Dec

30

 We are in the midst of "silly season", when price moves have to be taken with a grain of salt. A speculator, who has strategic framework of what he wants to do through the holidays — and more important beginning Monday, January 5 — can try to filter out some of the price noise via combination of Open Interest (O.I.) and Commitments of Traders (C.O.T.) data, overlaid upon the price moves.

1. My intermediate view of the S&P is squeezed between two usual suspect forces: reconcile downtrend vs. degree of oversold. I ask myself: what may be the catalyst for reversal? The environment is awful: it's not enough that there is usual dark economic background –there is also a possibility that civilization may revert to the stone age: substantial stock values are simply impossible, if the financial infrastructure collapses — and it is teetering on the brink! The 2008 lows conveniently fell into 2002-2003 low territory — which ordinarily would satisfy FLAT CORRECTION pattern. Tragically, a collapsed individual Ponzi scheme is now shaking confidence about the remaining capitalist foundation — it dawns on the masses that Wall Street, shamelessly taking in taxpayers money, is in fact the ultimate pyramid itself; and so is the government! So I hypothesize that any conventional oversold to-date is temporary; it will lead to consolidation/bounce to relieve it, before the final down-wave. Today's C.O.T. had Commercials net-shorting again, during price down-tick no less! Funds were going Net-Long — my suspicion is that they'll reverse to selling into any nice bounce from here…

2. Treasuries of all durations hit what Chair termed "unconscionable" levels. I agree,  but there is a little hitch: Commercials have bought into recent record highs, putting pressure on Spec shorts! I'm anticipating the last little squeeze right here, coinciding with another silly Bullish headline and only then would Commercials begin reversing into the ultimate value! I'm not sure it will be as high as 147 on the 30y future, to rhyme with Oil's record tick; but I think at least the impression will be given — that's the target!

3. EU and SF are certainly on their way to eventual new records against the Dollar. It may be because they're currencies more diligently guarded against inflation; or it may be because the Dollar traditionally depreciated over time (except during brief historical German and Japanese tragedies). There is slight problem right now. C.O.T. showed funds jumping onto this idea a little too fast last couple of weeks. So I expect them to consolidate their profits for a little while… Spec sentiment against BP is nearing very oversold: it appears that Specs are pushing toward EUR/GBP parity; I will be very interested in picking up some pounds around there before Specs eventually go the other way… Yen is fundamentally very flawed currency; Japan demographics are irreversibly weak. It's only a matter of time before Yen strength reverses for good but so far we're not getting any strong indications. Clearly: it is because Yen has been trading not on its own fundamentals but rather as the default beneficiary on crosses…

4. Metals have been captives to currency moves; also industrial metals have suffered disproportionately sharp physical demand void and investor cross-margin liquidation. But Platinum's price has consolidated in Q4, while O.I. has much improved. Copper is even more intriguing: Q4 dip from 3.25 to 1.25 came on increased O.I. and uncharacteristic record Fund Shorting(!) I have to conclude that metals are very near cyclical bottom but timing of any major rally would still be tied to currencies. Gold may still have to spend another Quarter or so in roughly 750-950 range, before breaking out to records with currencies; so range is what I will trade, siding with Commercials…

5. Energies are very interesting, as they are nearing very important bottom. Sentiment swings are most prolific here - as they are true strategic commodities. In the world that appears to come apart at the seams - there will eventually occur government hoarding "Mad Max" style! Both Crude and NatGas hit nice natural bottoms last week. WTI managed symmetric equality drop, you can't make this stuff up: $57 slide to $90 by Fall Equinox; then another $57 below $90 by Winter Solstice! NatGas completed 100.0% Lobagola $5.20 to 13.70 back to $5.21 - price, which equals precisely 38% of $13.70! So all of this is nice; except Crude is currently sporting C.O.T. Bearish divergence, and NatGas is sporting O.I. Bearish divergence. My conclusion is that both will struggle a little in Bearish wave2 - before Bullish wave3 rockets them in January… We are in the midst of "silly season", when price moves have to be taken with a grain of salt. A speculator, who has strategic framework of what he wants to do through the holidays - and more important beginning Monday, January 5 - can try to filter out some of the price noise via combination of Open Interest (O.I.) and Commitments of Traders (C.O.T.) data, overlaid upon the price moves.


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