Unfortunately, we were unable to publish Monday due to the death of my main Mac. It looks like we’ll be evaluating our tech shortly as I’m already frustrated from working on this laptop all week.
Anyway, we were able to publish a Gold Sell Signal at $1,300 on Tuesday for Equities.com. This was a follow up to our, Gold, Silver, Platinum and Copper Outlook from last week. There are two points to be made here. First, the discretionary COT Signals nailed the turn downward in the metals markets. Secondly, the gold-platinum spread has COLLAPSED. We watched platinum fall to a $50 per ounce discount to gold during yesterday’s trade. We still believe that fundamentally, an ounce of platinum is worth more than an ounce of gold.
The main focus of our research this week has been the soybean market. There has been a measurable shift in commercial soybean trader behavior over the last several years as Brazilian soybean production has exploded. We explain what it looks like now, ahead of the Brazilian harvest in our Pre-Planting Soybean Outlook.
Coincidentally, David Hightower just published a special report on the soybean market. We’ve posted his analysis to our site, here. Their take suggests that the late winter, early spring rally our analysis focuses on may be missing the bigger picture; the summer post-planting sell off.
There are two issues to look at this week in the soybean futures market. First, I’d like to discuss the seasonal pre-planting characteristics of the soybean market, how they’ve changed over the last ten years and what the current situation looks like. Secondly, I’d like to use this setup to explain the difference between market forecasting and trading program design with a special focus on soybeans and the market’s natural fear based reactions.
This is a critical point in the soybean futures’ seasonality due to the approach of the Brazilian harvest and the spring planting intentions here in the U.S. Brazilian soybean production has been expanding at unprecedented levels, setting new production records in ten out of the last twelve years. A final harvest number near projections would also keep that streak rolling. The Brazilian harvest has just begun but recent rains have already dampened the early harvest projections above 95 million metric tons(mmt) and are currently suggesting a number closer to 91mmt.
We’ve been noting the declining internals of the gold market which have suggested that this rally may not be sustainable. Last week, we looked at the 2015 metal markets in general and noted some of the details that have fueled gold’s recent rally, including sovereign currency destruction, deflation and Russian credit being relegated to junk status. These headline grabbing issues have brought small speculators back into the gold market based on gold’s relative value as it was trading nearer to $1,200 per ounce just earlier this month, and currency destruction rhetoric.
Unfortunately for the small speculators and those late to the game, it appears that this rally is about over. Commercial short hedgers have been very price sensitive over the last year. Three times the market has attempted to hold above $1,300 and all three times it was turned lower by heavy commercial selling. Looking at the chart below it is easy to see that their behavior is not only similar at this point to the past rally attempts but even more aggressively negative than the previous two attempts at these price levels.
Last week’s Gold, Platinum, Silver and Copper Outlook for 2015 explained a bit deeper, “Commercial traders have sold more than 25,000 contracts since the beginning of the year while open interest has declined by nearly 37,000 contracts. Healthy rallies see growing open interest. This decline is most distinct in the gold market and that’s why we feel gold futures will fall faster than platinum futures and bring the price of platinum back above the price of gold.”
Commercial traders are clearly offloading the inventory they picked nearly 10% lower and pocketing the cash accrued to their futures accounts. This morning’s small flight to safety as fearful traders come in and buy gold due to the stock market’s sell-off should be viewed as a selling opportunity in gold futures. It has become quite clear that $1,300 is the mean value area in the gold market where commercial traders will continue to be sellers above this price and buyers at steep discounts.
The metals markets disappointed in 2014. Global growth concerns weighed on copper and platinum while silver and gold simply appeared to lose interest. There seemed to be little fear of fiat currency defaults in spite of publicly made central bank statements regarding the destruction of certain currency bases in order to spur sovereign inflation levels and stop the downward spiral of disinflation. This week, we’ll take an in depth look at the metal markets and tell you what we think the best play is in this complex.
The “January effect” has had little impact on the US equity markets this year. It is becoming more and more obvious that the typical January effect is now coming in two waves. The first wave comes from year end bonuses, automatic portfolio purchases and speculators trying to get a jump on the year’s index performance. The second wave is based on conscious thought rather than habit or speculation. Based on the commercial trader behavior in the Nasdaq 100 futures it appears that we may be nearing a rational buying opportunity as you can see on the chart below.
Monday began with an official COT Sell signal in the U.S. Dollar Index that we published in TraderPlanet. This trade was actually a follow up to the previous week’s piece also published in TraderPlanet.
This was our U.S. Dollar Index piece posted at TraderPlanet on Monday. It seems there was an issue with the chart.
The piece actually begins with our January 5th article when we saw the commercial trading position getting out of whack as based on the Commodity Futures Trading Commission’s weekly Commitment of Traders reports. Our initial discussion can be found here.
The natural gas futures market was trading above $5 per mm/btu one year ago. This was boosted in large part by one of the coldest winters on record. Frankly, the news in natural gas since then has been nothing but bad as a mild summer limited cooling demands and the still temperate winter has brought more of the same. Furthermore, the sharp drop in oil prices along with a growing supply glut have also combined to send prices to multi-year lows. Several bearish factors have beaten the market down 50% from last year’s high. In fact, the gravity of the market has finally forced it to fall below the technical support on the chart below that had built up since the market last bottomed in 2012. However, all is not lost.
The entire soybean complex had been holding its collective breath ahead of yesterday’s USDA reports. As is typically the case, it quickly became a case of, “Buy the rumor. Sell the fact.” That said, yesterday’s post report action created a strong enough reversal downwards and away from the building overhead resistance to generate a COT Sell Signal. Normally, our chart would include a fourth pane labeled, “Short-Term Market Momentum.” However, for clarity’s sake, we left that pane out of the chart to focus instead on the commercial trader action illustrating their sensitivity to price.
Our first full week of the year puts the US Dollar Index on our radar as the most speculatively overpopulated market. Our piece for TraderPlanet took a look at this even as the Index itself continues to rally.