In the futures markets, commercial hedgers are considered the "smart money" because they deal in a business that the asset they're trading is related to. On the other hand, speculators are simply outsiders looking to benefit from the price movements in that asset.
Hedgers also have much deeper pockets than the typical rank and file speculator, so when they're making extreme bets in one direction or another...we want to be paying attention.
...And right now, commercial hedgers are selling Copper like there's no tomorrow.
One of the primary focuses was the historic rate of change since the March lows and the historical data that suggested forward returns are worse than average following these types of readings.
In June we outlined that the "Reflation Trade" indicators we track had picked up significantly after reaching levels of long-term support in March.
Since then that thesis has played out and we've been taking advantage of it in Metals, cyclical stock market sectors like Materials and Industrials, and even Agricultural Commodities which managed to break out.
But...after a nice run many of these assets and intermarket relationships have pulled back over the last month or so...begging the question "is the reflation thesis over?"
Luckily for us, we only need one chart to discuss what's happening and how we're approaching it.
The reasoning behind this is simple, and we won't get too far into it. The bottom line is that as the US has shifted from a Manufacturing to Services Economy, the methods used to transport modern-day goods and services are very different than they were almost a century ago when Dow Theory was first introduced.
Thanks to everyone who participated in this week's Mystery Chart.
A lot of mixed responses from this one. Some of you were buyers at support, while others were erring in the direction of the recent downtrend and looking for a resolution to the downside.
With that as our backdrop, let's just right into it.
It's always fun chatting with Catherine over at BNN Bloomberg. She has the uncanny ability of getting me on her show just at the right time! In February, I explained very clearly why we were raising cash (the week before the biggest market crash ever), and then in early July I was screaming on television to buy stocks aggressively, just before a slew of new sectors started breaking out to the upside.
Today, I have a similar bullish view. This is a market that is rewarding us for buying stocks. That's the bottom line. And we don't see any evidence of that changing yet. Catherine also asked me about the Bond Market and I explained why I think rates go higher.
We like the have fun with these. Life is short. I hope you enjoy it!
I wrote this post for our Indian subscribers, but given it's discussing Interest Rates and their effect on Equities as an asset class I thought it was worthwhile to share it with you all as well.
We've written about the rotation that's underway here, here, and a lot of other places, but this post helps tie it all together with the recent action in Bonds.