It’s Like the Old Days in Commodities

For the traders out there, action in commodities has been highly volatile presenting opportunities as if it was the 80’s.  Basic technical analysis has been rather effective, especially within the softs and agriculturals.  Now the precious metals swell appears to be breaking, if only to regroup for the next move

It’s important to remember that large-scale traders and high-frequency traders are the beginning, middle, and end when it comes to trading.  Not only do they control breakouts and breakdowns, but they often make the market, too.  It’s important to exercise patience before positioning into a play.  Before a larger breakout or breakdown is firmly established, there can be see-sawing volatility that can jar traders out of position.  Patience allows you to skip a few waves before finding that swell you decide to ride.

What’s been hotter than the precious metals or related investments in 2016?  Not a whole heckuva lot, and silver has been on mad recent run but price action says it’s time for a pause.  The price of silver has already started turning over the last two weeks.  Because of the intrinsic volatility in the metal, it could be a quick ride down to the breakout point around $17.75.  I think this breakout in the precious metals is the real deal and I suspect we could see a sort of V-bounce right back up to the two-year highs once the breakout point is retested.

Silver Weekly (7-21-2016)

One of the calls I made in my last post was that sugar was looking blow-offy.  I wasn’t precise on the timing but clearly the action is looking corrective.  More importantly, the price action has been controlled to squeeze final long-profits and allow positions to be lightened.

Sugar ETF Weekly (7-21-2015)

I think sugar’s action could go one of two ways.  One, it could be like in the chart above where we see a downmove and then a bounce where final profits are taken and it gets sold off pretty hard down to a natural support point.  Or the market-controlling speculators could just sell the sweet stuff down in a hard, volatile move.  My gut tells me the first option is the probable play.  If you haven’t positioned for a sugar short, there’s still time.

Trading intense moves in an asset class is a lot like trying to catch a metro train.  You may have missed it going away on a long, but you can always catch it when it comes back on a short.

I don’t know nor can I explain why basic resistance/support chart analysis has been working so effectively since late 2015.  Maybe it’s the patience.  Maybe I’ve learned to read the action with HFT-tinted glasses before executing.  I don’t know.  All I know is that I don’t feel like I’m doing a whole lot different from most other years, but 2016 has been one for my own trading record book.  Who knows?  Maybe that whole 10,000 hours thing actually means something.

Let’s take a final look at bonds.  They’ve been driven up right along stocks.  In a bizarro turn, American equities are being viewed with virtually the same risk premium as corporate bonds and even treasuries, primarily because of solid credit ratings coinciding with high relative yields and developed-world central bank backing.

However, the boat is awfully crowded on the one side of interest rate direction.  The world has negative rates everywhere.  The crowd thinks there’s no way rates can move upwards just because the central banks are not in a position to act.  That is fallacious logic.  Observe:

10-Year Yields Weekly (7-21-20156)

Remember, the Fed’s final QE announcement in 2012.  You see that upmove in 10-year rates?  That was a market-driven move, not Fed-driven.  And yet money is allocated today as if there ain’t no way the market can drive rates up again in any sort of treasury selloff.  There is a widely held belief that American debt is one of the only pure safe havens, and it is to an extent.  That doesn’t mean that market controllers won’t inflict maximum pain for bettors letting their guard down.

We’ve already seen a sharp move up in rates recently.  Is there more to come?  I’d bet that the odds favor a continued, but possibly choppy ascent in interest rates.  This provides logical plays shorting TLT.

It’s not just developed sovereign debt that has seen a run.  Corporate debt has been plowed into as well.  Trading the exuberance on US corporate debt is as easy as some puts on LQD.  Have a look at the upward spike since Brexit:

LQD Weekly (7-21-2016)

LQD is already beginning to turn.  It may not fall down to support but hedging within a structured option play is well documented and easy to execute.

For my few followers out there, don’t give up on me.  I’ve been extremely busy with very little personal time.  I hope to post more regularly in H2 of 2016.  Have fun out there with your money.  Just don’t blow it.

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