From a good post by Mish on how overpriced oil is at $100:
High oil prices, like high metal and food prices, are just a result of a carry-trade gone wild.
US oil demand has never recovered
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Tag Archives: futures
This is why silver margins were hiked
Since the futures opened on Sunday, silver has fallen $13. For a standard 5,000 ounce contract this is $65,000, more than three times the COMEX margin. Today alone silver is off $15,000 per contract. It is just plain silly to claim a conspiracy against silver, and even sillier to claim that margins were hiked for nefarious reasons. Margin had to be hiked to keep up with the price of silver and its volatility, to protect the exchanges and winning traders (and to protect losers from themselves).
Like I said a two weeks ago at $45 when I discussed buying near-term puts on silver in anticipation of the bubble popping, I think the metal’s run is over. I suspect that it may establish a new normal in the $10-20 range for the coming decade or so, until the next secular inflation cycle is upon us.
Time for a bounce? (euro, stocks, copper, oil)
Here’s ES, 1-min scale:
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RSI could use one more low, ideally at a higher level than the last to increase the odds of a rally. The Nasdaq has diverged from the S&P 500 already though, and copper has a clear upslope in RSI:
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EDIT: Here’s that higher low in RSI on ES that I was talking about and breakout from the downsloping trend:
Toppy action in dollar index, another rally in stocks coming?
The dollar index is showing waning strength on advances, and its rally is very long in the tooth. There could be worse times to take a short position on DX. At least there is a clear and close stop price at the highs.
Here’s the 2-hour bar, then the 5-min:
TD Ameritrade
Here’s what ES looks like to me this evening (5-min chart). There’s an upward divergence in RSI, indicating waning oomph on the sell-offs:
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I took a long position in CHF and ES (SPX futures) after the close of regular trading today, and I’ve shorted some Treasuries and yen, but I’m still short oil, palladium (added to my position today), copper, silver, gold also added more today) and copper. I’m agnostic about the intermediate-term direction of the risk/inflation trade and just trading what I see: commodities look broken, but stocks still have rebound potential, as do the euro, franc and pound.
This chop and weak rally action in stocks precludes neither a big new rally nor a fall into the abyss. Big rallies like August-October 2007 or Feb-April 2010 have started slowly with chop like this and kept the bears confident. The timeframe for such a rally is limited, however, and if we don’t take off in another week or so momentum will peter out and we can start to roll over. This is what happened in late spring 1930 after the first hard leg down from the top of that post-crash rally.
There’s that weakness in ES
The short-term weakness in futures yesterday morning produced a 20 point drop overnight, and also painted a declining pattern in the 1-hour RSI. I covered an ES short in the low 1070s, since RSI is already into oversold territory with a double-bottom:
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It would be nice to see a weak rally now to set us up for another big wave down, but we’ll see what happens.
Also overnight, CHF and EUR made new lows. I bought some CHF near the bottom and sold for a quick trade. GBP held up pretty well in comparison, by the way.
ES update (edited for clarity): stock futures still strong, but watch RSI for signs of weakness
We don’t really have waning strength yet on the hourly scale in SPX futures, but I can see the possibility. If this current rally leg (from Friday afternoon’s low around 1083) fails to break 1107 (Friday’s high) or does so on weaker RSI than the last rally, it will be a hint that the entire move up from 1036 is coming to an end. A fresh wave of selling will be even more probable if hourly RSI makes a lower low after a lower high.
Watch for weakening rallies and strengthening sell-offs to telegraph impending declines, even if prices are holding up (to be clear, we don’t have such weakening yet — I’m just watching for it). Prices often do stay elevated right up until a nasty break, like we saw from mid-April to early May (see chart below, ES 2-hour bar). You can also see the strengthening rallies and weakening declines since the bottom last week (the bottom was less strong than the preceding wave down, which is a classic buy signal).
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Here’s the ES hourly. Still showing strength, but it would be bearish if this current wave does not get at least as powerful as the last.
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And 15-min bar… this one shows weakness, but it’s too early in the wave to be sure.
All charts from TD Ameritrade
Today is a trading day for most of the world (and US futures are trading, though on a cut schedule), so don’t think that prices will wait for 9:30 EST Tuesday to make any important moves.
Remember, we have a rather neutral set of conditions on the daily chart, but the Elliott Wave crowd is looking for a hard third wave down anytime, and last week’s action could serve as a perfectly functional 2nd wave. If there is a third wave coming, it will be more powerful than the decline from 1220 to 1040, possibily taking us under 900 very quickly. Judging by May 6, the market has signaled that it is capable of such a move, and relentless declines are common following bear market rallies. Also in favor of such a move are the continued dollar and yen strength, anemic rallies of the euro, chf and pound, and the fact that the commodity complex is looking broken.
If you can’t tell, I am ambivalent about stocks now and positioned appropriately flat at the moment. These are not good junctures to trade, since the signals are so mixed.
Kiss of death for palladium?
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):
Closed equity & currency longs, short metals & oil
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.
Don’t count on a big rally in commodities.
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.
Do we have a bottom?
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.
