"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Saturday, May 24, 2014

Copper - A Case of Dueling Speculators

I have long followed the Copper market for its predictive powers and its relatively accurate assessment of overall global strength of the lack thereof. I put more credence in it and crude oil than most any other indicator.

I therefore find it fascinating in going over this week's Commitment of Traders report and discovering something there which fits with what I regard as the relatively confused, uncertain, and mixed sentiment out there among investors when it comes to assessing the state of the global economy.

Take a look at the following chart and note the positioning of the Hedge Fund category and the Other Large Reportables Category. I have circled their respective chart lines.

The hedge fund category, which has now moved to a net long position in the red metal, are 18,787 net long. The large reportables are -24,183 net short. These two categories are the BIG SPECULATIVE TRADERS. The large reportables can include CTA's, CPO's, and other large independent traders such as floor locals or private traders who have large enough position sizes that they are required to be reported.

One of these groups of powerful speculators are going to be proven very wrong. It is not too often that you see this sort of setup in a market in which the large speculators are positioned in opposite directions in fairly equal strength.

This setup will resolve itself in one of two ways;
1.) A bullish or bearish surprise on the fundamental front will force a big round of short covering or a big round of long liquidation resulting in a sharp move higher or lower depending on which side is wrong and is forced out

2.) A grinding type of range trade in which both sides can find data that provides fundamental support to their positioning with the result that any exodus by one side is matched by an exodus from the other. Or, any build from the one side is matched by a build on the other side.

Either way this is going to be fun to watch.

Which way is Dr. Copper going to go? Stay tuned and we will all find out.

By the way, the Hedge fund category has just moved to the Net Short side in the silver market once again. Here we have a similar development in silver as we do above in Copper, which again, is not that common. The hedge funds have been moving away from their net long positioning and reducing that exposure as they become progressively more bearish on the metal's prospects. The large reportables on the other hand, have been moving building a larger net long position as they become more upbeat on its potential.

This is the reason that the silver market continues to be stuck in a tight range between $20 on the top and $19 on the bottom.  Speculative forces are not in agreement. At the risk of further provoking the silver bugs, this has nothing to do with governmental conspiracies to suppress the price of silver. When the specs are in unison, the market will move in that direction that they are agreed upon. For now, it is stuck in a range going nowhere because of this lack of unanimity among the large speculative forces.

We'll see which side wins in this market.

Lastly, here is the gold COT chart. Not much to say about it this week except for this -those who keep talking "contrarian" in gold claiming how poor sentiment is for gold among speculators as a reason to get long the gold market, seem oblivious to the fact that all three groups of speculators, whether that be the Hedge Funds, the Large Reportables and the Small Specs, remain as Net Longs in the gold market. If these guys are bearish, I am not seeing it.

In spite of the fact that the reported holdings of GLD continue to drop, in spite of the fact that the HUI and the GDXJ continues to stagnate, specs are net long in gold. I have said it before and will repeat it; gold had BETTER NOT violate chart support by closing below $1280 or we are going to see a big surge in long side liquidation and that worries me as there is sufficient fuel for a sharp drop lower in the price of gold IF these specs are forced out. So far geopolitical concerns involving Ukraine are holding this market up but if interest rates here in the US start creeping higher once again, alongside either a rising Dollar/falling Euro, gold is going to be vulnerable.

Lots of uncertainties I will admit which however will require us all to be vigilant to monitor price action in the days and weeks ahead.