Newsom on the Market
The Force
Darin Newsom DTN Senior Analyst
Friday December 18 2015 5:15amMST
Most of you know, at least I'm assuming, that the latest Star Wars movie has been released to the public. "The Force Awakens" has been projected by some movie box-office analysts to rake in around $200 million this weekend, with an outside chance of breaking the opening weekend record of $208.8 million held by "Jurassic World."
A long time ago... Sir Isaac Newton showed us how important "the force" was to markets and trends. (DTN photo illustration by Nick Scalise)
A big part of the Star Wars universe has to do with an energy field called "the force." As movie after movie rolls along, introducing us to the likes of Boba Fett and Jar Jar Binks, the constant battle is between those who use the force for good and the bad guys who have gone over to "the dark side." It's easy to tell who is who because, just like in the westerns of old, the bad guys always wear black.
What on Tatooine does any of this have to do with markets? Those familiar with my analysis know I cite Newton's First Law of Motion as one of the key principles of technical analysis. Restated for markets, it reads: A trending market will stay in that trend until acted upon by an outside "force." Normally, that force is the noncommercial side of a market, consisting of speculators, investment traders, and our good friend Watson (large, fast-moving, computerized algorithmic trade). A quick look at the wasteland the commodity sector has become would indicate this group has collectively embraced the dark side.
Back in the halcyon days (at least for corn growers) of 2010 and 2011, tracking weekly CFTC Commitments of Traders (CoT) reports showed noncommercial traders increasing their net-long futures position (long futures held minus short futures held) from 9,828 contracts (week of June 28, 2010) to a high of 498,177 contracts (week of Jan. 31, 2011). This action took the nearby futures contract from a low weekly close of $3.40 (week of June 1, 2010) to an initial high weekly close of $7.87 (week of June 6, 2011). I say "initial" because the market would eventually post a high weekly close of $8.09 1/4 (week of Aug. 6, 2012) riding the bantha that was a severe drought across the U.S. Midwest.
However, from their peak of the almost half-million net-long futures position, noncommercial traders have spent most of the last four years selling corn. This past November marked the third time this group had moved into a net-short position (holding more short futures positions than long). Last Friday's CoT report showed recent buying resulting in a net long of 21,221 contracts, though this Friday afternoon's update is just as likely to show a switch back to net short. (DTN subscribers can find the CoT report in the Markets section following the report's release at 2:30 p.m. CST.) As for the futures market, the nearby futures contract has been mired in a trench between $3.50 and $4.00 (roughly) since this past February.
Grains aren't the only sector feeling the squeeze around the neck from the dark side of the force (the most recent CoT report showed noncommercial traders holding net-short futures positions of 10,780 and 68,345 contracts of soybeans and Chicago wheat respectively), with crude oil (and the rest of the energy complex) having the life drained from it as well. As recently as late June 2014, spot-month crude oil was trading near $107 while noncommercial traders held a net-long futures position of 458,969 contracts (week of June 23, 2014). Last Friday's CoT report showed this position whittled back to 197,874 contracts, the smallest since the 194,707 contracts recorded the week of Dec. 24, 2012.
Metals have also felt the wrath of the force, with gold struggling desperately to keep from sliding into the sarlacc pit. This hasn't always been the case with gold priced just shy of $1,925 (per ounce) back in September 2011 as noncommercial traders held a net-long futures position just under 250,000 contracts. Today's (Dec. 18) close by the February 2016 issue could be near $1,050, with noncommercial interests possibly taking their net-long holdings back below 10,000 contracts.
The Empire used its Death Star to fire the latest deadly blast at the planet once known as the commodity sector in the form of this week's interest rate hike by the Federal Reserve. The U.S. dollar index (USDX), emboldened by the move, has seen buying enthusiasm reignited after flirting with technical disaster (at least for USDX bulls) earlier this month. If the USDX follows its presumed destiny, eclipsing its previous high of 100.510 and moving to the next target near 104.000, thoughts of inflation will be as remote as the chance of finding the swamp planet Dagobah -- meaning investment traders aren't likely to move money back into commodities any time soon.
A long time ago, Sir Isaac Newton laid the groundwork for analyzing market trends. Until some sort of disturbance is seen in the force, as in hints that noncommercial traders are turning away from the dark side, it's hard to imagine anything but hard times for the once rebellious commodity sector.
Darin Newsom can be reached at darin.newsom@dtn.com
The Force
Darin Newsom DTN Senior Analyst
Friday December 18 2015 5:15amMST
Most of you know, at least I'm assuming, that the latest Star Wars movie has been released to the public. "The Force Awakens" has been projected by some movie box-office analysts to rake in around $200 million this weekend, with an outside chance of breaking the opening weekend record of $208.8 million held by "Jurassic World."
A long time ago... Sir Isaac Newton showed us how important "the force" was to markets and trends. (DTN photo illustration by Nick Scalise)
A big part of the Star Wars universe has to do with an energy field called "the force." As movie after movie rolls along, introducing us to the likes of Boba Fett and Jar Jar Binks, the constant battle is between those who use the force for good and the bad guys who have gone over to "the dark side." It's easy to tell who is who because, just like in the westerns of old, the bad guys always wear black.
What on Tatooine does any of this have to do with markets? Those familiar with my analysis know I cite Newton's First Law of Motion as one of the key principles of technical analysis. Restated for markets, it reads: A trending market will stay in that trend until acted upon by an outside "force." Normally, that force is the noncommercial side of a market, consisting of speculators, investment traders, and our good friend Watson (large, fast-moving, computerized algorithmic trade). A quick look at the wasteland the commodity sector has become would indicate this group has collectively embraced the dark side.
Back in the halcyon days (at least for corn growers) of 2010 and 2011, tracking weekly CFTC Commitments of Traders (CoT) reports showed noncommercial traders increasing their net-long futures position (long futures held minus short futures held) from 9,828 contracts (week of June 28, 2010) to a high of 498,177 contracts (week of Jan. 31, 2011). This action took the nearby futures contract from a low weekly close of $3.40 (week of June 1, 2010) to an initial high weekly close of $7.87 (week of June 6, 2011). I say "initial" because the market would eventually post a high weekly close of $8.09 1/4 (week of Aug. 6, 2012) riding the bantha that was a severe drought across the U.S. Midwest.
However, from their peak of the almost half-million net-long futures position, noncommercial traders have spent most of the last four years selling corn. This past November marked the third time this group had moved into a net-short position (holding more short futures positions than long). Last Friday's CoT report showed recent buying resulting in a net long of 21,221 contracts, though this Friday afternoon's update is just as likely to show a switch back to net short. (DTN subscribers can find the CoT report in the Markets section following the report's release at 2:30 p.m. CST.) As for the futures market, the nearby futures contract has been mired in a trench between $3.50 and $4.00 (roughly) since this past February.
Grains aren't the only sector feeling the squeeze around the neck from the dark side of the force (the most recent CoT report showed noncommercial traders holding net-short futures positions of 10,780 and 68,345 contracts of soybeans and Chicago wheat respectively), with crude oil (and the rest of the energy complex) having the life drained from it as well. As recently as late June 2014, spot-month crude oil was trading near $107 while noncommercial traders held a net-long futures position of 458,969 contracts (week of June 23, 2014). Last Friday's CoT report showed this position whittled back to 197,874 contracts, the smallest since the 194,707 contracts recorded the week of Dec. 24, 2012.
Metals have also felt the wrath of the force, with gold struggling desperately to keep from sliding into the sarlacc pit. This hasn't always been the case with gold priced just shy of $1,925 (per ounce) back in September 2011 as noncommercial traders held a net-long futures position just under 250,000 contracts. Today's (Dec. 18) close by the February 2016 issue could be near $1,050, with noncommercial interests possibly taking their net-long holdings back below 10,000 contracts.
The Empire used its Death Star to fire the latest deadly blast at the planet once known as the commodity sector in the form of this week's interest rate hike by the Federal Reserve. The U.S. dollar index (USDX), emboldened by the move, has seen buying enthusiasm reignited after flirting with technical disaster (at least for USDX bulls) earlier this month. If the USDX follows its presumed destiny, eclipsing its previous high of 100.510 and moving to the next target near 104.000, thoughts of inflation will be as remote as the chance of finding the swamp planet Dagobah -- meaning investment traders aren't likely to move money back into commodities any time soon.
A long time ago, Sir Isaac Newton laid the groundwork for analyzing market trends. Until some sort of disturbance is seen in the force, as in hints that noncommercial traders are turning away from the dark side, it's hard to imagine anything but hard times for the once rebellious commodity sector.
Darin Newsom can be reached at darin.newsom@dtn.com