Downloading...
Download

Backwardation

Commodity Outlook: Finding antivenoms in the Year of the SnakeWe are about a month into the Chinese Year of the Snake. The preceding Year of the Dragon (10 February 2024 to 28 January 2025) brought significant momentum to the asset class with broad commodities rising 10%, precious metals rising 36%, industrial metals rising 12%, and even energy and agriculture mustering a late gain (close to 2% each)1. However, the Year of the Snake presents several macro challenges for commodities. Renewed trade protectionism from the US, under the new Trump Administration, is likely to dampen global trade. Additionally, higher bond yields and a strong US dollar create further headwinds for the commodities market. China’s reticence to stimulate big is also holding back the asset class. Despite these headwinds, we have identified several micro factors that could provide support for certain commodities—what we refer to as our ‘antivenoms’. We remain optimistic about precious metals, aluminium, and European natural gas. Additionally, some of the macroeconomic challenges may ultimately prove less severe than initially anticipated, creating potential upside opportunities for commodities that currently reflect bearish sentiment. Strong US dollar The recent strength of the US dollar has historically correlated with weaker commodity prices. While this pattern has been inconsistent post-COVID-19, the dollar's resurgence could once again pressure commodities. Historical data suggests a strong dollar often aligns with declining commodity values. Trump’s trade policies and market impact Donald Trump’s return to the presidency introduces uncertainty into trade and commodity markets. Trump's first presidency saw a trade war with China and other nations, negatively impacting global trade and commodity prices. While extreme tariff measures have often been bargaining tactics, the risk of real implementation remains. In his second term, some tariffs were announced and then delayed; at the time of writing, we still have no real guide as to whether they will be implemented or when. This uncertainty is already dampening market sentiment and increasing long-term interest rates, further constraining commodities. Economic and inflationary concerns Tariffs could raise inflation in the US while simultaneously depressing global commodity prices due to reduced demand. This dynamic may complicate the Federal Reserve’s (Fed) efforts to control inflation, potentially leading to prolonged high interest rates. Climate policy reversals Trump has vowed to withdraw from the Paris Climate Agreement and declared a “national energy emergency,” reversing climate regulations and boosting fossil fuel production. His administration is expected to cancel a $6 billion Department of Energy program aimed at industrial emissions reduction and repeal incentives for electric vehicles. These changes could suppress demand for critical materials used in clean technology, such as base metals. At the same time, deregulation of oil, gas, and mining operations may increase the supply of key commodities like copper, aluminium, nickel, and cobalt. Major projects, such as Rio Tinto’s copper mine in Arizona, could proceed after years of delays. While immediate production increases are unlikely in 2025, long-term supply growth is possible. Geopolitical risks and energy markets A ceasefire between Israel and Hamas, brokered just before Trump's inauguration, has eased some geopolitical risk, though its stability remains uncertain. As we write, a peace deal between Russia and Ukraine is being brokered by the US. Short-term oil price spikes are possible if sanctions are initially tightened to get parties to the negotiating table but, ultimately, we could see easing oil and gas prices if a deal is hashed out. The US has been pressuring Europe to purchase more American natural gas, but Russia’s LNG shipments to the EU remain significant. A resolution of the Russia-Ukraine war could weaken US leverage in energy negotiations, making Europe less dependent on American gas. Stricter enforcement of Iranian oil sanctions under Trump could drive oil prices higher. However, OPEC2 members may counteract this by increasing supply, potentially offsetting price gains. China’s economic strategy and commodity demand China remains the world’s largest consumer of commodities, yet its recent economic weakness has limited demand growth. Unlike previous economic cycles where China launched large stimulus measures, its current approach focuses on smaller, targeted interventions. The government has stabilised the real estate sector but remains wary of excessive stimulus due to debt concerns. China is investing heavily in clean technology and renewable energy infrastructure, supporting metal prices despite weak real estate demand. US tariffs on China could accelerate its push toward energy independence, promoting domestic adoption of solar, battery, and electric vehicle technologies. Trade tensions could escalate into retaliatory actions, such as China restricting exports of critical materials, as seen with gallium, germanium, and graphite in response to semiconductor disputes. Further restrictions could impact global supply chains for energy transition materials. China’s depreciating Yuan complicates economic policy. The People’s Bank of China has been intervening to stabilise the currency, limiting its ability to cut interest rates. While a policy shift to boost growth led to short-term market gains in 2024, further action remains constrained by currency pressures. Conclusion In the Year of the Snake, we are searching for antivenoms to counter the potential threats posed by trade wars, a strong US dollar, and a China that may be unable or unwilling to overcome its economic weakness. We see strong opportunities in gold, silver, aluminium, copper, zinc and European natural gas, as each of these has compelling drivers that could withstand broader headwinds in the commodity complex. As policies become clearer, we may find that our fears were overstated, potentially paving the way for a relief rally across the broader commodity complex. Until then, we place our confidence in these antivenoms.
CBOT:AW1!
by aneekaguptaWTE
Easter eggs likely to get expensive as cocoa trades at a 46-yearCocoa was the best performing commodity in 2023, recording a price increase of 64%1. Cocoa prices have continued to rally in 2024 crossing the threshold of US$5000 Metric Ton (MT) on 2 February 2024. The last time cocoa prices rose to this magnitude was in 1977 when it reached US$5379MT. A similar situation prevailed back then, adverse weather conditions led to production scarcities in major cocoa production countries including Ghana and Ivory Coast. Current crop conditions remain unfavourable in key cocoa growing regions Weather conditions in Africa have been unfavourable particularly in the Ivory coast and Ghana. This matters as the cocoa producing belt of West Africa is responsible for generating over 80% of the total global output. Ghana is the second biggest producer in the world. Moisture levels have been below average, and more trees have been affected by the Swollen Shoot Virus (CSSV). Main crop cocoa arrivals at ports in top grower Ivory Coast had reached 951,710 tonnes by 21 January since the start of the season on 1 October, down 33% from the same period last season. The cocoa harvest is already falling well behind the prior year’s level. Added to that, the key West African Cocoa growing region is facing dry Harmattan winds which could destroy the cocoa pods growing for the Ivory Coast’s mid-crop in April. Ivory Coast halts forward sales of cocoa Ivory coast has suspended forward sales of cocoa beans for the 2024/25 season amid uncertainty about the production volumes. The country has seen its cocoa production falling this year due to adverse weather and diseases damaging the crop. Owing to which the country doesn’t want to oversell the 2024/25 crop until the production estimates are available. Buyers typically utilise forward sales to secure longer-term supplies. As Ivory Coast suspends forward sales, the absence of forward buying is likely to spur spot purchases in the near term. Cocoa prices in January itself have risen 13%2, on strong buying activity in the physical market. The front end of cocoa futures curve remains in backwardation, yielding a positive implied roll yield of 3.2% indicating near term tightness in supply. Bearish grinding data fails to arrest cocoa’s price rally Concerns started to surface that demand growth for cocoa will be impacted by higher cocoa prices. This was confirmed by the Q4 2023 data on cocoa processing which showed the grind number for North America was down 3% yoy to 103,971MT, Europe declined 2.5% yoy to 350,739MT while Asia saw the biggest decline at 8.55% to 211,202MT.3 The lower grind data is likely to have reduced the deficit on the global cocoa market from 350,000MT to 300,000MT for the 2023/24 crop year. However, expectations of lower grinding data was being anticipated by the market owing to higher cocoa prices. Amidst the current backdrop, the cocoa market is likely to face a supply deficit in the current crop year for the third successive year. The extension of the current price rally remains dependent on development of the mid-crop in Ivory Coast and Ghana and the likely impact of the CSSV. Net speculative positioning in cocoa futures is more than 1-standard deviation (stdv) above the five-year average underscoring bullish sentiment towards cocoa. Sources 1 Source: Bloomberg Cocoa Futures price performance from 31 December 2022 to 29 December 2023 2 Source: Bloomberg Cocoa Futures price performance from 3 January 2024 to 31 January 2024 3 Bloomberg as of 31 January 2024 This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
NYMEX:CJ1!
by aneekaguptaWTE
Natural Gas: A look at term structureLast week , we examined Natural Gas from a seasonality perspective. This week, we aim to extend that discussion and explore other ways to implement a similar view. To quickly recap: From a seasonality standpoint, we identified short-term opportunities for a downward move in Natural Gas. Factors such as higher-than-normal storage levels, unseasonably warm weather, and the typical price trends from December to January suggest a potential decline in prices. Additionally, prices have recently broken past initial short-term support, now trading below the $3 handle. Another perspective worth considering is the term structure. Term structure refers to the difference between futures prices of various maturities of commodity futures. It is visualized by plotting the prices of different expiry contracts, forming what we refer to as the term structure curve. The term structure reveals other insight that we can explore, starting with the basic slope, which can be categorized as flat, upward sloping, or downward sloping. Understanding these can reveal potential mispricing or provide a clearer picture of market expectations at different future points. Contango An upward-sloping term structure, known as "Contango", occurs where contracts closer to expiry are priced cheaper relative to those further from expiry. This can be attributed to factors like storage costs where contracts further from expiry might trade at higher prices due to the associated storage expenses. Sellers, therefore, demand higher prices to offset these costs. Backwardation A downward-sloping term structure, termed “Backwardation,” happens when prices in the near months are higher than those further from expiry. This might occur for various reasons such as a benefit to owning the physical material, also known as convenience yield or even just short-term demand pressures. Term Structure With a rough idea of contango and backwardation in mind, we can now look at Natural Gas term structure. The chart above shows the term structure for natural gas 1 year ago, 6 months ago and yesterday. Here we can see the 3 distinct shapes for the term structure, especially when we focus on the front part of the term structure. With the term structure a year ago deeply in backwardation, 6 months ago in contango and current term structure in a generally flat shape. We also observe that term structure shapes can change quite rapidly hence it can be valuable to look at the shape of the curve to place strategies on the term structure. For instance, if we maintain a short-term bearish but long-term bullish view, one strategy could be to short the front part of the curve while going long on the back part. This can be achieved by creating a Jan – Jun 2024 calendar spread, going short on the Jan 2024 contract and long on the Jun 2024 contract. What’s interesting when we look at the Calendar spread vs the outright price moves in the individual leg is that the direction of the outright contract moves generally dictates the direction of the calendar spread. Again, this could happen for a couple of reasons, one being that trading activity often concentrates on the front part of the term structure for liquidity reasons, hence, making the front part of the term structure generally more reactive than the back part of the term structure. But why trade the calendar spread instead of the outright? Reduced Margin Benefits of trading the calendar spread instead of the individual month contract include lowered margin requirements due to margin offsets from CME, reducing the margin needed compared to outright positions. Reduced sensitivity to risk/black swan events Both long and short positions in a spread will react together to risk events, albeit to different magnitudes, mitigating overall exposure. For example, during the Natural Gas rally in 2021, while outright prices increased from $2.5 to $9.5, the Jan – Jun 2023 calendar spread only increased by $1 over the same period. Similarly, on the decline, outright prices fell close to $8, but the calendar spread fell by only $0.74. This relatively controlled price swing allows for more manageable risk compared to outright contracts. Hence to express our short-term bearish but long-term bullish view, we can take a short position on the CME Henry Hub Natural Gas January 2024 Futures and a long position on the CME Henry Hub Natural Gas June 2024 Futures at the current level of 0.11. The same position can also be expressed using the newly launched (on 6 November 2023) CME Micro Natural Gas. At 1/10 the size of the full-sized contract, the margin requirements to set up a position become more manageable. Micro Natural Gas Futures Margin Requirements Alongside the lowered margin requirements, it offers the opportunity to tactically average into a position to achieve a better average entry price for the same amount of capital. Each 0.001 point move in the full-sized Henry Hub Natural Gas Futures is 10 USD while a move in the Micro Henry Hub Natural Gas Futures is 1 USD. The charts above were generated using CME’s Real-Time data available on TradingView. Inspirante Trading Solutions is subscribed to both TradingView Premium and CME Real-time Market Data which allows us to identify trading set-ups in real-time and express our market opinions. If you have futures in your trading portfolio, you can check out on CME Group data plans available that suit your trading needs www.tradingview.com Disclaimer: The contents in this Idea are intended for information purpose only and do not constitute investment recommendation or advice. Nor are they used to promote any specific products or services. They serve as an integral part of a case study to demonstrate fundamental concepts in risk management under given market scenarios. A full version of the disclaimer is available in our profile description. Reference: www.cmegroup.com www.cmegroup.com www.cmegroup.com www.cmegroup.com
NYMEX:NGF2024Short
by inspirante
Myth-busting: top 6 misconceptions about commoditiesWisdomTree has long-standing expertise in commodities, and this asset class constitutes a core part of our business. We aim to debunk several myths that surround commodity investing1. Myth 1: Commodities are only a tactical instrument Some believe that commodities trade in a range and do not outperform over the long term. Furthermore, they think commodities only outperform in an ‘up’ phase of a commodity ‘super-cycle’. Physical commodities are the fundamental building blocks of our society. Therefore, it is no surprise that their price movements largely explain inflation and tend to at least match inflation over the long term. Furthermore, commodity investors most often invest in futures contracts, not physical commodities. Futures contracts have been designed as hedging tools to allow commodity producers and miners to hedge their production forward, making their businesses sustainable and allowing them to invest because they are insulated from the commodity prices’ short-term volatility. Producers are willing to pay for this hedge, just as they would pay for insurance. Therefore, investors who provide this hedge by buying futures contracts receive an insurance premium that allows them to beat inflation over the long term. This ‘insurance’ is a permanent feature of commodity futures and doesn’t fall away through economic cycles. Thus, commodity futures are suitable for consideration as a strategic investment, not just tactical investments. Commodities futures provide a positive risk premium, driven by their intrinsic link to inflation and embedded ‘insurance premium’. While upward phases of commodities’ super-cycle are historically advantageous for commodity investors, future-based broad commodity investments can deliver a risk premium in any part of a super-cycle. Myth 2: Losses are guaranteed when commodities are in contango Contango (negative roll yield) and backwardation (positive roll yield)2 are used to describe the state of the futures curve. It describes the relative position of the current spot price and the futures contract price. Drivers of roll yield include storage costs, financing costs, and convenience yield. Backwardation is often associated with demand strength when people are willing to pay more for immediate delivery than lock into a contract for later delivery at a cheaper price. Some believe that, because contango is the opposite state of backwardation, losses are guaranteed as a corollary. The fact that Keynes’ theory is called ‘normal backwardation’ has caused some terminology confusion. However, what is described by Keynes is that futures contracts are generally priced at a discount to the expected spot price at expiry. It has nothing to do with the current spot price. In other words, the curve can be in contango, and the future price can still be at a discount to the expected spot price at maturity, that is, be in normal backwardation as well. Using a numerical example, let’s say that WTI Crude Oil is worth $50 today. The market expects WTI Oil to trade at $55 in a month (expected spot price) because of storage and other costs. Keynes’ theory hypothesis is that the 1-month futures contract will be priced at a discount to $55, let’s say $54, to incentivise speculators to provide the hedge to producers. In this situation, the curve is in contango ($54>$50), and the expected risk premium is still positive at $1. So, a curve in contango and a positive risk premium can coexist. While the shape of the curve has an impact on the performance, it is not a good predictor of future performance. Myth 3: Commodities are riskier and more volatile than equities. There is a common perception that commodities are riskier than equities. Equities and commodities are similar asset classes statistically. Their historic returns and volatility are quite close. Historically, commodities have exhibited higher volatility than equities in 42% of the 3Y periods since 1960. However, in a larger number of periods (58%) equities have shown higher volatility. More importantly, the two assets’ distributions differ from a normal distribution with a significantly higher skew. But commodities have the advantage. They exhibit a positive skew (a tendency for higher-than-expected positive returns), when equities are known for their negative skew (their tendency to surprise on the downside). Commodities have exhibited lower volatility than equities in 58% of the time rolling 3-year periods we studied and benefit from positive skew. Myth 4: Commodities stopped being an effective diversifier after the 2008 Global Financial Crisis presented a structural break in commodity price relationships Markets are becoming more and more efficient. With those changes, assets have become more correlated. It is clear that commodities have been more correlated to equities in the last 10-20 years than before. However, this is true of most asset pairs as well. US equities are more correlated to global equities. Equities are more correlated to high yield bonds. In a globalised world where correlations are more elevated, commodities still stand out for their lower level of correlation. Note, commodities have continued to provide a cushion against equity and other asset crises in recent periods. For example, in 2022, commodities rose 16%, while US equities3 fell 18% and bonds4 fell 16%. While 2008 marked an all-time high for the correlation between equities and commodities, their correlation has always oscillated. There have been earlier spikes of similar magnitude in the 1960s and 1980s. In 2020, we saw a similar spike in correlation, but correlations have more than halved since in 2023. Commodity vs equity correlation tends to oscillate and has remained within normal historical ranges. Myth 5: Inflation linked bonds are better than commodities at inflation-hedging Some assets are often considered good inflation hedges, such as inflation-linked bonds (TIPS) or real estate. However, it is surprising that more people don’t recognise the superior inflation-hedging properties of commodities. The beta to inflation (US Consumer Price Index (CPI)) of inflation-linked bonds and real estate, historically, is significantly lower than that of commodities (2.45): US TIPS (0), US Equity Real Estate Sector (1), House Prices (0.4). Furthermore, while broad commodities’ average monthly performance tends to increase when the CPI increases, this is not the case for other assets. The performance of TIPS appears to be relatively unrelated to the level of CPI. The performance of real estate, being equities or real assets, seems to worsen when the CPI increases. Real estate suffers from the fact that, while rental incomes are linked to inflation (rents are part of the CPI basket, for example), the capital values themselves are not, and yet have a larger impact on the asset's price. Similarly, inflation-linked bonds are linked to inflation, but their price is also tied to real yields changes (through a duration multiplier) which tends to dilute the relationship to inflation itself. Historically, commodities have been a better hedge to inflation than TIPS or real estate assets. Myth 6: Futures are the best way to access gold for institutional investors Futures markets tend to be extremely liquid and offer very low transaction costs. Therefore, investors assume that, if they can, it is always the most efficient way to implement a trade. However, futures markets respond to their own constraints where banks tend to provide most of the hedging. Recently, banks have suffered from increasing regulation and operating costs that they have translated into their pricing of futures contracts, leading to significant tracking differences with the physical asset. Sometimes futures contracts are the only way to access a commodity, but for precious metals this is not the case. For gold, this cost has, historically, represented 0.9%6 per year on average compared to owning gold bullion. Physically backed exchange-traded commodities (ETCs) have many advantages: limited operational burden, reduced tracking difference, cheap and liquid. It is clear that commodities are a frequently misunderstood asset class, and many misconceptions remain today. For a fuller description of the fundamentals of commodity investing, please see The Case for Investing in Broad Commodities. Sources 1 These myths were all addressed in The Case for Investing in Broad Commodities, November 2021, which takes a deep dive into commodity investing. This blog summarises and updates data addressing several of the ‘misconceptions’ listed in the piece. 2 For more information on contango and backwardation, see our educational ETPedia hub (specifically the ‘Costs and Performance’ tab). 3 S&P 500 TR. 4 Bloomberg GlobalAgg Index (government, corporate and securitised bonds, multicurrency across developed and emerging markets). 5 Source: WisdomTree, Bloomberg, S&P, Kenneth French Data Library. From January 1960 to July 2023. Calculations are based on monthly returns in USD. Broad commodities (Bloomberg commodity total return index) data started in Jan 1960. US TIPS (Bloomberg US Treasury Inflation-linked total return bond index – Series L index) data started in March 1997. US Equity Real Estate (S&P 500 Real Estate sector total return index) data started in October 2001. US House Price (S&P Corelogic Case-Schiller US National Home Price seasonally adjusted index) data started in January 1987. Historical performance is not an indication of future performance and any investments may go down in value 6 Source: WisdomTree, Bloomberg. From 4 June 2007 to 31 July 2023. The Performance of the physical Gold was observed at 1.30 PM Eastern Time to match the BCOM sub-index calculation time. You cannot invest in an Index. Historical performance is not an indication of future performance and any investments may go down in value. This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
CBOT:AW1!
by aneekaguptaWTE
1
Heating oil and gasoline supply remain tightOil demand, driven by China is an area of strength, but a slowing Chinese economy could weaken this. However, OPEC’s resolve to keep markets tight is strong. Petroleum product markets – heating oil and gasoline – are especially tight with inventory significantly below normal and prices have hit ‘golden crosses’ : technical analyst parlance for bullish conditions. Positioning in heating oil futures is a standard deviation above 5-year average after rising by 49% last month1. A combination of rising longs and contracting shorts drove the trend amid a 17% rally in heating oil in the past month1. Heating oil inventory has fallen 15% and inventory is now than a standard deviation below 5-year average2. While not as steep as last year, the 0.8% positive roll yield on heating oil futures marks a break from the pre-2022 historic trend of contango in August3. At 8.6%, the positive front month roll yield on gasoline futures appears larger than seasonally normal (although a positive front month roll is expected at this time of the year)3. According to the International Energy Agency (IEA), world oil demand is scaling record highs, boosted by strong summer air travel, increased oil use in power generation and surging Chinese petrochemical activity. Global oil demand is set to expand by 2.2 mb/d to 102.2 mb/d in 2023, with China accounting for more than 70% of growth. With the post-pandemic rebound running out of steam, and as lacklustre economic conditions, tighter efficiency standards and new electric vehicles weigh on use, growth is forecast to slow to 1 mb/d in 2024. Russian oil exports held steady at around 7.3 mb/d in July, as a 200 kb/d decline in crude oil loadings was offset by higher product flows. Crude exports to China and India eased month on month but accounted for 80% of Russian shipments. Global observed oil inventories declined by 17.3 mb in June, led by the OECD. Non-OECD stocks and oil on water were largely unchanged. OECD industry stocks fell by 14.7 mb, in line with the seasonal trend, to 2,787 mb. Industry stocks were 115.4 mb below the five-year average, with product inventories particularly tight. Preliminary data observed by the IEA suggest global inventories drew further in July and August. Refiners are struggling to keep up with demand growth, as the shift to new feedstocks, outages and high temperatures have forced many operators to run at reduced rates. Tight gasoline and diesel markets have pushed margins to six-month highs. Heating oil (Ultra Low Sulphur Diesel) prices rose 17% in the past month, reflecting this tightness. OPEC+’s aggressive cuts are continuing to tighten the oil market. Saudi Arabia’s voluntary supply cuts have helped oil curves remain in backwardation. Source: 1 Commodity Futures Trading Commission as of 15 August 2023 2 change in inventory over the past 3 months, United States Department of Agriculture as of 15 August 2023 3 Calculated as difference between front month and second month futures prices as of 15 August 2023 This material is prepared by WisdomTree and its affiliates and is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. The opinions expressed are as of the date of production and may change as subsequent conditions vary. The information and opinions contained in this material are derived from proprietary and non-proprietary sources. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by WisdomTree, nor any affiliate, nor any of their officers, employees or agents. Reliance upon information in this material is at the sole discretion of the reader. Past performance is not a reliable indicator of future performance.
N
by aneekaguptaWTE
USOIL: Divergence in the slow stochastics (monthly)We have already seen about 25% decline from the $130 top in March 2022. However looking at the monthly chart, we might be in the middle of further decline. Notice the divergence of slow stochastics indicated in the chart, so we should be aware of further risk of decline with a strong support around $65 area. 2 interesting facts as of today: - Interestingly MACD of weekly charts of Crude Oil Inverse ETFs, say HOD, are showing a possibility of trend change. - Crude Oil future contracts are in backwardation. (Yahoo! finance would be a nice tool to see this.)
TVC:USOILShort
by Tomatrader-X
Term Structure Provides Fundamental CluesLast week, I wrote on processing spreads, a valuable tool that can provide clues about price direction. The price action in products that trade in the futures market like gasoline, heating oil, soybean meal, and soybean oil often tell us a lot about the path of least resistance for the crude oil and soybean futures contracts. This week, I will turn my attention to term structure. Term structure is the price differential between one delivery period and another in the same commodity. Some traders call term structure time spreads, calendar spreads, front-to-back spreads, or switches. They are all the same, reflecting delivery or settlement premiums or discounts based only on time. Backwardation- It’s what it sounds like Contango- It’s not what it sounds like A real-time supply and demand indicator Commodities are unique- A mentor made a mint trading time spreads Time spreads can enhance your commodity trading results- The cure for low and high commodity prices The late Apple founder Steve Jobs once said, “My favorite things in life don’t cost any money. It’s really clear that the most precious resource we all have is time.” While Steve Jobs was referring to his mortality, time is a critical factor in commodities. Close attention to term structure unlocks clues about fundamental supply and demand factors. Backwardation- It’s what it sounds like Backwardation is a condition where commodity prices for deferred delivery are lower than for nearby delivery. A backwardation suggests that supplies are tight, forcing nearby prices higher. The condition also indicates that producers will increase output in response to a market’s deficit, leading to lower future markets. As of the end of last week, the NYMEX crude oil futures market was in backwardation. The chart of NYMEX WTI crude oil for delivery in December 2022 minus the price for delivery in December 2021 was trading at over a $12 per barrel backwardation or discount. December 2021 futures settled at the $83.57 level on October 29, with the December 2022 futures at the $71.33 level. Robust demand, supply concerns, and other factors have driven the spread into the widest backwardation in years and NYMEX crude oil to the highest price since 2014. Higher crude oil prices tend to support a wider backwardation. Historically, the Middle East’s political volatility has caused supply concerns at higher prices as the region is home to over half the world’s petroleum reserves. Crude oil is one example of a raw material market where the term structure reflects supply concerns. The trend towards a wider backwardation has been bullish for the energy commodity. Contango- It’s not what it sounds like While backwardation is a term that reflects the spread differentials, contango is another story. In the commodities lingo world, contango is backwardation’s opposite as it reflects a market where prices for deferred delivery are higher than for nearby delivery. Backwardation is a sign of supply concerns, whereas contango is present during periods of oversupply or equilibrium where supply and demand balance. The gold futures market is an example of a term structure in contango. The daily chart highlights gold for delivery in December 2022 minus December 2021 is trading at a $10.30 contango or premium at the end of last week. The December 2021 futures were at the $1783.90 level, with the December 2022 contract at the $1794.20 level. Central banks worldwide hold massive gold stocks as part of their foreign exchange reserves. Therefore, supply concerns tend to be low in the gold markets leading to a premium in its term structure. Moreover, gold has a long history as a means of exchange or money. Higher interest rates tend to push gold contangos higher. Gold is one example of a commodity market in contango. A real-time supply and demand indicator A commodity’s term structure can be a helpful tool as it provides insight into supply and demand fundamentals. When a raw material price spikes higher because demand rises or supplies decline, the term structure tends to move into a widening backwardation. Producers respond by increasing output, creating the deferred discount. When markets are in glut or oversupply conditions, producers often cut back on output, causing the chances for future deficits to develop. Thus, a steep contango can reflect the market’s perception that nearby oversupply will lead to eventual shortages. Term structure is one of the puzzle pieces that comprise a market’s structure. The others are processing spreads, location and quality spreads, and substitution spreads. Commodities are unique- A mentor made a mint trading time spreads Commodities are essentials. Agricultural commodities feed and clothe the world and are increasingly providing alternative energy. Industrial commodities, including metals, energy, and minerals, are requirements for shelter, power, and infrastructure. Other raw materials have varying applications in daily life and even the financial system. Shortages or gluts can have significant impacts on the global economy. The current inflationary pressures have roots in commodities, which had experienced price rises since the beginning of the worldwide pandemic when short-term lows gave way to bullish price action. Supply chain bottlenecks and slowdowns or shutdowns at mines and processing facilities have put upward pressure on prices. Perhaps the most dramatic example came in the lumber futures market. The quarterly lumber futures chart shows the price explosion to a record $1711.20 high in May 2021 on the back of slowdowns and shutdown at lumber mills and supply chain bottlenecks bringing wood to consumers during a period of rising demand. When lumber reached its May high, nearby January futures were far lower. The chart shows January futures peaked at $1275 per 1,000 board feet, over $435 lower than the nearby contract at the May high. When I worked at Phibro in the 1990s, my direct boss was Andy Hall, one of the most successful crude oil traders in history. While many market participants believe Mr. Hall churned out profits with long and short positions in the oil market, his greatest success came from what he called “structural risk positions.” He tended to buy the front months in the oil market and sell the deferred contracts when the market moved into contango. I remember the night when Saddam Hussein marched into Kuwait in 1990. The invasion caused the nearby price of crude oil to double in a matter of minutes. Meanwhile, deferred oil prices declined, sending the spread to a massive backwardation. Mr. Hall pocketed hundreds of millions in profits on that night. His theory was that the risk of contango was limited over time, and the potential for spikes in backwardation increased the odds of success. Time spreads can enhance your commodity trading results- The cure for low and high commodity prices Commodity prices tend to rise to prices where producers increase output, consumers look for substitutes or limit buying, causing inventories to build. As supply rise to levels above demand, price find tops and reverse. Conversely, prices tend to drop to levels where production becomes uneconomic. At low prices, consumers look to increase buying, and inventories decline, leading to price bottoms and upside reversals. The cure for high or low prices is those high or low prices in the world of commodities. Meanwhile, highs or lows can be moving targets. As we learned in lumber and a host of other markets over the years, highs occur at levels that most analysts believe are illogical, irrational, and unreasonable. We learned the same holds on the downside as nearby NYMEX crude oil futures fell to a low of negative $40.32 per barrel in April 2020. Time spreads can be real-time indicators of changes in a commodity’s supply and demand fundamentals. Understanding and monitoring term structure can only enhance the odds of success in the commodities asset class. --- Register for the Monday Night Call below. You can also sign up to see the full articles for free, and get early access, using the other link below. Trading advice given in this communication, if any, is based on information taken from trades and statistical services and other sources that we believe are reliable. The author does not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects the author’s good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice the author provides will result in profitable trades. There is risk of loss in all futures and options trading. Any investment involves substantial risks, including, but not limited to, pricing volatility, inadequate liquidity, and the potential complete loss of principal. This article does not in any way constitute an offer or solicitation of an offer to buy or sell any investment, security, or commodity discussed herein, or any security in any jurisdiction in which such an offer would be unlawful under the securities laws of such jurisdiction.
LEducation
by Andy_Hecht
9
Plan Longs at Key Levels - Trade in smallsI have been anticipating the broader market's decline for some weeks, despite good fiscal support and a growing economy (no hyper inflation!), there are still issues which serve to spook the market; these are: - Debt ceiling still has not been resolved, - "Taper", the market words which are in effect positive for the market will serve to further spook the market on the basis of misunderstanding what tapering actually means (and this is also just unwinding the Fed's ridiculous QE - given that its Reverse Repos aren't keeping pace with Bank reserve build) - infrastructure deal still not agreed to, - left field issues like Evergrande etc., VIX index is now backwardating, and the market for swing traders (about 20% of capitlaisation) is in net loss. I am now planning key levels to start being long in the market. To this end I will be: - buying on limits in smalls and building a position. I am not chasing the market and I think more downside is to be experienced. -I will also be exiting long put positions for profits. - holding strategic long SPY positions (no need for stop losses or to sell the broader market)
SP:SPX
by Adam-Cox
FTSE 100 ExpirationQ: What has the highest probability of occurring? There is a lot of volume being traded but the market is moving sideways. The expiration date on the 3rd Friday of the 3rd quarter is approaching. Traders are rolling forward their contracts from September to December. It makes for quite difficult trading of classic patterns. A rise in false breakouts. Consider where the future price is relative to the spot price of the instrument being traded. Is it higher or lower? Since futures contracts expire at the spot price that mean the futures price is more likely to move down or up to the spot price. Since algo's trade the arbitrage here there is not a great spread between the two prices although it would make sense to trade in the direction of the spot price. As expiration nears the distribution in the spread is more likely to be normal. This suggests the market is more inclined to mean revert. Think Bollinger Bands and rotations between the standard deviations. Its not clear cut, there are losers and winners B for Buy and S for Sell. Higher timeframe Bollinger Bands also play a role in where price stops. The logic behind this is that traders need prices to stabilise so they can execute like for like between the expiring contract and future contract.
OANDA:UK100GBP
by xciiitradingco
what is backwardationbig fund ,larg banks(brokers) use it to predict future backwardation=gold futures price GC1! - gold spot price when it goes up show larg banks,big fund start buying in futures market whenit goes down show larg banks,big fund start big sell in future market now we have high backwardation in 2 days ago , show big banks,big funds start huge buying , mean they belive gold will go up in next days note =big pro trader like CITIBANK trade on gold futures , not gold CFD (spot) , gold cfd (we trader) tickdata comes from futures market and big brokers execute ,hedge our orders with it
FX:XAUUSDLong
by ramin_trader2006
1
BTC- Accumulation modeThis week is nothing but reverse bart patterns and scam wicks! I guess this is the result of decreased liquidity caused by the slowly declining volume during the consolidation phase. Bitmex is trading below 2 billion volume as of now, yet open interest is on the slow ascending trend. This tells me the accumulation is taking place possibly by big fishes. In addition, volatility is slowly ticking up as well. Other signs to pay attention to- CME open interest and volume going up + Backwardation + USDT premium going up As we all now, low volume is a precursor to the high volatility move... As long as 8.4k is defended, I will continue my buy on the dip mode!
BITFINEX:BTCUSDLong
by Libratus
BTC- New trend in the development...? (sentiment, liquidity)BTC is off to the good start this year! Can it last though? I will spare you the head and shoulders bottom. Let's focus on the sentiment analysis because I think it provides important clues for the potential trend reversal. It is good that BTC broke out of the 6 months downward channel with above average volume on the daily timeframe and also managed to bursted through two resistance lvls in the process. Both are good indicators of potential trend reversal. This price move will be more convincing If the price can manage to close the daily above 8.2k to 8.3k On the fundamental side, Iran news and all-time high hashrate might have something to do with this price spike or it might be the pure technical move. It is still too early to rule out the possibility of liquidity raid even though I suspect most of the shorts at this lvl have been taken out already during last year's Oct price spike. Quick glance at the latest COT report about CME futures indicates that institutional players are still overwhelmingly net short, which indicates the ongoing distribution process. I am waiting for the Bitmex funding rate's green bar to go higher, which could signal the potential bullish sentiment. Backwardation suggests that investors still believe that BTC price will keep going down. Again, bummer here. That being said, it is worth noting that all these sentiment indicators are lagging so it is better to check them again next week if the price momentum continues. I will pay attention to the open interest and volatility and be wary of any big orders in the orderbook in the upcoming days. IF BTC can manage to attack 8.8k to 9.2k and consolidate around that price range, then the bull reversal might be on the horizon. If the price stalls around 8k, it could be a good time to buy on the pullback. Oh! Iran just fired missiles to US bases! If you buy into the notion that BTC is the digital gold and is uncorrelated to the stock market (we could use more evidence on the correlation), then that is one more reason to be bullish on BTC.
BITMEX:BTCUSD.P
by Libratus
2
XBTZ19 Data Capture, 6 months of Bitcoin Futures dataIn my experience Tradingview does not keep data of expired Bitmex contracts after expiration. The primary purpose of this post is to keep the valuable data from XBTZ19 contract from being lost forever. My indicator script XBT Contango Calculator Version 3 is used in this example to capture all the data from the December Futures contract. This post should be a historical record of how backwardation and contango affected price action during the last 6 months. I will do this post at each expiration, primarily for my own benefit and analysis, but also as a record other traders in the community can look back on. Please also see below "Links to related Ideas"
BITMEX:XBTEducation
by SchamBTC
5 month repeatable pattern. XBT Backwardation for Christmas?While studying XBT Contango and Backwardation I noticed a repeatable pattern that XBT was going into backwardation every month for the last 5 months around the same time. I don't have an answer for this, but my assumption is it has to do with commercial interests and how they are driving the XBT Futures market. The strategy does not always catch the top/bottom perfectly, but it would have been profitable 5 months in a row if executed properly. I noticed that every month for the last 5 months XBT went in backwardation at the end of every month around the 24th - 28th. Typically backwardation is a great buying opportunity to go long, however since the current trend is bearish i prefer to trade with current trend. Since backwardation was repeatable, and likely driven by commercial interest or other fundamentals, I was curious to see if there was a time each month that would be best time to take a short? So far I have noticed between the 6th and 10th each month would provide a profitable trade to hold until later in the month in hopes of catching backwardation to cover. All this analysis was made possible with my indicator script the XBT Contango Calculator. I have been making improvements to the original code and hope to release Version 3 in the near future.
BITMEX:XBTShort
by SchamBTC
3
XBT Dancing the Contango and Farewell to XBTU19 data?This idea is to expand on my recent observations while trading Basis (spread) of futures contracts for XBT, and how recently Contango and Backwardation have been a good timing indicator for XBTUSD. For more detailed explanation, please check out my indicator script the XBT Contango Calculator in related link. Typically I have noticed that Futures premium/discount primarily flow along with price movements. For example, when price goes up, premium goes up and vis-versa. However, what i found most interesting over the last few weeks is there was a divergence in XBTUSD price and XBTZ19 futures premium (blue line), which i noticed for the first time. Additionally, this happened right before the BREAK See below A primary objective of this post, is to see if publishing this idea in Tradingview will keep the XBTU19 data (orange line) plotted by the XBT Contango Calculator. I have found that charts of expired Bitmex Futures are not available on Tradingview after expiration. Studying XBTU19 September futures has been very useful for trading over the last few months and hope this post will stand as a record on how Contango and Backwardation in XBTU19 contact affected price action (assuming data doesn't disappear after 9/27). If anyone knows a way to plot historical Bitmex data, please help me out. I believe it can be pulled via API from the following link, but I am not able to figure it out. www.bitmex.com THE FOLLOWING ARE TWO REASONS WHY I WANT TO STUDY HISTORICAL DATA FROM PREVIOUS BITMEX FUTURE CURVES. I think both of these scenarios could represent the two directions we have at the current moment. As you will see, if past futures curve data was available from these time periods, it could be helpful in deciding which direction to trade. EXHIBIT A - Mid November 2018, price drop after consolidation triangle EXHIBIT B - Mid July 2017, price pullback and continuation after consolidation triangle Let me know your thoughts?
BITMEX:BTCUSD.PEducation
by SchamBTC
7
Bitmex Funding Rate IndicatorDisclaimer: If you are primarily interested in copying other people’s trades then this is not for you. However, if you are willing to put in the work that it takes to learn how to trade for yourself then you have found the right place! Nevertheless please be advised that you can give 10 people a profitable trading strategy and only 1-2 of them will be able to succeed long term. If you fall into the majority that tries and fails then I assume no responsibility for your losses. What you do with your $ is your business, what I do with my $ is my business. Click here for my Comprehensive Trading Strategy | Click here for my Comprehensive Trading Process | Click here to learn about the 2 BTC' to 20 BTC' Trading Challenge I consistently track the funding rates on Bitmex as a way to understand if one side of the trade is too crowed. This can be a very powerful indicator for identifying squeezes, both long and short, before they happen. This is currently the most important indicator for me in regards to the Bitcoin Price Action. Almost every metric shows this market as being overbought over the last couple weeks while it has tested the major area of resistance at $5,800 - $6,500. The majority of people did not expect this rally to get past $6,000 before a significant correction and I was certainly one of them. This is exactly the type of environment when one side of the trade will get too crowded and that appears to be what happened over the past week. The indicator that I'm using can be found under "Bitmex Funding Bars" and it is a great way to illustrate how powerful this tool can be. I drew two horizontal lines which indicate buy and sell signals. The sell signal occurs when longs pays shorts 0.07%+. The sell signal occurs when shorts pay longs 0.08%+. These rates must persist for a week before the signal triggers. The vertical lines represent hypothetical buys / sells based on this indicator. As you can tell it has been a great way to forecast upcoming price movement throughout this bear market. A good confirmation for this indicator is the futures curve. Backwardation occurs when spot is more expensive that the futures and this confirms a buy. If there is Backwardation while getting a sell signal then the entry is not confirmed. The confirmation was not applied to the hypothetical buys / sells in this chart but it is something to consider. This post has been marked as Neutral despite getting a confirmed buy signal. That is because I simply cannot stomach buying after a prolonged markup in the price. I strongly prefer to let the market come to me and therefore am waiting to see what happens when we eventually do correct, even if that means paying a higher price. Nevertheless I thought that this is a great indicator that is very important right now. I have been expecting a correction for weeks, but now I see that there is plenty of gas left in the tank for another leg up, despite being overbought at a major level of resistance.
BITSTAMP:BTCUSD
by Sawcruhteez
5
Bitcoin Daily Update (day 336)Disclaimer: If you are primarily interested in copying other people’s trades then this is not for you. However, if you are willing to put in the work that it takes to learn how to trade for yourself then you have found the right place! Nevertheless please be advised that you can give 10 people a profitable trading strategy and only 1-2 of them will be able to succeed long term. If you fall into the majority that tries and fails then I assume no responsibility for your losses. What you do with your $ is your business, what I do with my $ is my business. Click here for my Comprehensive Trading Strategy | Click here for my Comprehensive Trading Process | Click here to learn about the 2 BTC' to 20 BTC' Trading Challenge Consensio: S EMA < M EMA > P > L EMA Patterns: Phase 7 Hyperwave | A&E | Bear Channel Horizontals: S: $3,729 | R: $3,823 Trendline: Parabolic SAR: W: $4,230 | D: $4,180 Futures Curve: Backwardation Candlestick Analysis: Dragonfly doji Funding Rates: Longs receive 0.027% BTCUSDSHORTS: Broke down horizontal support but appears to be finding support from daily R9 TD’ Sequential: G1 Ichimoku Cloud:. Bullish TK Cross | Bullish Kumo Twist | Today’s selloff found support at the top of the cloud, and closed above Kijun-Sen - very interesting! Relative Strength Index: Amazing how quickly it can go from overbought to middle of the range. Supporting above 50 is very interesting! Average Directional Index: ADX continues to trend with +DI > -DI (although they are converging) Price Action: 24h: -0.2% | 14d: +5.6% | 1m: +11% Bollinger Bands: Is bullish, selloff closed above MA - very interesting! Stochastic Oscillator: Is trying to make bullish crossover on daily. Weekly bullish was confirmed by breaking above 20. Summary: I cannot remember the last time when the price of Bitcoin has been this interesting. It has me so close to opening a trade in either direction. In day 335 I said I would be looking to go long if we breakthrough $3,922 and said I would be ready to change my disposition if price remained below the 4 & 9 EMA’s while getting a bearish cross and broke the daily Parabolic SAR. This is a great example of fickle trading can and should be. This is also a great example of why to wait for the candle to close. Today the price broke the daily SAR and got a bearish cross with the 4 & 9 EMA’s with the price below and I entered a stop order to long BTCM19 at $3,802 with a stop at $3,574. After that sharp selloff occurred we quickly rebounded and made a very bullish close with a dragonfly doji above very important areas (50 EMA, Kijun-Sen, and Bollinger Band MA). That was very bullish as far as I am concerned and wreaks of a shakeout before a breakout. If am wrong then hopefully my stop order will not trigger. If I am right then I expect price to blow right through that area which is exactly when / where I like placing stop market orders on high liquidity exchanges. Under the ‘trendline’ line item above there is a chart that I am watching closely. If we can breakthrough the top of that bear channel then I will be calling for $5,800. If we can’t then I will be calling for a return to Phase 1 ($1,160) by Q2 2019.
BITSTAMP:BTCUSDLong
by Sawcruhteez
4
Bitcoin Daily Update (day 328)Disclaimer: If you are primarily interested in copying other people’s trades then this is not for you. However, if you are willing to put in the work that it takes to learn how to trade for yourself then you have found the right place! Nevertheless please be advised that you can give 10 people a profitable trading strategy and only 1-2 of them will be able to succeed long term. If you fall into the majority that tries and fails then I assume no responsibility for your losses. What you do with your $ is your business, what I do with my $ is my business. Click here for my Comprehensive Trading Strategy | Click here for my Comprehensive Trading Process | Click here to learn about the 2 BTC' to 20 BTC' Trading Challenge Consensio: M EMA < P < S EMA < L EMA Patterns: Phase 7 hyperwave | Bear Channel | Flag is starting to get too long in relation to pole Horizontals: S: $3,557 | R: $3,578 Trendline: Just noticed how we got a nice pop after breaking through this TL. Tells me that might be an important area of resistance to breakthough Parabolic SAR: $3,381 Futures Curve: Backwardation with 0.75% spread BTCUSDSHORTS: Testing local low, will it double bottom or create lower low? Lower low would be quite bullish imo. Funding Rates: Longs pay shorts 0.01% TD’ Sequential: R4 = R3 Ichimoku Cloud: Thin cloud above 50 EMA represents little resistance Relative Strength Index: Bouncing from 50 retest which is bullish Average Directional Index: Continuing to roll over, will it support > 20? I think so. Price Action: 24h: -0.1% | 2w: +5.2% | 1m: +1.2% Bollinger Bands: Squeezing with price above MA which is bullish Stochastic Oscillator: Weekly buy signal Summary: There are very few bearish indicators that I am seeing. The TD Sequential is on a red 4 but other than that the picture being painted is quite bullish. I have an urge to add to my long exposure but I am going to wait until the market moves more in my favor. I love seeing the daily RSI bounce off of 50 while the weekly Stochastic is giving us a buy signal. I love seeing the price get squeezed in between the M EMA and L EMA while the L EMA flattens out. I love seeing the pop that we got after the trendline above was violated. I love seeing backwardation with price above the 2 week high. I like seeing the bollinger band squeeze with price above MA. I have build a good amount of long exposure and am hopeful that a strong bounce here will get the Trading Challenge out of the gutter. WIth one strong trend in my favor I can absolutely recoup the losses that I have experienced over the last 6 weeks. That being said I am staying on my toes. If we break down from here then the market would be primed for capitulation. Crypto markets love to paint a bullish picture right before dumping all over everyone. Sort of like what we saw during $6,000 consolidation.
BITSTAMP:BTCUSDLong
by Sawcruhteez
7
Bitcoin Daily Update (day 316)Disclaimer: If you are primarily interested in copying other people’s trades then this is not for you. However, if you are willing to put in the work that it takes to learn how to trade for yourself then you have found the right place! Nevertheless please be advised that you can give 10 people a profitable trading strategy and only 1-2 of them will be able to succeed long term. If you fall into the majority that tries and fails then I assume no responsibility for your losses. What you do with your $ is your business, what I do with my $ is my business. Click here for my Comprehensive Trading Strategy | Click here for my Comprehensive Trading Process | Click here to learn about the 2 BTC' to 20 BTC' Trading Challenge Consensio: S MA < P < M MA < L MA Patterns: Phase 7 hyperwave / bear channel Horizontals: S: $3,375 | R: $3,476 Trendline: Bear Channel Parabolic SAR: $3,452 | I pay very close attention to the SAR when it is this close to the price, indicates big move upcoming. Futures Curve: Backwardation with 2.18% spread BTCUSDSHORTS: Starting to look like A&E bottom but that would be very hard to believe. Take a look at the LTCUSDSHORTS! Funding Rates: Longs pay shorts 0.01% TD’ Sequential: G2 = G1 Ichimoku Cloud:Tenkan continues to act as resistance Relative Strength Index: Lower lows and lower highs Average Directional Index: Crossing 20 Price Action: +1.3% | 2w: -3.8% | 1m: -10.6% Bollinger Bands: BB MA is acting as clean resistance Stochastic Oscillator: Daily buy signal. 3D entering oversold. Summary: When the parabolic SAR’s get this close to the price I pay very close attention. It is a strong indicator to me that a trend is exhausting and / or that consolidation is coming to completion. I have entered a stop order to buy if we break through yesterday’s high. That would break the daily SAR and provide a very nice risk:reward. If the SAR holds as resistance and the futures market reenters contango then I will be looking for a short. After looking at some long term charts on alt coins I am thinking that there is a good chance we see a big bounce over the next 1 - 3 months. I am seeing horizontal support holding and some very bullish setups. LTC and XRP are the two that have me most interested now, and ETH shouldn’t be far behind if the former two end up leading a bounce.
BITSTAMP:BTCUSD
by Sawcruhteez
2
Bitcoin Daily Update (day 314)Disclaimer: If you are primarily interested in copying other people’s trades then this is not for you. However, if you are willing to put in the work that it takes to learn how to trade for yourself then you have found the right place! Nevertheless please be advised that you can give 10 people a profitable trading strategy and only 1-2 of them will be able to succeed long term. If you fall into the majority that tries and fails then I assume no responsibility for your losses. What you do with your $ is your business, what I do with my $ is my business. Click here for my Comprehensive Trading Strategy | Click here for my Comprehensive Trading Process | Click here to learn about the 2 BTC' to 20 BTC' Trading Challenge Consensio: P < S MA < M MA < L MA = fully bearish (current candle is testing S MA) Patterns: Phase 7 hyperwave | Bear channel Horizontals: $3,478 provided the preliminary support on November 25 and the last few days have been threatening to turn it into resistance Trendline: Channel Parabolic SAR: Differs significantly based on exchange. Bistamp at $3,500 is most important to me. Futures Curve: Backwardation with 2.5% spread BTCUSDSHORTS: Pumping right through a G9 Funding Rates: Longs receive 0.0351% TD’ Sequential: R6 Ichimoku Cloud: Look at how well the Tenkan-Sen is acting as resistance. Beautiful! Relative Strength Index: Testing trend resistance Average Directional Index: Crossed 20 indicating bear trend. Watch for confirmation with a cross above 25. Price Action: 24h: +2.1% | 2w: -3.4% | 1m: -5.9% Bollinger Bands: Resuming squeeze which indicates to me that the selloff on the 19th was a trap Stochastic Oscillator: Daily buy signal. 3D still pulling back. Weekly posturing for buy. Summary: The market is at a rather crucial spot and longs are starting to look very appealing. If we can close back above $3,500 then that would signal for me to start scaling in. On the other hand a close below the MA of my channel (~$3,325) would be very bearish. The Bitcoin Market Cap dominance is very interesting to me right now as well. Since the summer of 2017 BTC has found strong resistance at 60% dominance and currently appears to be forming a descending triangle. A breakdown from here would be likely to retest 40%. On the other hand if we could manage to return back above 60% then a return to 80% would be very likely. This is all right in line with the two options I am expecting from here. My most likely outcome is one last dead cat bounce from here to fill the gap in the VRVP in the $5,200 - $5,800 area. If that happens market cap dominance will likely fall back to 40% while alts pump even harder. Then the rug gets pulled out from under and the market flies back to safety during capitulation. My slightly less likely outcome is breaking down $3,000 from here and capitulating over the following weeks - months. I remain resolute that would be the quickest way to find a bottom. Flight to safety occurs during capitulation pushing BTC market dominance back to 80%+ and sending alts down the toilet where they belong. Still too early to make a confident call either way. Time to remain on the sidelines and wait for more information.
BITSTAMP:BTCUSD
by Sawcruhteez