MarketView December 2015 - Commodities Down Double Digits 3 Years in a Row
MarketView November 2015 - Another Bad Month Sends Legacies Down 20% YTD
MarketView October 2015 - Month of Failed Rallies
MarketView September 2015 - Mixed Markets Post Loss
MarketView August 2015 - Small Loss Masks Deep Volatility
MarketView July 2015 - All Sectors Down
MarketView June 2015 - USDA Reports Counter Commodity Bears
Tuesday, January 12, 2016
Thursday, September 5, 2013
Time to Really Do Contango Homework
There are recently a boatload of misleading, misinformed and inaccurate (repetitive, I know) posts by unnamed others about doing one's "contango homework", about looking at the shape of the futures curve to somehow make some conclusion about the prospective gains or losses to investors in said "contango" or "backwardated" commodities.
So, ok, let's do the homework. Below are the results of 33 years rolling positions in the VistaCTA commodity basket of 15 major commodities (crude, heat, natgas, rbob/gasoline; corn, wheat, beans; gold, silver, copper; coffee, sugar, cocoa; cotton and frozen concentrated orange juice). These are the highly select well-formed futures contracts included in the VistaCTA basket. The results of rolling these contracts since 1980 are shown below.
Per the VistaCTA rules, the basket is rolled once per year, held for a year, sold and replaced with a new basket. The sell and replacement is the "roll". Note rolling does not create a return event, only the liquidation (vb sell) of the existing basket versus the original basis (vb buy) creates return. The vb's shown are each year's new basis.
yr vb cb %cb r
1980 613,794.44 contango 5% -26%
1981 497,085.43 contango 9% -16%
1982 431,779.92 contango 3% 6%
1983 459,955.46 contango 0% -11%
1984 424,249.76 contango 4% -11%
1985 375,251.52 backwardation -1% -10%
1986 348,666.38 contango 3% 2%
1987 367,878.51 contango 3% -2%
1988 349,500.62 backwardation -3% 0%
1989 345,122.92 backwardation -1% 19%
1990 395,668.58 backwardation -4% -14%
1991 343,179.91 contango 1% -8%
1992 321,498.46 contango 2% 0%
1993 336,825.07 contango 4% 16%
1994 406,335.85 contango 4% -7%
1995 368,142.81 backwardation -3% 4%
1996 365,516.05 backwardation -4% 6%
1997 375,650.90 backwardation -3% -15%
1998 338,576.80 contango 6% -4%
1999 325,407.08 backwardation 0% 14%
2000 369,313.10 backwardation -1% -22%
2001 307,072.03 contango 7% 17%
2002 348,316.05 backwardation -3% 11%
2003 376,951.43 backwardation -2% 31%
2004 476,701.93 backwardation -4% 41%
2005 608,361.51 backwardation -10% 10%
2006 715,832.95 contango 7% 14%
2007 805,308.50 backwardation -1% 8%
2008 911,174.50 contango 5% -14%
2009 815,403.10 contango 5% 16%
2010 957,105.35 contango 1% 11%
2011 1,065,868.55 contango 0% 8%
2012 1,130,263.50 backwardation -2% -11%
correl correl (0.20)
yr = roll year
vb = VistaCTA basket value when purchased on the roll date.
cb = contango (%cb>0) or backwardated roll (%cb<0)
%cb = % contango or -%cb for backwardation = (vb new)/(vb old) -1
r = subsequent rate of return of the basket after the roll = (vb sell)/(vb buy) -1
Clearly, there is no relationship between contango/backwardation and futures returns. How sad that billions apparently are committed to a false concept, a relationship that does not exist. A recent academic paper demonstrates that "roll yield" doesn't even exist, it is an error in the construction and calculation of legacy commodity indices.
Monday, August 19, 2013
By the Light of the Silvery Moon
I may be the first to proclaim the current turnaround of commodities but... August's sector action brings up a question.
While the VistaCTA commodity basket is up 4.12% month to date (as of Friday's 8/16/2013 close) this is NOT a broad based rally. Energy, which was July's top performer, is up only 1.34%, grains are unchanged and agriculture, on average, is up 1.92%. The gains are concentrated in metals which are up 9.77% in August. And silver, the weaker sister, dominates, up 18.79%. Silver, per trader lore, is the fickle metal and wanes and waxes with the moon and is usually NOT the marker for a long-term broad based commodity rally.
While the VistaCTA commodity basket is up 4.12% month to date (as of Friday's 8/16/2013 close) this is NOT a broad based rally. Energy, which was July's top performer, is up only 1.34%, grains are unchanged and agriculture, on average, is up 1.92%. The gains are concentrated in metals which are up 9.77% in August. And silver, the weaker sister, dominates, up 18.79%. Silver, per trader lore, is the fickle metal and wanes and waxes with the moon and is usually NOT the marker for a long-term broad based commodity rally.
Monday, July 22, 2013
Coffee Flash Boom Crash Crash
Thursday and Friday were banner days for ICE (formerly CSC) coffee futures contracts. Weeks of price action were compressed in minutes. Here's the background.
September Coffee has been in a slow downtrend from $1.60 per pound to $1.20 per pound all year long with two short lived boosts: $1.55 to $1.65 in January and $1.35 to $1.50 in May. Since mid-June, coffee has been trading around $1.18 to $1.25. The chart shows a blip on Thursday July 18th to $1.34 followed by Friday's close at $1.2270 per pound.
The dailys do not show how fast and fleeting the trade was on those days. To get a clearer idea of the extent of Thursday's "flash boom crash" and Friday's crash we need to look at the intra-day charts:
Oddly enough while the above Barcharts do not show it, $1.34 did print and it was fleeting. The boom started with the decisive trade above $1.30 at 7:21 AM (US Central Time) and then the $1.34 touch at 7:27 AM. Only limit orders need apply and not the $1.34 limit! The first crash was the 400 point move to $1.27 at 12:10 PM and the final crash was the second 400 point decline to the $1.2275 per pound level near Friday's 1:00 PM close.
The dollar value of the 37,500 pound coffee futures contract at Friday's closing price of $1.2275 per pound was $46,031.25. The exchange minimum margin for coffee as of Friday was (and still is) $2,750 per contract or 6% of the contract value. A 7 cent move in coffee (the daily range on Thursday and Friday) equals $2,625 or roughly one's entire margin requirement. Woe to the speculator trading coffee on exchange minimum margins.
CHART COURTESY OF BARCHART.COM
September Coffee has been in a slow downtrend from $1.60 per pound to $1.20 per pound all year long with two short lived boosts: $1.55 to $1.65 in January and $1.35 to $1.50 in May. Since mid-June, coffee has been trading around $1.18 to $1.25. The chart shows a blip on Thursday July 18th to $1.34 followed by Friday's close at $1.2270 per pound.
Date Open High Low Last Chge ----52 Week----
07/19/13 12790 13025 12175 12270 -485
07/18/13 12750 13400 12665 12755 -40 -------High----
07/17/13 12545 12920 12530 12795 +200 07/23/12 19700
07/16/13 12340 12675 12320 12595 +270 --------Low----
07/15/13 11930 12410 11860 12325 +385 06/20/13 11710
DATA COURTESY OF BARCHART.COM
The dailys do not show how fast and fleeting the trade was on those days. To get a clearer idea of the extent of Thursday's "flash boom crash" and Friday's crash we need to look at the intra-day charts:
ALL CHARTS COURTESY OF BARCHART.COM
Oddly enough while the above Barcharts do not show it, $1.34 did print and it was fleeting. The boom started with the decisive trade above $1.30 at 7:21 AM (US Central Time) and then the $1.34 touch at 7:27 AM. Only limit orders need apply and not the $1.34 limit! The first crash was the 400 point move to $1.27 at 12:10 PM and the final crash was the second 400 point decline to the $1.2275 per pound level near Friday's 1:00 PM close.
The dollar value of the 37,500 pound coffee futures contract at Friday's closing price of $1.2275 per pound was $46,031.25. The exchange minimum margin for coffee as of Friday was (and still is) $2,750 per contract or 6% of the contract value. A 7 cent move in coffee (the daily range on Thursday and Friday) equals $2,625 or roughly one's entire margin requirement. Woe to the speculator trading coffee on exchange minimum margins.
Tuesday, July 16, 2013
Is the Commodity Turnaround Coming?
The monthly value of the VistaCTA basket of 15 commodity futures contracts since 2009 is shown below:
The gaps in the graph represent the annual roll of the current-month basket to the back-month basket, as defined in the VistaCTA rules. Note the basket rolled higher in 2010, nearly flat in 2011 and slightly lower in 2012. Some would call 2010 and 2011 "contango" type rolls and 2012 a "backwardation" type roll. Note also that subsequent price action appears to have nothing to do with the type of roll.
From a start of under $900,000, the value topped out above $1.3MM and now is valued near $960,000. The July 2013 bounce may be sign of better days to come!
The gaps in the graph represent the annual roll of the current-month basket to the back-month basket, as defined in the VistaCTA rules. Note the basket rolled higher in 2010, nearly flat in 2011 and slightly lower in 2012. Some would call 2010 and 2011 "contango" type rolls and 2012 a "backwardation" type roll. Note also that subsequent price action appears to have nothing to do with the type of roll.
From a start of under $900,000, the value topped out above $1.3MM and now is valued near $960,000. The July 2013 bounce may be sign of better days to come!
Friday, June 21, 2013
Sixth Worst Day Since 2009
Commodities fell 3.9% yesterday. Lead by precious metals, then everything else; here's what happened to the 15 commodities in the VistaCTA basket:
This was the sixth worst day of the 1044 trading days since Vista started 5/1/09.
Here is the scatterplot of all the daily returns since 4-09. Note all returns are continously compounded.
As you can see, fall 2011 had the worst declines with the Q3 swoon. The biggest up day was last summers grain drought. The two recent low points were the first gold break of 4/15 and yesterday's gold break.
All in all, though, the VistaCTA basket has held very well through this period since inception.
Still 40% up!
There may be two major points of view regarding the current market break:
-One says we are in a continuing secular commodity price decline, i.e. more declines and more volatility are on the way.
-A second view is that, no, this is a man-made, or more accurately, a Fed made crisis that can easily be fixed by man, or, the Fed. Thus, the better bet is to use breaks to build positions.
The relatively benign response of most commodities to the precious metal decline (for example, energy is still up on the month and ags are down 2%, or so)-the benign commodity response- may be an excellent setup for better returns to come. Statistically, rare events are rare and more normal times prevail.
The tiny red bar (do you see it?) shows yesterdays move. It's pretty rare.
| silver | -0.087 |
| gold | -0.066 |
| coffee | -0.049 |
| rbob | -0.038 |
| crude | -0.037 |
| sugar | -0.035 |
| heat | -0.032 |
| cocoa | -0.027 |
| copper | -0.026 |
| soybeans | -0.02 |
| corn | -0.018 |
| oj | -0.014 |
| natgas | -0.014 |
| wheat | -0.01 |
This was the sixth worst day of the 1044 trading days since Vista started 5/1/09.
| top 10 down days | top 10 up days | ||||
| 9/22/2011 | (0.0535) | 6/29/2012 | 0.0443 | ||
| 5/5/2011 | (0.0517) | 7/30/2009 | 0.0330 | ||
| 9/23/2011 | (0.0516) | 9/27/2011 | 0.0300 | ||
| 12/14/2011 | (0.0412) | 9/30/2009 | 0.0297 | ||
| 4/15/2013 | (0.0411) | 10/27/2011 | 0.0283 | ||
| 6/20/2013 | (0.0398) | 11/16/2009 | 0.0281 | ||
| 3/15/2011 | (0.0374) | 8/3/2009 | 0.0279 | ||
| 11/12/2010 | (0.0365) | 1/3/2012 | 0.0276 | ||
| 5/11/2011 | (0.0351) | 6/1/2009 | 0.0266 | ||
| 8/4/2011 | (0.0316) | 7/3/2012 | 0.0264 | ||
Here is the scatterplot of all the daily returns since 4-09. Note all returns are continously compounded.
As you can see, fall 2011 had the worst declines with the Q3 swoon. The biggest up day was last summers grain drought. The two recent low points were the first gold break of 4/15 and yesterday's gold break.
All in all, though, the VistaCTA basket has held very well through this period since inception.
Still 40% up!
There may be two major points of view regarding the current market break:
-One says we are in a continuing secular commodity price decline, i.e. more declines and more volatility are on the way.
-A second view is that, no, this is a man-made, or more accurately, a Fed made crisis that can easily be fixed by man, or, the Fed. Thus, the better bet is to use breaks to build positions.
The relatively benign response of most commodities to the precious metal decline (for example, energy is still up on the month and ags are down 2%, or so)-the benign commodity response- may be an excellent setup for better returns to come. Statistically, rare events are rare and more normal times prevail.
The tiny red bar (do you see it?) shows yesterdays move. It's pretty rare.
Monday, June 17, 2013
Natural Gas Futures versus Natural Gas ETFs
There is an ongoing debate about the merits of owning "risky and complicated" futures contracts as compared to owning simple and convenient exchange traded funds (ETFs) when you are trying to gain exposure to commodities (or any asset category, for that matter). While I may be the first to trumpet the benefits of stock index ETFs over stock portfolios, I am not so sure about commodity ETFs replacing commodity portfolios.
The poster boy for bad commodity ETFs has been none other than those created for natural gas (NG). Now, lets be clear, natgas is way down no matter how you look at it. The glut of NG has contributed to the American miracle of abundant energy supplies and is reflected in NG prices regardless of the source. Given that, what is the difference to an investor in the major natgas ETFs versus actually owning natgas futures contracts? Let's look at the charts.
The charts below show the monthly returns of the two major natural gas ETFs versus the investible natural gas futures contracts held by VistaCTA. The top chart shows the return of $1000 invested in the United States Commodity Funds Natural Gas ETF, symbol UNG. Not to beat up on any fund family, since this ETF was issued there have been a number of controversies that actually, I feel, have little merit and little effect on investor returns. As anyone can see, both the NG futures and UNG have declined sharply since UNG began trading.
Monthly Returns of A Hypothetical $1000 Investment
Based on investor returns of the major natgas ETFs versus NG futures, I think one would be hard pressed to justify the comparable losses for an imagined ease or convenience of investment. I'll compare investing in futures versus an ETF in future posts.
The poster boy for bad commodity ETFs has been none other than those created for natural gas (NG). Now, lets be clear, natgas is way down no matter how you look at it. The glut of NG has contributed to the American miracle of abundant energy supplies and is reflected in NG prices regardless of the source. Given that, what is the difference to an investor in the major natgas ETFs versus actually owning natgas futures contracts? Let's look at the charts.
The charts below show the monthly returns of the two major natural gas ETFs versus the investible natural gas futures contracts held by VistaCTA. The top chart shows the return of $1000 invested in the United States Commodity Funds Natural Gas ETF, symbol UNG. Not to beat up on any fund family, since this ETF was issued there have been a number of controversies that actually, I feel, have little merit and little effect on investor returns. As anyone can see, both the NG futures and UNG have declined sharply since UNG began trading.
Monthly Returns of A Hypothetical $1000 Investment
As bad as NG futures have been, UNG has been worse.
Without getting into any technical details, after a few years of trading UNG, the issuer created a new ETF, symbol UNL, designed to be an improvement/alternative to UNG. Below is the $1000 return of UNL compared to UNG and VistaCTA's NG futures contracts.
Well, yes, UNL was an improvement, but still worse than NG futures until recent months.
Based on investor returns of the major natgas ETFs versus NG futures, I think one would be hard pressed to justify the comparable losses for an imagined ease or convenience of investment. I'll compare investing in futures versus an ETF in future posts.
Friday, May 31, 2013
The Crude Oil Market, It's Just Your Point of View!
Quick observation of the confounding crude oil market: Is it bullish or bearish, volatile or flat, tradeable or untradeable? Well it all may just depend upon your point of view.
Here is a chart that almost looks like a random number generator:
Here's a totally different view of the same thing:
Flat sideways or volatile crazy? You decide.
Here is a chart that almost looks like a random number generator:
Here's a totally different view of the same thing:
CHARTS COURTESY BARCHART.COM
Flat sideways or volatile crazy? You decide.
Soybean Technicals versus Fundamentals
Most recent fundamentals-midwest rains-are bearish while July soybeans are trying to fill last week's $5.50 overhead gap.
COURTESY BARCHART.COM
This is a classic bullish technical versus bearish fundamental setup. Resolution of this conflict may be the short term completion of the bullish fill pattern and a subsequent long-term decline as the market reconciles with bearish reality.
This is a classic bullish technical versus bearish fundamental setup. Resolution of this conflict may be the short term completion of the bullish fill pattern and a subsequent long-term decline as the market reconciles with bearish reality.
Tuesday, May 28, 2013
"Flash Boom" in Soybeans
Thursday, May 23rd was an extraordinary day in soybean futures. See the July Soybean futures charts below:
| Date | Open | High | Low | Last | Chge |
| 5/24/2013 | 14900 | 15000 | 14720 | 14762 | -232 |
| 5/23/2013 | 14930 | 15410 | 14880 | 14994 | 52 |
| 5/22/2013 | 14750 | 14944 | 14710 | 14942 | 160 |
| 5/21/2013 | 14630 | 14790 | 14564 | 14782 | 136 |
| 5/20/2013 | 14490 | 14650 | 14454 | 14644 | 160 |
Charts and Data Courtesy of Barchart.com
On apparently wild and unsubstantiated rumors (see Chris Lehner's excellent commentary on InsideFutures.com) beans had a "flash boom" (the reverse of a "flash crash") where a market trades extremely high for a short period and immediately returns to its prior level.
The 10-minute chart, below, offers a sense of how beans traded in minutes from the high $14s to $15.41 a bushel and back. $15.40 highs have not been seen since the drought scorched market of last September.
In the span of minutes, soybeans gap sharply higher to a peak of $15.41 per bushel. Subsequently beans give up all their gains to close nearly unchanged and, the next day, move lower again.
I have no first hand knowledge but I believe that computerized newsreader algos were behind or significantly contributed to the day's "flash boom". High freq algo traders trade the story and ask questions later. Most human traders would try and find facts and then trade or, at worst, the rumor trade would not have been so extreme.
Who gets hurt in a "flash boom'"? The same people who get hurt in a flash crash! Stops are unnecessarily run, margin calls are unnecessarily met, cash is drained from the market. The market structure and bona fide hedgers and smaller specs are damaged-all for no reason.
While good for exchanges, hedge funds, high freqs and algos, flash crashes and flash booms may only hurt the proper function of the commodities market. Open outcry and limited trading hours have worked for commercials and speculators for over 100 years. It may be time to revisit aspects of today's electronic trading.
Sunday, May 19, 2013
Was Gold a "Flash Crash"?
The progression of gold's collapse from Friday April 12th to Tuesday April 16th may hold a lesson we could learn from the past. First, here is how the market looked on those days:
Courtesy of Barchart.com
Courtesy of Barchart.com
Here are the open-high-low-closes:
|
After $1650 support was broken in February, $1550 was gold's major support level until Friday, April 12th. The above shows a clear-cut, yet dismal picture of gold trading down a record $140.30 in one day. Firstly, with a $20 down gap opening and then a $159.90 down trading range. As bad that looks the chart hides the true extent of the problem.
The posted April 12th close of $1501.40 was determined during the "daily settlement time range" of 1:29 PM to 1:30 PM Friday afternoon. The gold futures market then continues trading until it "closes" for 45 minutes at 5:15 PM. Since it's Friday, it does not re-open 45 minutes later at 6 PM. It stays closed until it opens early Sunday evening at 6:00 PM (all NY Time).
Thus, the market on Friday April 12th continued down after the $1501.40 settle (see the hourly prices below) to end Friday 5:15 PM at $1476.10! Friday's last trade was $25.30 below Friday's posted close! It pays sometimes to be obsessive about watching quotes.
Hourly Prices
| open | high | low | close | gap | change | range | |
| 4/12-1p | 1505.5 | 1505.7 | 1498.8 | 1502.9 | 0 | -2.6 | 6.9 |
| 4/12-2p | 1502.8 | 1503.8 | 1499.2 | 1499.6 | -0.1 | -3.3 | 4.6 |
| 4/12-3p | 1499.6 | 1499.9 | 1482.3 | 1487.5 | 0 | -12.1 | 17.6 |
| 4/12-4p | 1487.6 | 1488.8 | 1480 | 1482.8 | 0.1 | -4.7 | 8.8 |
| 4/12-5p | 1482.7 | 1482.7 | 1476 | 1476.1 | -0.1 | -6.7 | 6.7 |
| 4/14-6p | 1481 | 1484.4 | 1477 | 1482.9 | 4.9 | 6.8 | 7.4 |
| 4/14-7p | 1482.9 | 1490 | 1482.5 | 1489.4 | 0 | 6.5 | 7.5 |
| 4/14-8p | 1489.4 | 1495 | 1483.5 | 1484.9 | 0 | -4.5 | 11.5 |
| 4/14-9p | 1484.9 | 1485.1 | 1443.4 | 1446.1 | 0 | -38.8 | 41.7 |
| 4/14-10p | 1445.8 | 1449.3 | 1422.2 | 1441.2 | -0.3 | -4.9 | 27.1 |
| 4/14-11p | 1441 | 1452 | 1433.8 | 1440.9 | -0.2 | -0.3 | 18.2 |
| 4/15-12a | 1441.1 | 1448.9 | 1436 | 1446.9 | 0.2 | 6 | 12.9 |
| 4/15-1a | 1446.6 | 1453.8 | 1441.2 | 1450.9 | -0.3 | 4 | 12.6 |
| 4/15-2a | 1450.8 | 1458.5 | 1447.8 | 1452.5 | -0.1 | 1.6 | 10.7 |
| 4/15-3a | 1452.4 | 1455.4 | 1433 | 1437.2 | -0.1 | -15.3 | 22.4 |
| 4/15-4a | 1437.3 | 1442.5 | 1401 | 1411.1 | 0.1 | -26.1 | 41.5 |
| 4/15-5a | 1411 | 1424.4 | 1390 | 1393.8 | -0.1 | -17.3 | 34.4 |
| 4/15-6a | 1393.6 | 1422.1 | 1385 | 1408.8 | -0.2 | 15 | 37.1 |
| 4/15-7a | 1408.8 | 1417 | 1398.9 | 1409.5 | 0 | 0.7 | 18.1 |
| 4/15-8a | 1409.5 | 1428 | 1403.2 | 1421.7 | 0 | 12.2 | 24.8 |
| 4/15-9a | 1421.7 | 1422.8 | 1401.1 | 1404.1 | 0 | -17.6 | 21.7 |
| 4/15-10a | 1404.2 | 1405 | 1356.6 | 1364.5 | 0.1 | -39.6 | 48.4 |
| 4/15-11a | 1364.5 | 1379.9 | 1355.3 | 1379.2 | 0 | 14.7 | 24.6 |
| 4/15-12p | 1378.9 | 1383.4 | 1368 | 1371.1 | -0.3 | -8.1 | 15.4 |
| 4/15-1p | 1371.3 | 1377.3 | 1360.5 | 1369.4 | 0.2 | -1.7 | 16.8 |
| 4/15-2p | 1369.2 | 1371.3 | 1348.5 | 1350.1 | -0.2 | -19.3 | 22.8 |
| 4/15-3p | 1350.1 | 1368.7 | 1350 | 1357.6 | 0 | 7.5 | 18.7 |
| 4/15-4p | 1357.8 | 1359.9 | 1335.1 | 1347.9 | 0.2 | -9.7 | 24.8 |
| 4/15-5p | 1347.8 | 1352.6 | 1347.4 | 1352.3 | -0.1 | 4.4 | 5.2 |
| 4/15-6p | 1355 | 1367.7 | 1347.3 | 1351.1 | 2.7 | -1.2 | 20.4 |
| 4/15-7p | 1350.6 | 1354.9 | 1350.6 | 1351.6 | -0.5 | 0.5 | 4.3 |
| 4/15-8p | 1351.9 | 1361.3 | 1321.5 | 1331.3 | 0.3 | -20.3 | 39.8 |
| 4/15-9p | 1331.4 | 1341.5 | 1326 | 1331.2 | 0.1 | -0.1 | 15.5 |
| 4/15-10p | 1331.1 | 1358 | 1327.4 | 1347 | -0.1 | 15.8 | 30.6 |
| 4/15-11p | 1346.8 | 1353.9 | 1340.1 | 1348.4 | -0.2 | 1.4 | 13.8 |
| 4/16-12a | 1348.5 | 1367 | 1348.5 | 1365.9 | 0.1 | 17.5 | 18.5 |
| 4/16-1a | 1366.3 | 1368.3 | 1357.1 | 1364.5 | 0.4 | -1.4 | 11.2 |
| 4/16-2a | 1364.5 | 1380.4 | 1363.8 | 1376.5 | 0 | 12 | 16.6 |
| 4/16-3a | 1376.4 | 1380 | 1371.1 | 1372.9 | -0.1 | -3.6 | 8.9 |
| 4/16-4a | 1373 | 1378 | 1360.5 | 1376.4 | 0.1 | 3.5 | 17.5 |
| 4/16-5a | 1376.4 | 1392 | 1375.8 | 1389.7 | 0 | 13.3 | 16.2 |
| 4/16-6a | 1389.7 | 1394.3 | 1382.8 | 1383 | 0 | -6.7 | 11.5 |
| 4/16-7a | 1383.1 | 1391 | 1381.1 | 1386.1 | 0.1 | 3.1 | 9.9 |
| 4/16-8a | 1386.2 | 1404.2 | 1386.1 | 1397.1 | 0.1 | 11 | 18.1 |
| 4/16-9a | 1397.2 | 1398.7 | 1379.6 | 1381.1 | 0.1 | -16 | 19.1 |
| 4/16-10a | 1381.1 | 1389.7 | 1371.7 | 1389.5 | 0 | 8.4 | 18 |
| 4/16-11a | 1389.4 | 1393.8 | 1385.8 | 1389.6 | -0.1 | 0.1 | 8 |
| 4/16-12p | 1389.5 | 1389.9 | 1373.7 | 1379.3 | -0.1 | -10.3 | 16.2 |
The greatest damage was done during the NY sleeping hours. Around 4:00 AM June Gold traded at $1420. In the 5 AM hour June Gold broke below $1400 for the first time. This is now $100 below Friday's posted close. We all know the subsequent carnage, notably again in the NY after-hours, with the market bottoming at $1321.50 between 8 and 9 PM Monday night.
Flash Crash?
To the question at the top, was this gold's "flash crash"? Sunday night may say yes. Monday night may say no.
It takes time for people to see, be told or realize what's happening in any market and gold may be even "slower" than other markets. People who buy gold may tend to look longer term and have stronger views than most other "fickle" traders. If participants could see where prices were falling Sunday evening (or even Friday's electronic close) they may have been there to rush in and bid the market. As it turned out, for much of the balance of April and until last week, they did just that and the gold market stabilized (as evidenced by the normal daily changes, ranges and gaps). If there was a "circuit breaker", a "cooling off period", maybe buyers could've been found and maybe we would have avoided the $1300 handle from the get go.
On Monday evening, though, after a day to consider prices, gold saw fit to make a new low (notably in the after-market) and only then it recovered. Also this past weeks action, trading below $1400, may also bring this premise into question.
Gold Limits
On June 5th 2006, the COMEX lifted daily trading limits on gold futures. Prior to that, the daily gold limit was $75 an ounce and gold futures were trading around $660 an ounce, depending upon contract month.. The limit was roughly 11% of the gold price.
Using 11% or a $150 gold limit today would not have helped investors on April 15th. A $75 limit maybe would have helped. It could have maybe produced buyers if trading was halted at $1425 for a day.
Do limits damage the free trading of the highly levered futures markets? I think maybe so for computers or algos, but maybe NOT for people, that is regular long and short term investors. A daily $75 limit may be the right circuit breaker for the gold market. Admittedly that's roughly 5% or so of today's gold price, but that may be enough. Daily limits have been part of futures trading for over 100 years, they have a seasoned and strong history of bringing order to extreme markets.
Did ending limit moves hurt or help gold? A quick look at the 10 year dispersion chart below may provide evidence for an answer:
To my eyes, gold seems more volatile after June 6, 2006 than it was before limits were lifted. Also, the number of days the market exceeded a 5% daily change can be counted by hand. April 15th's -10.39% decline was the worst one-day move in the history of the gold market!
Flash crash or not and despite hedge funds, high freqs and algos, it may be time to restore the $75 daily limit on gold futures.
Friday, May 3, 2013
Commodity Bear Market Signaling Bottom
The two year decline in commodities may be over. The largest decline of gold and silver in 12 years and the subsequent bounce off the lows may finally signal an end to the Commodity Bear market. The stock market and most recent economic announcements may indicate a bottom and return to growth in the national and world economy.
VistaCTA may be the only commodity advisor to offer a managed basket of diversified commodities in your own commodity account. If you don’t want to give your money to a commodity mutual fund, ETF or limited partnership, if you want to keep your money in your own account while investing fully and directly in the potential turnaround of a managed basket of diversified commodities, email info@vistacta.com.
Friday, April 19, 2013
Gold and Silver
Gold fell from $1600.40 an ounce on March 28th to April 17th's close of $1386.25, a decline of 14.4% At its $1321.50 low on Tuesday, Gold was down 19.1% from its March close.
As bad as gold was, silver was worse:
Silver is down 19% to Gold's 14%. The daily percent price change each day since the start of April is shown below:
| GC | SI | |
| 1-Apr | -1.2% | -3.8% |
| 2-Apr | -0.5% | -1.0% |
| 3-Apr | -0.9% | -0.6% |
| 4-Apr | -0.1% | -0.1% |
| 5-Apr | 1.5% | 1.7% |
| 8-Apr | -0.2% | -0.3% |
| 9-Apr | 0.9% | 2.7% |
| 10-Apr | -1.8% | -0.8% |
| 11-Apr | 0.4% | 0.2% |
| 12-Apr | -4.2% | -5.0% |
| 15-Apr | -9.6% | -12.0% |
| 16-Apr | 1.6% | 1.0% |
| 17-Apr | -0.3% | -1.4% |
Gold and silver moved down nine days and up 4 days. Other than past Friday and Monday's monster moves, the markets had typical normal percentage changes with 7 days moving less than 1% up or down and 6 days closing more than 1%. How typical are these moves? And how extraordinary are the 4%, 5%, 10% and 12% daily movements in gold and silver? (Note these are all based on closing prices. Daily ranges, of course, were much higher.)
Below is a graph showing the daily close over close percentage changes for all 15 commodities in the VistaCTA basket from VistaCTA's May 2009 inception to the 17th's close:
Silver's April 15th 12% single day decline was among the seven worst one day declines for any commodity in this period. Oddly enough, the worst single day close/close fall was also silver, on September 23rd, 2011, when it fell 19.5%! The day before, September 22nd, it fell 10.1%. The two day 29.6% decline dwarfed the two day 17% decline we saw this week. That coincided with the 3rdQ 2011 market break.
The structure of commodity markets may both contribute and contain major declines to two days. It takes one day's surprise to create the margin calls that then bring the market lower as stressed longs are forced to liquidate.
Commodities have been in drawdown since April 2011. The economy is in sore need of demand and growth. Only time will tell if this price action is a continuation move or reversal opportunity.
Commodities have been in drawdown since April 2011. The economy is in sore need of demand and growth. Only time will tell if this price action is a continuation move or reversal opportunity.
Sunday, April 14, 2013
Two Years of Commodity Drawdown
As of this month, the commodity markets have been in drawdown for two years. While the commodity market may have a number of sectors, a good case can be made that precious metals, especially gold, may be the dominant factor. Gold peaked in April of 2011 and has been falling since then.
As gold goes, so goes the commodity market.
This won't be a quantitative post but mostly a qualitative observation on the role of gold in the commodity universe. Nearly all commodity indexes and commodity index tracking vehicles also peaked two years ago April and have also been falling for two years.
In addition to metals, the two other aggregates are energy and agriculture. Neither seems able to offset the overarching effect of gold. Last summer's drought, while a disaster for growers, brought short term relief to the indexes and longs. Summer's sharp upward move has been completely retraced in soybeans and nearly so in corn and wheat. Energy has not been much better. Weekly crude has been in a slow gradual coil pattern around the $90 handle.
If gold rules the commodity roost, then where goes gold? My outlook, unsurprisingly, is bearish and remains bearish until I see more than a $100 move to the upside from December Gold's $1505.60 close.
As gold goes, so goes the commodity market.
This won't be a quantitative post but mostly a qualitative observation on the role of gold in the commodity universe. Nearly all commodity indexes and commodity index tracking vehicles also peaked two years ago April and have also been falling for two years.
In addition to metals, the two other aggregates are energy and agriculture. Neither seems able to offset the overarching effect of gold. Last summer's drought, while a disaster for growers, brought short term relief to the indexes and longs. Summer's sharp upward move has been completely retraced in soybeans and nearly so in corn and wheat. Energy has not been much better. Weekly crude has been in a slow gradual coil pattern around the $90 handle.
If gold rules the commodity roost, then where goes gold? My outlook, unsurprisingly, is bearish and remains bearish until I see more than a $100 move to the upside from December Gold's $1505.60 close.
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