Commodity Sentiment

The Entry Points

Trader Scott

Below the “fold” is a post from 3/6 regarding my concerns about commodities. The sector is very bullish long term, but they got overdone on the upside. And at the same time, the Fed was/is extremely confident, as was/(not as much now) the consensus about Trumpflation, and soaring GDP. The rampant bullishness about commodities fed on itself. And 2 months ago, being bullish right into the highs was a horrible viewpoint for a market participant to have. And to repeat – rising prices increases confidence – always. So there was a toxic brew at the highs. Sometimes it takes time for these things to play out, but at a minimum DO NOT buy at the absolute worst times – when most everyone is bullish, and they are concocting reasons (excuses) why the market “looks good” and is “holding up well”. If you hear those terms used, stay far away. It is about the laziest form of “analysis” possible – just looking at a chart for 10 seconds and declaring, “it looks good” is supposed to be profound. You can guarantee when you hear something like “it looks good”, then it’s a great reason used by the weak hands to pile in. And that’s exactly what was going on in that time frame. There were record, or near record, speculative long positions (see below). And I was adamant that silver “holding up well” was not remotely bullish, rather it was the “laziest form of analysis”.

So now the weak hands have decided that things “don’t look good”, and things are “not holding up well”, therefore it’s time to bail out – either voluntarily, or via sell stops. I have done several posts and videos about my bearishness on crude, and especially the frackers.  And of course the WSJ, like usual, was getting super bullish as of 3/6. So here are the charts as of today for silver, crude oil, copper, and a commodity index. The 3/6 post is below:

3/6:  The commodities market for awhile has been concerning to me. There are too many confident new bulls. I did the post about markets at extremes on Dec. 12th. Copper was one of those markets, and along with crude oil, they are worrisome. For example, the futures speculators are very long these markets, along with silver. And there is a large consensus continuing regarding the confidence in Mr. Trump’s policies bringing good times back for the US economy. I don’t share those views. Commodities are still very bullish long term, but it’s the nearer term which is the problem. And now that commodities have been in a secular bull market for over a year,  the esteemed WSJ is just now recognizing it. That’s also quite concerning.

“The three-month correlation between commodities and stocks recently fell to the lowest level since September 2008..”

And they claim that this is “reinvigorating” the “long-beleaguered” commodity market. Have they lost their minds? Have they not noticed that oil has more than doubled from its low, and base metals have soared, etc? So they are claiming since this useless correlation is low, then it’s somehow bullish? Where do people come up with this stuff? And their brilliant analysis about this correlation, claiming it’s bullish, was a superb timing method in September 2008. This popular commodity index, DBC, fell almost 50% over the next 6 months into the big low in March 2009 after their great discovery of this correlation. Not only that, but the stock market also cratered into its’ March 2009 low after their “bullish” correlation low levels. So they both cratered together and then stocks and commodities bottomed on almost the same exact day. What kind of a useless correlation is that? It sounds like it’s more bearish than bullish to have the correlation breakdown. And it certainly is not bullish, that they just came up with this conclusion. Just remember, this is the same esteemed WSJ who, 3 days from the secular bottom in December 2015, came out with an article claiming the Fed raising interest rates was bearish for gold. So you see why their brilliant analysis is concerning.

The WSJ

Investors have lost their appetite for precious metals. Gold and silver prices have been under such pressure that technical factors suggest there could be more selling to come. Both gold and silver often are viewed as bulwarks against market turmoil and sudden aversion to them is a sign that geopolitical concerns are unwinding. Weakness in the metals also highlights anticipation for a Federal Reserve rate increase next month. Silver, which has tumbled 11 out of the past 12 sessions, fared worse, sinking 1.7% to its lowest price since January. And both are again down in the early going Thursday. Both metals tumbled in the immediate wake of November’s presidential election, but found newfound favor earlier this year amid uncertainty about the timing of the Trump administration’s pro-growth policies and saber-rattling over Syria and North Korea. Also looming was political anxiety in France, where far-right leader Marine Le Pen, who made overtures about exiting the Eurozone, was making strides in the presidential race. Gold and silver have sold off as Ms. Le Pen’s odds to win this weekend have grown longer. Silver is down about 11% since April 17. Then Federal Reserve policymakers on Wednesday added to the selling pressure on the metals. The Fed’s policy statement implied that the central bank is on track to boost interest rates twice more this year. Precious metals tend to fare poorly as rates rise. A rising dollar is a problem, too, since the metals, priced in dollars, become pricier to foreign buyers. The WSJ Dollar Index climbed 0.5% on Wednesday, the biggest rise in two months. Charts for both are likewise sending cautious signals about precious metals. Gold this week knifed below both its 50- and 200-day moving average, price levels associated with market momentum. Silver has fallen so swiftly that it has closed for seven sessions in a row beneath a momentum indicator known as the Bollinger Bands, tied for the longest such streak in history, according to SentimentTrader.