"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

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Tuesday, September 16, 2014

Copper Short Squeeze Pulls Metals Higher

If you ever want to know why we commodity traders are occasionally prone to be heard muttering meaningless, seemingly disconnected sentences, rambling incoherent utterances and other assorted bewildering, strange words, it is because life in the commodity futures pits can produce some of the most inexplicable and bizarre moments that the vast majority of sane, otherwise blissfully ignorant folks will never quite comprehend.

Take copper for example. Around 10:00 CDT, the red metal began to lift sharply higher on big volume. Something began to rattle the shorts in the market. Then at the start of the next hour, it really took off. Look at the extent of the price spike. It ran from 3.10 to near 3.21, a HUGE 11 cent per pound jump on no discernible news whatsoever. By the way, for enquiring minds, that is a near $2500.00 move per contract! Do any of you remember that recent COT chart I posted of the copper market noting the hedge funds had begun positioning on the short side of the market in anticipation of slowing global economic growth? Well guess what? They all must have run at the same time!



I am still trying to discover what the catalyst was to shove copper prices this higher in such a short period of time. I did note however that the move higher in the copper also coincided with a strong burst of buying in the crude oil and related energy markets. Also, in trading the soybean market, I also noted a surge of buying interest coming in at the same time. This all occurred against a backdrop of a push higher in the major currencies against the US Dollar.

What this tells me, and I still do not know the reason behind the move, was that this was the same old MACRO TRADE that we have seen in the past wherein INDEX FUNDS come in and buy a basket of commodities, across the board, regardless of fundamentals, because of the lower dollar trade. That will explain some of this but a large part of the move across the sector was also due to hedge fund short covering.

What makes this even more strange is that expectations are that the press release coming from the FOMC tomorrow is expected to provide some more definitive data on any upcoming rate hike. That has been expected to provide another upside boost to the US Dollar. Maybe the market is changing its views on that? Who knows? Whatever the reason the initial burst of buying has seemed to abate somewhat as the panicked shorts in the red metal apparently have been flushed out but now what?

Also, this big buying binge has been accompanied by another surge in the equity markets with the S&P climbing back above 1990.

I can tell you this - anyone who dismisses the Dollar's significance when it comes to asset prices is making a huge mistake. That big macro trade is always ready to come piling on or come piling off.

By the way, at the risk of having some fun with the "Gold is Always Manipulated All the Time" crowd, ( GIAMATT), is a big short squeeze higher considered upside manipulation or it is "Normal"? Those of us who have borne the brunt of the attacks from this group already know the answer to that. I merely point this out to show their complete silence by way of their condoning sharp spikes higher in price while constantly complaining and bemoaning all sharp moves lower in price. "oh Ye Hypocrites - why art thou so silent at such sinister conduct"? Enough fun for now however!

Remember, copper prices have been taking their cue mainly from disappointing Chinese economic data news with traders fearing a slowdown in the expected growth rate would crimp demand for the metal. Combine that with Dollar strength due to expectations, whether perceived rightly or wrongly is immaterial, of higher interest rates here in the US, and commodities have distinctly fallen out of favor with would be buyers, not to mention been the target of aggressive hedge fund related selling. Any sort of news therefore that sends the Dollar lower (such as dovish talk on interest rates ), for whatever reason, can easily spark a big wave of short covering across the commodity complex.

That is exactly what we got across the vast majority of the complex this AM.

Keep in mind that there are many who believe that the economy is in no shape to handle higher interest rates as it is not growing near fast enough nor has enough inherent strength to overcome the drag that would come from higher loan rates.

We'll see whether this is a one-day blip ( although it is terrifying if one is short in some of those markets that experienced a squeeze of this nature) and it all is for naught tomorrow when we get the actual FOMC decision to taper another $10 billion in QE plus news on the interest rate front or it is might be the start of more prolonged move.

I tend to think it is the former and will fade out fairly quickly but with these goofy markets and computers running the show, anything is possible. All one can do is to stay nimble and either learn to get the hell out of the way or trade very small at times. Be careful out there folks! If the FOMC release tomorrow is considered dovish, there could very well be more selling pressure seen in the Dollar, even though the Euro zone is a mess and going nowhere anytime soon. Ditto that for Japan.


53 comments:

  1. Reminder to all. Sep 16 to Oct 31 the worst performing part of the year for U.S. Stocks over the past 30 years. Stay nimble, step lively...

    ReplyDelete
  2. the news was PBOC liquidity:
    Sina.com reports that the PBOC will use their Standard Lending Facility to add 500bn in liquidity. Sina.com is citing a banking analyst Qui Guanhua who says they will be providing 100bn yuan to each of 5 banks today and tomorrow with a 3 month duration.

    all commodity currencies popped, the 1.30 round number wasn't easy for the eur/usd.

    commodity short covering ahead of yellen weds. and euro litro and scotland in the next days, as the shorts had tons of profits!

    CL next target is 50-day MA... a little ambitious citing the 200-day, haha!

    cheerio!

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  3. Japanese, Euro, Chinese, American policy wizards are all in uncharted waters. Only conclusion to be drawn is that if you put all their heads together you would indeed get a rockpile.

    ReplyDelete
    Replies
    1. Steve

      Are you familiar with Ben Hunt's work over at www.epsilontheory.com ?

      I do not agree with all if his conclusions, but his analysis of the myth of Central Bank omnipotence makes interesting reading

      Although I forget the precise dates, there are a number of G20, SCO and IMF meetings coming up later this year, which might prove to be turning points in market sentiment

      Delete
    2. http://www.salientpartners.com/epsilontheory/pdf/5.25.14%20Note%20-%20When%20Does%20the%20Story%20Break.pdf

      Delete
    3. PCB, no, but I will check out during the day. Thank you.

      Delete
  4. Zhang Lan;

    Thanks for sharing that. It is excellent information.

    Dan

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  5. Dan, your last bit is the best advise. sometimes I need to pop a beer and just watch for a while. by the way maybe GIAMATT is true but I say don't whine deal with it.

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  6. This is all over the media now.

    Jon Hilsenrath a Fed insider type reporter said today the Fed's "Considerable time before raising interest rates" statement will not change in tomorrows statement he believes.

    More easy money longer, stock markets rocket higher and the US dollar sells off on the news.

    Guess the Fed saw the stock markets starting to falter on the raising interest rates trial balloon they floated out there, so are looking to reverse that talk with Hilsenrath's comments.

    The Fed obviously even after 6 years still will not let the markets stand alone on fundamentals to find true market prices.

    Of course the Fed knows the stock market is the recovery so they will say anything to keep propping it up.

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    Replies
    1. Do you have any FOGGY clue that earnings have been rising over time? Valuations are not historically out of line with earnings. YIKES! Time to step outside for a while.

      Delete
    2. Well Eric if you consider corporations borrowing trillions of dollars of the cheap Fed money near 0% to buy back their own shares to create earnings then guess those earnings are great after all.

      And yup thats why the stock markets rocketed higher today because great earnings were announced. Nothing to do with central banks.

      Think you need to get a clue and pay attention what happened today.

      Perhaps you were outside all day and missed it.

      Delete
    3. Every time I hear a guy complain that the markets are disconnected from the fundamentals, I see someone who has been losing money.

      Delete
    4. Its been a great ride in the stock markets, its not being created from an economic boom is all.

      Delete
    5. One might argue the bullmarket in equities since 1980 was caused by lowering interest rates.

      Manipulation in the dow all the way from dow 1000.

      I say its a Ponzi!

      Delete
  7. Very enlightening. Still working on understanding the import of this all.

    And I fully agree, there is a huge dose of xenophobia in financial reporting.

    ReplyDelete
  8. or maybe it's Fonzie!

    https://www.youtube.com/watch?v=MpraJYnbVtE

    ReplyDelete
  9. Much faith in communism, Zhang has. Monetary policy is not the issue with China; rather it is the lack of individual freedom. We will all get to witness China's down fall over the coming decades. Communism has never worked, and never will.

    ReplyDelete
  10. Once again, Trader Dan nailed it.

    Just 2 days ago he mentioned the lopsided sentiment in copper, too many bears.

    ReplyDelete
  11. Silver will do better than gold according to Nenner

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  12. Hi Lan,

    On my charts, silver is held only by one thing, the inf bollinger band of the weekly time unit, corresponding to last year's lows near 18.50.
    Contrary to other times, the perspective seems uglier and I didn't try to buy the dips (especially with gold breaking through 1240 at the same time).
    If we break 18.50, I have a target at 16.50 for starters.
    18.50 had better hold for silver bulls.

    As for Nenner, maybe what he is saying is that silver's volatility is higher than gold's, and as he thinks that gold can only go up from here (I disagree, of course), silver will do better.

    Copper...the thing with CFD platforms is that they are thieves :)
    I put a long order at 306.10 a few days ago (remember the area 305-306 I mentionned for support area) but with a spread of 60 pips!!! , yes 60 pips (305.50 / 306.10 for example), I missed it while copper did hit the sub 306 area.
    That's the problem with CFDs vs Futures.
    You can trade much smaller contracts.
    But it's not made for short term trading or you'll easily be eaten by spread + commissions.
    Well, one can't have everything :)

    ReplyDelete
  13. This link offered without comment:

    http://www.prageruniversity.com/Political-Science/The-American-Trinity-2nd-Edition.html#.VBj_4d50w5s

    ReplyDelete
  14. Steve,

    I picked GB, not TB, thank goodness. But I ALMOST picked SF... So glad I didn't!!! I live on. Thinking about Atlanta this week? Pats are the obvious pick, however Tom Brady looks more like Scott Sisson than Tom Brady.

    ReplyDelete
  15. Zhang- Would agree that ones values and character are more important than race or nationality for sure. And in a free society (no matter which one it is), one's values/character would be a more accurate predictor of success than anything else. Thanks for your contributions and good trading.

    ReplyDelete
  16. Ah! We all knew the communist were up to something...

    http://armstrongeconomics.com/2014/09/16/china-prepares-for-war-with-japan/

    ReplyDelete
    Replies
    1. I think that one is probably true - I will let Queenie speak for herself about the respective merits of the situation, but I can confirm that the blood is well and truly up about that one

      The problem of course predates the Commies - as indeed does the infamous "Nine Dashed Line" which maps out the South China Sea. These people have long memories

      Delete
    2. Sigh. I hope the long memories can be resolved more civily there than that are in the Mideast.

      Delete
    3. Hi Lan,

      China is oftentimes presented as a peaceful country which practically never in its history tried to extend its borders militarily.
      Is it dead wrong and do you think China became actively aggressive towards its neighbours, to the point that it would take the initiative to invade / nuke Japan?
      I didn't post the link towards Armstrong article by chance, of course, as I'm nervous about the tensions in the region, but your forecasts go beyond my most pessimistic scenarios... gasp!

      Delete
    4. At least, maybe they'll soon release some new versions of the good old games of my childhood!
      http://www.youtube.com/watch?v=4xu_Ldvn1GA

      Delete
    5. If Japan is in ashes the USA is unlikely to uphold the mutual defense treaty. Unless of course the forward deployed forces respond. If I was planning the attack those forces wouldbe targeted first as they are unlikely to get an okay to shoot in time. Have to wake up Hillary first.

      For you and PCN is a relocation of about 12 time zones indicated?

      Delete
    6. This comment has been removed by the author.

      Delete
  17. Sorry, target would be 16.80, not 16.50.
    Contrary to Copper which bounced precisely while MACD 9 20 7 met its propagation axis, Silver's MACD alrready broke through its axis.
    ema15 and ma20 are heading down and are effective resistances.
    Meanwhile inf bol band weekly is slightly giving way and is already closer to 18 than 18,50. I will be closely monitoring who wins between bollinger band support and daily ema15/ma20. If prices don't bounce strongly soon, the perspective looks more bearish to me. That being said, it's my personal opinion only.

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  18. This comment has been removed by the author.

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  19. This Australian guy (who also has the sense to be named Andrew) writes quite a balanced and well informed blog on Sino-Japanese affairs

    http://southseaconversations.wordpress.com/2012/08/19/the-whole-worlds-chinese-people-are-going-decisive-moments-and-the-perils-of-diaoyu-nationalism/

    http://southseaconversations.wordpress.com/2013/02/25/abes-southeast-asian-diplomacy-intersection-of-the-south-and-east-china-sea-disputes/

    http://southseaconversations.wordpress.com/2014/06/19/chinas-not-so-new-spratly-islands/

    ReplyDelete
  20. Great piece as usual Lan, but I am afraid WAY over the heads of Egon, Embry, etc, and of course the sheeples that blindly follow them over the cliff ultimately. Silver 15-1 in your dreams, Denver Dave.

    ReplyDelete
  21. Oh, what might have been !

    http://www.zerohedge.com/news/2014-09-16/what-might-have-been

    ReplyDelete
  22. Lan, Nenner last had an original thought maybe 5 years ago, and as for interviewer Hunter, I can only say one thing, and that is that he is the perfect definition of childlike.

    ReplyDelete
  23. Part of the preduce is political while part is just home team. We all see news about local markets first followed by less and less about other markets the farther they are away.

    Causes me to look at other news sources than USA MSM. BBC, Reuters and etc.

    Thanks for the addition info.

    ReplyDelete
  24. Nate, it is either the Pats or Saints this week for you to come back next week and fight another battle. These look easy.

    ReplyDelete
  25. Zhang, I have newfound respect for you. Your assessment above is to the point and I do know what I am talking about, as I also lived in several countries (communist and non-communist). I am tired of so many neo-con ideological supporters who constantly repeat paroles and witticisms of their beloved criminal minds. They study the world by looking into their own little backyard and then projecting it on the entire planet. The thing that gets me is that they are not even paid to do so.

    ReplyDelete
  26. Steve,

    Would you mind shooting me an email at nathanaelwills@gmail.com? We can talk sports without filling the board?

    Thanks

    ReplyDelete
  27. TIPS took a big hit on the lack of inflation from the CPI Aug -0.2% print.

    other interesting item is the 6 year high print in usd/jpy... everybody loves a low currency!

    euroland gives the results of QE the 'litro' thurs. and scotland isn't til friday, so a long way to go to get this week booked.

    any dips by SPX on fomc decision said to be a buy on the op-ex week pattern and BABA ipo.

    cheers!

    ReplyDelete
  28. SPX dip buyers were there ES did +15 of the post fomc low.. some new trends in various items can start the day after fomc as well.

    Quiet day in the grains, with little movement; corn dn 2 on harvest; beans up 2 waiting for harvest; CH wheat up 3, KC dn 1, MN dn 2.

    notice yesterday in the ags the 'round number sellers' were there in spades at nov beans 10.00 and dec corn 3.50.

    ReplyDelete
  29. GLD and GDX blowing out to new lows.

    I was wrong about the imminet short squeeze, sorry.

    Looks like gold is dead for now.

    ReplyDelete
    Replies
    1. Lets see if Sinclair says sorry again 200 dollar lower like he did in 2013 and blame it on the irresponsible bankers again.

      LOL

      Delete
  30. Zhang Lan;

    Mr. Rule would fail an ink blot test.

    He is seeing what he wants to see and not what the chart shows. The fact that anyone is paying any attention to his sort of perverted comment on a price chart is tragic.

    ReplyDelete
  31. RR is likely helping to market Sprott's new gold miners etf....as a "contrarian" investment.

    ReplyDelete

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