Housekeeping: Yesterday I sat down with Chris Marcus of Arcadia Economics for a discussion on metals , and the interesting behavior of Banks hurting Silver shorts of late. The link to the first half of that two-part interview is here if you are so inclined. If you don’t already— subscribe to his channel for some very good Silver analysis and commentary.
Market Rundown:
Good Morning. The dollar is up 21 points as we write this. Bonds are slightly stronger. Stocks are down 30-60 bps. Gold futures are up $2 and Silver is up 10 cents. Oil is down 30 cents and Nat Gas is up 9 cents. Grains are all weaker down 30 to 100 bps.
Comment: CTA Panic in Stocks, Metals Continues
Yesterday we got better than expected payroll number. The market reacted strongly to this and sold off in a flash ( flash-crash?). Implications being the stronger the economy is, the more likely the Fed is to continue at its current torrid pace of tightening.
But as the day wore on, Stocks and Precious metals rebounded. A big reason for the volatility and resilience of the market right now is CTA short-covering behavior. We’ve talked about this a million times on metals most recently in Silver here. Zerohedge has been all over this in Bonds (frankly this is scary) for a year now. And now ZH is noting the CTA driven stock behavior too. This is an attestation to how many weak-handed retail (CTA) shorts there are in Stocks, Silver, and to a lesser extent Gold. It also says they all do the same thing.
***Premium subscribers can see CTA positions in every market with stop-loss triggers at bottom. ***
What we are saying is the market is being driven more frequently by a herd of Wildebeest following some algo their CTA uses that he got from his prime broker who also gave it to everyone else.
Widen your stops and lighten your volumes if this concerns you. It concerns us greatly as metals, energy, and stock traders in the long term.
BUT: In the short term it is a source of great trading. We will elaborate more on all of this Sunday.
Excerpts: TD on Gold. Goldman on Oil
TD On Gold: We like TD for their unbiased CTA info. But they are starting to write more. So far they are not bullish. We don’t agree, but cannot find fault with their logic
Gold extended the Bank of England liquidity action-initiated rally smartly past $1,700/oz, as weak US data shifted interest rates and the USD lower. Considering the hefty money manager short positioning, this very likely a short squeeze, as traders right-size their short holdings to reflect the lower interest rates across the Treasury curve and somewhat lower US dollar.
CONTINUES IN PREMIUM
Goldman: OPEC takes on the Fed (an alternative take)
Updating our OPEC preview table, we introduce a scenario where OPEC+ changes the baselines to match their Jun-Aug 2022 average production levels (similar to how the original baselines were set),
TD CTA Position Updates:
With money manager positioning skewed short, the easing of rates and the USD, amid weaker US economic data, sparked a bout of short covering in precious metals.
