumer data, or any other nonsense.
Now, I don’t have to tell explain any further why I think the market will probably fall by early next week.
Nothing to do with the earthquake of course — by late Monday, Sunday night’s spike was retraced to where copper closed on Friday, once traders calmed down and actually read the news reports that copper production and transport facilities were fine.
In the 3.29 – 3.35 range this morning, it was trading about where I’d expect given the action in stocks, oil and other metals. There ended the rational for my short from 3.45 Sunday evening, and I closed the trade at 3.34, noting the neutral trend of RSI and a bullish MACD cross on the hourly bar:
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I’ll now be looking to re-enter for a longer-term short, since I think the pending implosion of Chinese, Australian and Canadian real estate and the general resumption of the deflation trade will not be kind to industrial commodities.
Sovereign Speculator 