What will ignite a precious metal rally to new all-time highs?
We often discuss the dollar and real yields as critical catalysts for a sustained uptrend for gold and silver. It’s simple: These shiny rocks will struggle if the dollar and rates continue to rise.
But there’s more.
I want to share another crucial piece of the puzzle – commercial positioning.
In this weekly note, we highlight 10 of the most important charts or themes we’re currently seeing in asset classes around the world.
The 30yr Retests Prior Cycle Highs
The US 30yr yield refuses to break below its prior cycle highs. This is a logical level for yields to find support and churn sideways which could mean more messy action for long-duration assets such as bonds and growth stocks.
Check out this week's Momentum Report, our weekly summation of all the major indexes at a Macro, International, Sector, and Industry Group level.
By analyzing the short-term data in these reports, we get a more tactical view of the current state of markets. This information then helps us put near-term developments into the big picture context and provides insights regarding the structural trends at play.
Let's jump right into it with some of the major takeaways from this week's report:
* ASC Plus Members can access the Momentum Report by clicking the link at the bottom of this post.
From the Desk of Steve Strazza @sstrazza and Alfonso Depablos @Alfcharts
This is one of our favorite bottom-up scans: Follow the Flow.
In this note, we simply create a universe of stocks that experienced the most unusual options activity — either bullish or bearish, but not both.
We utilize options experts, both internally and through our partnership with The TradeXchange. Then, we dig through the level 2 details and do all the work upfront for our clients.
Our goal is to isolate only those options market splashes that represent levered and high-conviction, directional bets.
The Value Line Geometric Index peeked above its August high but it continues to struggle with sustaining strength. We don’t have evidence at this point of that being a meaningful peak but for now this proxy for the performance of the median US stock is trodding across well-traveled ground.
What will ignite a precious metal rally to new all-time highs?
We often discuss the dollar and real yields as critical catalysts for a sustained uptrend for gold and silver. It’s simple: These shiny rocks will struggle if the dollar and rates continue to rise.
But there’s more.
I want to share another crucial piece of the puzzle – commercial positioning.
We analyze the Commitment of Traders (COT) report generated by the Commodity Futures Trading Commission (CFTC), which updates the positions of the largest speculators and commercial hedgers weekly.
We publish a table with this data in our commodities post every Friday.
Our focus lies solely on the commercial hedgers for one reason – they represent the largest short sellers for any given market. By monitoring these players, we discern the attitudes of the strongest hands.
Think of the COT as a sentiment gauge.
Commercial hedgers reached extreme levels in gold last fall, coinciding with significant troughs in price in 2016 and 2018:
As we move into the middle of February, seasonality trends suggest a choppy couple of weeks ahead.
At the same time, momentum in the US dollar has accumulated in recent days, as we observe some mild selling pressure in crypto markets. With the CPI release on Tuesday, it's reasonable to expect this volatility to continue.
This comes as Bitcoin retraces following its first retest of the August 2022 highs.
