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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
Ethereum - A Sucker's Rally Before The Bitter WinterWhoever is shorting crypto right now probably has a death wish. And this isn't because there's going to be some new paradigm replacement of the USD or because institutions finally see the value of digital currency BECAUSE BLACKROCK ETF. It's because Bitcoin, Ethereum, and all the other chains are going to zero, because they're in the way of the advent of Central Bank Digital Currencies, which are needed to underpin the worldwide roll out of the Chinese Communist Party's social credit system. You shouldn't have faith in digital currency. There's nothing decentralized about them. It's not a free market. They're not saving you from anything. The people who like them like them because they're getting Monero payments on the sly for being part of Palestine (Hamas)/Antifa/BLM events, which they can use to buy all sorts of horrific stuff on the Dark Web. These "assets" are heavily concentrated in the hands of players either squatting in Shanghai (Babylon) with the CCP, or with entities who have stained their hands earning "the Mark" for "the Plan." The problem for the CCP and Xi Jinping is that the 24-year persecution and organ harvesting genocide against Falun Dafa's 100 million practitioners looms over their head like a guillotine about to drop. And so everything related to these digital currency things and people are things you want to practice social distancing from, wash your hands of, and inoculate yourself against by formally filing a statement of withdrawal on the Tuidang website. Whoever doesn't have the guts, can't see it, or doesn't want to is gone with the wind. So, here's the trade. The Eth rally is obviously real, and it's obviously an exit pump at the same time. This means the target is painfully higher. Not to raid a monthly bar and then turn around and dump. This means that shorts are trapped, more shorts are trapped. A problem is that market psychology is not what you think it is. People love to buy when stuff is expensive and they love to sell when stuff is cheap. Because emotion is what drives everything, and it's why every U.S. election is lynch pinned around the words "fear" and "hate." Price going up means a lot of big on-chain wallets get sold off at very high prices. Not only because shorts are force liquidated/force covered, but because people come piling in to buy with the number $5,000 in their eyes. Eth monthly shows us that the dump was too deep and took too long to rally to be some sort of a prelude to a new high. But because this rally shows no signs of retracing anywhere on futures or BTC, we can only assume that the target is the most obvious and painful target, which is the $3,600 pivot level set in 2022. The problem for proponents of $4,000 is that despite these rallies and this supposedly bullish news about ETFs, there's no contango in futures at the moment. And so this means that the CME Futures pattern will constrain the exchange spot prices, which we see in the charts This means $3,600-$3,800 is the likely top. And what's going to kill the rally? It's really simple. A raid by the FBI/DOJ/SEC on Tether/iFinex/Bitfinex will do it and end it all forever. What happened with online poker in the late 2000s when this happened to Full Tilt and Pokerstars? One day everyone woke up to find their websites, where all their money was held, had been shut down with a takedown notice. Everyone lost their money and it took many years for it to be paid back by the companies that bought FTP/Stars, the industry never recovered, and now you never even so much as hear about poker. And that's what is going to happen to crypto. In the future, it will be gone. And so will the 9th Communist International's CBDCs.
BINANCE:ETHUSD.PLong
by LordWrymouth
17
Gold: Shining Bright with OpportunitiesGold is once again in the spotlight, and here’s why! Economic Cycles, PMI & Gold The US Purchasing Managers Index (PMI) is a leading indicator often used to identify turns in the economic cycle. A below 50 PMI print indicates contraction in the US manufacturing cycle, while a print above 50 suggests expansion. Generally speaking, expanding manufacturing cycles spell a boost for industrial materials, like copper, while contractionary periods spell downturns in the economy and a preference for 'flight to safety', boosting gold holdings. An interesting observation from the chart above is the correlation between the Gold/Copper ratio and the inverted US PMI, moving in tandem over the last decade. However, looking at the current scenario, the PMI has turned lower, yet the Gold/Copper ratio has remained relatively muted, suggesting that gold may currently be underpriced. Similarly, the Gold/Silver ratio shows a less pronounced but similar effect. Significant drops in the PMI below the 50 level have historically triggered notable increases in the Gold/Copper ratio. With the PMI currently below 50 for a sustained period, this might be priming the ratio for a potential upward surge. Yields, Fed Expectation & Gold As a non-interest-bearing asset, gold loses its appeal when interest rates rise, leading investors to prefer interest-yielding products. We covered the effect of a Fed rate cut on gold in a previous article here . While the Fed remains steadfast in holding rates, even the act of pausing rate hikes positively impacts gold. This effect is observed via the Gold/US10Y Yields ratio. The previous pause in rate hikes preceded a significant run-up in this ratio. Additionally, this ratio is currently near its resistance level, which it has respected multiple times over the last decade. With the Fed expected to continue holding rates, now could be an opportune time to consider adding gold to your portfolio. Gold Price Action Gold’s current price action also shows a completed cup-and-handle pattern. With an initial attempt to break higher halted, it now trades right above the handle. Additionally, gold could arguably be trading in an ascending triangle pattern, as noted by its price action as well as generally declining volume, potentially signaling a bullish continuation pattern. In summary, given the Fed's stance on holding rates, the correlation between PMI and the Gold/Copper ratio, and the bullish technical indicators in gold's price action, a positive outlook on gold seems reasonable. To express our view, we can buy the CME Gold Futures at the current level of 1962. Using the cup and handle pattern to guide the take profit level, at 2400 and stop at 1890. Each 0.10 point move in gold futures is for 10 USD. The same view can also be expressed with greater precision using the CME Micro Gold contract where the notional is one-tenth of the regular size gold contract. Here, each 0.10 point move is for 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
COMEX:GC1!Long
by inspirante
9
Oil, where are you headed? This week our eyes fall on the crude oil market. From our previous article, Cracking the Crack Spread , we know that crude oil and gasoline hold a special relationship. Since gasoline is extracted from crude oil, the spread between the two futures should not diverge too much. Yet, in the past few weeks, we have observed a deviation in their prices with the Crude Oil/Gasoline ratio peaking. Futures Fundamentals Open interest refers to the number of open contracts in the market. It serves as a measure of liquidity, activity and more importantly, interest in the security. While trading volume refers to the number of contracts traded each day. The decline in both prices and open interests indicates the liquidation of long positions. Together with a low trading volume, this can indicate a bear market. Economic Outlook Although the federal reserve (Fed) is likely done with its hikes in this hiking cycle, it intends to keep interest rates higher for longer. Coupled with continued tightness in the labor market, sticky inflation and inflating cost of debt, growth would be dampened. One way to back up this view is to look at the US Purchasing Managers’ Index (PMI). The PMI is widely used as a leading indicator to anticipate changing economic trends. Furthermore, there tends to be a positive association with PMI and commodities year-on-year change. Given the latest PMI value, it points to a negative economic outlook, with year-on-year crude oil prices playing catch up. It is good to be mindful that if the Fed has indeed concluded its hiking cycle, there is a greater likelihood for the dollar to weaken rather than strengthen. As crude oil is quoted in USD, a weaker dollar would lead to a more expensive contract. Therefore, there are upside risks to crude oil prices. Supply Factors US crude oil production reaches record high levels. In conjunction with other non-OPEC countries’ record production, they have been upholding the supply despite facing cuts from OPEC. This could possibly explain why oil prices fell on Oct 4th when OPEC confirmed its cuts until the end of the year. However, we also see the number of oil rigs in the US on a decline, which may hinder any higher levels of production. Also, there is the debate whether production from non-OPEC countries will be outpaced by OPEC’s cut, leading to the materialization of a supply deficit. Volatility Historically, the energy sector is known for its volatility. In comparison to the S&P 500, crude oil appears to be more volatile. In the chart above we look at the maximum year-on-year change in the S&P500 and marked that range on the year-on-year crude oil prices. Here, the wider range that crude oil trades becomes much more obvious compared to the S&P 500. This effect could likely stem from the fact that oil, unlike equities, is affected by a myriad of complex factors at any given time, from supply/demand to geopolitical, environmental and many more. Gold and crude oil tend to be positively associated. Rising oil prices place upward pressure on inflation leading to precious metals to appreciate as investors flock to “store of value” assets. Other than store of value, gold also acts as a form of safe haven asset, where investors take shelter in gold against uncertainty. With gold now trading significantly higher than oil, it appears that markets are expecting higher levels of fear and uncertainty, which could translate to higher volatility in oil. So where is oil heading? Here we find ourselves in a limbo, considering potential breakout risk from geopolitical tensions the downside risk from the likely turnover of the economy, a fading PMI pointing to oil weakness, and overextended oil prices when looking at the spread complex with gasoline. In times like this, when risk could extend on either side, a long straddle options position could allow us to harness profits in the event of a volatile move, in either direction. To express our view, we can set up long straddle position by buying one at-the-money call and put option that expire in Feb 2024. Given the last price of CLZ3 is 82, we will purchase the two options at the strike price of 81.50. The premiums for the call and put options are 5.39 and 4.89 points respectively. In total, our premium would be 10.28 points. As a rough gauge of the potential for profitability, it might help to look at the volatility in oil prices. For the selected strike, ignoring the effects of options Greeks, the price on expiration would have to move roughly 12.7% in either direction. In the chart above, the bottom figure shows the rolling 3-month change in oil prices, with the red band marking the 12.7% higher & lower range. Here we see oil continually swinging past this level, highlighting the potential for this strategy to play out. In this setup, it should also be noted that the maximum loss on the position is the premium paid on the initial setup, which is 10.43 points. The breakeven levels are above 92 or below 71 on option expiration day, as seen in the chart above. Each 0.01 point move in crude oil options is for 10 USD. CME also has a handy strategy simulator allowing you to construct the option strategy and simulate future prices on your position's P&L. Above are two potential scenarios if the price of crude oil remains close to flat on expiration day, or if it trades lower on expiration day, alongside a diagram showing the effect on the option position's P&L. 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
NYMEX:CL1!
by inspirante
🅱️ BTC CME Futures GAPs Points To $35K, Who's Selling? | Go UP!Looking at the Bitcoin CME Futures contracts we have to major gaps on the way down that are yet be filled. These gaps can be found in the following ranges: 1) $34,445 - $35,775 2) $27,365 - $28,860 Now, let me ask you one question... Who's selling? Who is going to sell? Who is selling now? I ask this question because there is people around waiting for a "new low", "another leg down"... But who is going to sell? Who will part with their bitcoins after Bitcoin hit a low back in June 2022? The capitulation phase is where the masses sell. The "sucker rally" is not. The sucker rally, terrible name, happened in July/August 2022, then again months of red. If you count from June '22 until January '23 you have more than six months. That's the bottom pricing... The sellers had their time to sell from November 2021 until early this month... New money is coming in not to sell but to hold long-term and profit as bitcoins price appreciates over the years. 
 Our billionaire friends gave the Go. ✔ The charts gave us the Go. ✔ Our third eye/intuition gave us the Go. ✔ Conventional markets gave us the Go. ✔ 
 The FED gave us the Go. ✔ 
 Even China, opening its country, gave us the Go. ✔ Astrology gave us the Go. ✔ Nothing is saying down now... Everything is saying Go... UP! Namaste.
CME:BTC1!Long
by AlanSantana
16
Inflation not down under!Australia's CPI data, released yesterday, showcased figures hotter than anticipated. While this may not be 'reaction-worthy' news on its own, the scenario in Australia is worth delving into for several reasons. Inflation Trends Initially, let's consider inflation trends. In most western economies, although inflation remains above central bank targets, the trends are on a downward trajectory. However, when juxtaposed against those for the European Union (EU) and the United States (US), Australia's (AU) inflation rates on a month-over-month (MOM) and year-over-year (YOY) basis still stick out from the norm. Moreover, yesterday’s CPI prints surpassed consensus on both the YOY & MOM basis, indicating a notable deviation from expectations. In fact, Australia's YOY CPI is now on its longest streak above inflation expectations, and crucially, inflation expectations have ceased revising downwards. Given the higher inflation levels compared to its peers, consensus estimates, and expectations, inflation remains a significant concern for Australia. Interest Rates In the realm of interest rates, Australia has been a long-standing “pauser,” having maintained its policy rate unchanged since its June meeting. This prolonged pause now further opens the leeway to raise rates, especially given the “watch and see” approach adopted towards burgeoning inflation. Additionally, its interest rates remain low compared to the US, EU, Canada, and even New Zealand. As a result, on the real rates basis, Australia trails far behind, with its policy rate still 1.3% behind its inflation rate, significantly less restrictive compared to other economies that have already moved into positive real rates territory. We posit that the RBA is behind the curve and has room to react, given the considerably long period of pause and still negative real rates. The market seems to echo this sentiment too, as the odds for a hike in the next meeting surged post the CPI news, moving from 21% to 55%! Against multiple currencies, the AUD appears to be threading above the long-term support level, a threshold that has essentially defined AUD low. This strong support is expected to hold, given its tested and respected level across multiple currency crosses since 2020. Policy turning points between the two currencies, as indicated by the turn in the interest rate differential, have generally marked the trend change for the currency, notably for the AUDEUR pair. Given the persisting high inflation in Australia compared to various economies and metrics, should market expectations trend in the right direction, it's plausible the Reserve Bank of Australia (RBA) may react with a rate hike. This action could tilt the rate differential and interest for the AUD, bolstering the currency. To capitalize on this bullish view on the AUD, we can consider a long position on the AUDEUR. We can set up this trade via a long position on the CME Australian Dollar Futures and a short position on the CME Euro FX futures to create a synthetic long AUD/EUR position at the current price level of 0.5951, stop at 0.5865 and take profit at 0.615. Given that one CME Euro FX futures is for 125,000 Euros and one CME Australian Dollar Futures is for 100,000 Australian Dollars, this suggest that we should use two Australian Dollar Futures to one Euro FX Futures to match the contract size, given that 125,000 Euros is roughly equivalent to 210,000 Australian Dollars at the prevailing exchange rate. Each 0.00005 increment in the Australian Dollar Futures is equal to 5 USD and each 0.00005 increment in the Euro FX Futures is equal to 6.25 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 melbourneinstitute.unimelb.edu.au www.rba.gov.au www.asx.com.au www.cmegroup.com
ECONOMICS:AUINTRLong
by inspirante
2
#bitcoin #btc has closed a historical #CME #GAPAs you see on the chart, there was very important #CMEFUTURES gap at 35 - 36K area which was opened in #luna collapse times. Now, #btcusdt price has CLOSED this historical gap and what now? It' s too early to say #btcprice will go on through the #bullrun or " BTC will directly go to close the OTHER historical GAP at 20 - 21K region!.." Now, just relax and watch the #market and especially #BTCdominance. #BTCD will reveal the direction of the market. I will update my thoughts. As you see on the chart, there only 1 #CME #FUTURES #GAP left at 20 - 21K region. Don' t underestimate this and also don' t be pessimistic, just carefully watch #bitcoin moves. NOT FINANCIAL ADVICE. Dyor.
CME:BTC1!
by naphyse
Could the premium get even beefier? In a previous article, "A Beefy Premium" , we delved into the growing divergence between Live Cattle and Lean Hogs. Since then, this disparity has only broadened. Currently, we're seeing a historic peak in both the absolute price difference (Live Cattle – Lean Hog) and the price ratio (Live Cattle/Lean Hog). To comprehend the drivers of this divergence, we need to explore the fundamentals of each sector. Beef: USDA economists, Russell Knight and Hannah Taylor, have noted that the repercussions of drought are still impacting calf production. The twin challenges of poor pastures and dwindling hay supplies have made it difficult for farmers to sustain their breeding stock. This has prompted a surge in beef cow culling. With anticipated feed price reductions on the horizon, we predict a tilt towards placing more calves into feedlots in 2024, constricting the cattle supply even further. Interestingly, despite the tightening cattle supply, demand remains robust. Beef cutout prices reached a pinnacle in October, with prices generally maintaining historic highs on a monthly scale. Seasonally, prices are also expected to rise slightly going into November due to a holiday boost. A possible explanation for this sustained demand might be the surge in US wages. Empowered with heftier paychecks, consumers are more able to splurge on beef, ensuring packers to keep up their slaughter pace. Pork: On the hog front, this quarter reflects a modest uptick in inventory. In contrast to the cattle market, the decline in headcounts here isn’t as pronounced. A noteworthy correlation emerges between lean hogs and soybean meal. With soybean meal being a staple in animal feed production, its price directly influences producer margins. Factors like the Russia-Ukraine conflict, US droughts, and surging demand for soybean meal have propelled its prices in recent years. Even though the current prices are tapering off, the Soybean Meal/Lean Hogs ratio remains high, signaling shrinking profit margins for producers. Moreover, compared to other commodities, the USDA's support for the Hogs and Pigs market has been relatively scant. Another point of concern is the prevalence of negative news in the swine industry, such as the European swine industry suffering substantial financial losses in 2023, leading to an 8.5% drop in production. Or bouts of African Swine Fever, threatening global supplies. Such events have the potential to threaten producer’s profitability significantly which could work its way into structural long-term decline in supply. But as of now, this remains to be seen. Overall: Current evidence seems to be pointing to a stronger preference for beef given the unwavering demand despite supply shortage and climbing prices. Basic economics principlesnudge producers to markets with higher profitability, which could work its way into an increase in participants leading to supply eventually matching demand. Although this movement, if it happens, does not occur overnight, it will eventually lead to a convergence in prices between the two markets in the future. There are also other reasons that need not be as drastic that point towards a convergence in prices in the medium term: expectations of Live Cattle supply should improve next year; the road to the maximum willingness to pay for Live Cattle is shorter now. Hence, to express our continued bearish bias, we could consider a short on the spread of live cattle to lean hogs. Given that both Lean Hog & Live Cattle Futures have the same contract unit of 40,000 pounds and price quotation of US cents per pound, we can trade the spread of the two contracts using a 1:1 ratio. This involves selling one live cattle futures contract at the current price of 185.725 and buying one lean hog futures contract at the current price of 68.025 giving us a spread of 117.7. Each 0.00025 increment is equal to 10$. 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: usda.library.cornell.edu usda.library.cornell.edu beef2live.com www.cmegroup.com www.cmegroup.com
CME:LE1!Short
by inspirante
Why it might make sense to craft a tail hedge now! Say you’re bearish but find yourself confused by the market. You want to partake in the action if things go south, but not 100% certain, what could you do? First, you could build some conviction by identifying potential reasons why you think the market could dip lower… Then, devise a ‘tail hedge’ to profit if things indeed go south. Let’s break down these two steps this week. In our past two articles, we've highlighted a couple of reasons why we lean bearish. You can find them here: S&P500 Vulnerabilities: from Money Supply to Sectoral Imbalanc & Why we’re watching the Bond/Equity Volatility . But as each week unfolds with more drama, let's revisit the market. The first idea we want to bring up is the rates-equity dislocation. On the equities front, we observe the following: The conventional wisdom has long held that low rates are good for stocks. However, with stocks rising while the Fed hikes rates, has this relationship been disrupted? From 2020 to the end of 2021, we clearly observed this classic dynamic. However, from September 2022 onwards, as stocks continued their ascent despite the Fed's rate hikes, a distinct shift became evident. Could this Equity-Rate dislocation be a by-product of the AI hype? Consider Nvidia’s stock price, which seemingly pinpointed the Nasdaq's low point. Question is… Is the AI hype a strong enough factor to permanently alter this relationship? In terms of overarching themes, there are generally defined up and down trends. AI ETFs seem to provide a rough gauge of the sector's peaks and troughs. With the previous peak in 2021 happening in the ETFs right before Nvdia peaks, again now we see a similar trend with the ETFs seemingly having peaked while Nvida trades slightly higher still, and we wonder for how long more? If this signals a pivot for Nvidia, then the Nasdaq, currently buoyed by AI hype, could falter. Now, turning to rates: What could drive rates higher? A string of robust US economic data regarding jobs and inflation has emerged. Recent figures for CPI, PPI, and NFP all exceeded consensus estimates, suggesting a robust US economy. Such data might embolden the Federal Reserve to maintain its tightening cycle. One way to interpret robust economic figures is through an economic surprise index, such as the Citi Economic Surprise Index. This metric quantifies the differences between actual economic outcomes and projections. A positive number indicates that the economy is outperforming expectations. When you overlay the Citi economic surprise index against the 13-week change in 10-year yields, a clear correlation emerges. When the economy outperforms predictions, yields tend to move in tandem. This increase in yield represents a significant deviation from its nearly 3-decade trend. Broadly speaking, the Nasdaq 100 Index hasn't experienced such a pronounced change in yield trends since its inception. On Volatility, Erik Norland from CME highlights an intriguing observation: the relationship between the yield curve slope and VIX when viewed from a 2-year average perspective. He suggests that equity volatility and the yield curve follow cyclical patterns, typified by specific periods: 1) Pre-Recession & Recession -Flat yield curve and high volatility 2) Early Recovery – Steep Yield Curve & High Volatility 3) Mid Expansion – Steep Yield Curve and Low Volatility 4) Late Expansion – Flat Yield Curve and Low Volatility Plotted, the cycle looks like this for the 1990s period; As well as the 2000s; Given our current position in the Equity Volatility-Yield Curve cycle, we might be bracing for higher volatility ahead as we're likely situated near the cycle's bottom left quadrant. If the trifecta of rising yields, waning AI hype, and a nascent high-volatility regime comes to fruition, then investing in tail hedges might be a savvy move. One potential structure for a tail hedge could be the 1X2 ratio put spread. This strategy could offer protection against adverse market movements, with the flexibility to structure it so that initial costs could be negligible or even result in a net credit. Additionally, the put ratio is typically a long vega strategy, which could be beneficial in a high-volatility environment. The 1X2 ratio put spread can be set up by taking 2 positions, 1) A short position on the Nasdaq 100 Index Futures with a strike price below the current level 2) A long position on 2 Nasdaq 100 Index Futures with a strike price further below the short option strike At the current index level for the Nasdaq 100 Futures March 2024 contract of 15,520, we could take a short position on the March 2024 put option with a strike price of 14,800 at 304.25 points credit and 2 long positions on the March 2024 put option with a strike price of 13,800 at 122.5 points debit. The setup cost of the put ratio is 304.25 – (2 * 122.5) = 59.25 points, resulting in a net credit. The maximum loss occurs when the underlying asset settles at 13,800 by option expiry, leading to a potential maximum loss calculated as follows: Long put options both expire worthless: -122.5 * 2 = -245 points Short put option: 13,800 – 14,800 = -1000 + 304.25 = -695.75 points Maximum loss = 940.75 points Considering the potential for loss and the associated risks, several profit scenarios emerge. If, as we discussed, the yield trend shifts and the AI hype subsides, the Nasdaq could potentially plummet. If the Nasdaq falls beyond the 13,104 level by option expiry, the strategy could be profitable. Conversely, if the Nasdaq remains range-bound at its current level or rises by expiry, we could also benefit from the initial credit received. Each 0.25 index point is equivalent to $5. 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.yardeni.com www.cmegroup.com www.cmegroup.com
NASDAQ:NDXShort
by inspirante
Nasdaq: Taken off 🚀The Nasdaq has now rallied strongly and has left its green target zone between 15 292 and 14 431 points. The next target is now the resistance at 16 062 points and a further rise to around 17 500 points, where we expect the high of the orange wave i. It is important to note, however, that it is also possible that the high was already set in July. This alternative scenario, to which we assign a 40% probability, would come into play in the event of a drop below the zone. The low of the orange wave alt.ii would then have to be in the orange target zone between 13 934 and 12 717 points.
CME_MINI:NQ1!Long
by MarketIntel
Why we’re watching the Bond/Equity Volatility With the action-packed week of global central bank meetings for September now behind us, we believe it's an appropriate time to review where we stand. The current phase, in our view, can be aptly summarized by the words of Huw Pill, the Bank of England’s Chief Economist: a ‘Table Mountain’ scenario rather than a ‘Matterhorn.’ Recent announcements have positioned the Swiss National Bank, the Bank of England, and the Federal Reserve as adopting a pause stance. Meanwhile, the ECB suggests that it is in the final stages of its hiking program, and Sweden’s Riksbank has just executed its final hike. While we remain slightly skeptical that these hikes may indeed be the final ones, let's entertain this thought and examine what transpires during periods of a defined pause. Defined pause periods raise alerts for us, as highlighted in our previous piece on US Equities. In that article, we pointed out the impact of a Fed pause, as it has often preceded periods of equity drawdowns. This pattern becomes even more evident when we consider other variables like shifts in the dollar and interest rates. Looking at the S&P 500 index —in 2000 and 2006—where a clear pause was observed, significant equity drawdowns followed thereafter. Furthermore, the 10-Year, 2-Year, and 3-Month yields have just reached their highest levels since October 2007, June 2007, and January 2001, respectively. These yields mark the highest nominal interest rates seen in decades across the interest rate curve. More significantly, this shift has brought real yields back to positive levels, something investors haven't seen for a while, all while the yield curve inverts to unprecedented levels. All of these factors have spill-over effects on investors accustomed to decades of low real interest rates. Another observation worth noting is that the ratio of Bond to Equity volatility has proven to be a reliable indicator for predicting the next market regime. For instance, during the 2008 period, a break in this ratio was followed by significant moves lower in the market. A similar phenomenon was observed in 2019, where a sharp break in the ratio of MOVE to VIX preceded the market's next downturn. What captures our interest now is a recent, significant break in this ratio, reinforcing our bearish outlook on equities. In terms of daily charts, the recent gap down places the index at a precarious juncture as it grapples with both a sharp break of the 100-day moving average and trend support. Compared to the last two instances when the index broke lower, the current RSI stands at even lower levels. Adding to this, only 18% of S&P 500 stocks currently trade above their 50-day moving average. Given the breakdown in the MOVE/VIX ratio, the global pause in interest rate policy, and supporting technical indicators, we are inclined to maintain a bearish stance on US equities. We can express this view via a short position on the CME E-mini S&P 500 Futures at the current level of 4347, with the take profit at 3800 and stop at 4500. Each 0.25 point move in the E-MINI S&P500 index Futures is equal to $12.5. We can also express this same view with the CME Micro E-mini S&P 500 Index. With each 0.25 point move equating to $1.25, its smaller tick size compared to the standard contract offers greater flexibility in position-building or averaging your entries. 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
TVC:MOVEShort
by inspirante
2
Double CPI Day for the EUR & CADCertain weeks stand out in importance, and the week ahead is shaping up to be one of them. On the economic calendar we have the Eurozone & Canada CPI as standouts for Tuesday, UK CPI & FOMC on Wednesday. Such action-packed weeks often provide the catalyst for the next move in the markets. Our attention is currently drawn to the EURCAD for multiple reasons. Firstly, from a technical perspective, we see the EURCAD completing a head and shoulder pattern on a daily timeframe, which is generally associated with a trend reversal. This is further supported by the 200-day simple moving average, which has consistently marked out the trend for the currency pair. With prices recently crossing below the moving average, this could mark a change in the overall trend, potentially heading lower. Further, when looking at the long-term chart, the 1.440 level has been a critical point of support & resistance across its history, with prices often either breaking through with momentum or stopping and bouncing off this level. Looking at each leg of the EURCAD against the USD also reveals an intriguing setup, with the USDCAD trading near the resistance of a descending channel and the EURUSD breaking sharply below its trend support. Both indicate a potentially lower EURCAD. Another interesting comparison we can make is the currency pair with its related markets. Both the Euro and Canadian dollar are deeply tied to the USD; thus, the broad dollar proxy should have some relationship with the pair. By overlaying the inverse dollar index (DXY) and the EURCAD, we see both are closely related with the Inverse DXY pointing towards a slightly lower EURCAD. The same observation applies when we overlay the EURCAD and the Inverse Crude Oil prices, given the correlation of the Canadian dollar with crude prices due to its oil-exporting nature. With CPI numbers out for both economies next week, it is also worth looking at the economic data from both countries. From an unemployment rate perspective, the Eurozone is faring worse than Canada, a trend echoed when we look at YOY GDP. Both indicators suggest a frail Eurozone economy, likely making the central bank more cautious as it tries not to overdo policy tightening and risk sending the Eurozone into a deep recession. On top of that, the recent guidance from both central banks reveals slightly different undertones. The Bank of Canada anticipates higher year-over-year inflation readings, while the ECB forecasts declines in headline inflation and harmonised index of consumer prices (HICP) readings. This further supports the idea that the ECB might be more dovish, while the Bank of Canada could lean towards a hawkish stance. All things considered, the case for a lower EURCAD seems compelling based on the technical charts at key levels, comparisons with other markets, and central bank stances. We could express this view via the CME-listed Euro/Canadian Dollar with a short position at the current level of 1.440, take profit at 1.380 and stop loss at 1.457, offering a risk-reward ratio of 3.5. Alternatively, the currency pair can be synthetically constructed using the more liquid Euro FX Futures and Canadian Dollar Futures. To establish a short position on the EURCAD, one can sell 2 EURO FX Futures and buy 1 Canadian Dollar Future. This approach approximates the hedge for the position, considering that each EURO FX Futures contract represents 125,000 Euros, and each Canadian Dollar Futures contract corresponds to 100,000 Canadian Dollars. At the current exchange rate of roughly 1.44, 1 Euro FX Futures contract is equivalent to approximately 180,000 Canadian Dollars, resulting in a 2:1 ratio. Each 0.0001 per Euro increment for the Euro/Canadian Dollar Futures is 12.50 Canadian dollars, while each 0.000050 per Euro increment for the Euro FX Futures is $6.25 and each 0.00005 per CAD increment for the Canadian Dollar Futures is $5.00. 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: thoughtleadership.rbc.com www.ecb.europa.eu www.cmegroup.com www.cmegroup.com www.cmegroup.com
Short
by inspirante
2
A technical overview of Soybean Oil Since our last analysis of Soybean Oil, the commodity has completed its head and shoulders pattern, now trading at the resistance formed by the previous neckline. Concurrently, we observe an RSI divergence, where the RSI prints lower highs while the prices chart higher highs. This divergence is generally viewed as a bearish indicator, hinting at possible price declines. When paired with decreasing volume, the case for price exhaustion at this juncture becomes more compelling. The Price & Volume Profile chart serves as another essential tool in pinpointing critical zones. The highlighted POC (‘point of control’) zone represents the price level with the highest frequency of trades. Historically, this has acted as a pivotal support and resistance level for Soybean Oil, demarcating regions of consolidation before prices venture either upwards or downwards. The chart also highlights the volume traded at the different levels as denoted by the volume number at the different price levels. Notably, the current price level showcases a significant volume zone, with the largest volume transacted there. Looking at the 50 & 200-day moving averages we observe a golden cross which signifies bullishness. But not on the 100 & 200-day moving averages. On a relative value basis, we can also compare Soybean Oil to its substitute, such as crude palm oil. Here we see 2 defined regimes pre-2021 and post-2021 where the ratio of the two products significantly increased, suggesting that Soybean Oil became relatively pricier than Crude Palm Oil. We have previously delved into this topic in our article “ Fading the Soybean Oil Premium ” where we anticipated a decline in this ratio. Subsequently, this ratio did correct to the 0.06 mark, only to experience a rapid rebound. This surge was attributed to Soybean Oil appreciating at a faster rate than Crude Palm Oil. Another metric involves contrasting Soybean Oil with its upstream and downstream derivatives: Soybean and Soybean Meal. Once more, we see prices tending to move in tandem until 2021, after which the ratio of Soybean Oil to both Soybean Meal and Soybean underwent a marked shift. With the ratio's support distinctly outlined by pre-2021 resistance, this ratio can be wielded as a metric to identify when Soybean Oil is relatively overpriced compared to its up and downstream products. In conclusion, a blend of technical indicators seems to point towards more downside for Soybean Oil, such as the RSI divergence and declining volume. Also, prices stuck in the POC have generally preceded breakouts and on a relative value basis, Soybean Oil seems over-extended. We can express this bearish view on soybean oil via a short position on the CME soybean Oil futures at the current level of 63.29, with a stop at 67.50 and take profit at 51.00. Prices are quoted in cents per pound and each $0.0001 increment per pound in the Soybean Oil futures contract is equal to 6.00$. 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
CBOT:ZL1!Short
by inspirante
BTC CME GAP IDEAS 📊💡In the world of cryptocurrency, Bitcoin (BTC) stands as a cornerstone, continuously captivating the attention of investors, traders, and enthusiasts alike. As we venture into the next few months, the Bitcoin market is marked by both excitement and uncertainty, presenting a myriad of possibilities for those willing to navigate the ever-shifting tides. Bitcoin's price history has been a rollercoaster ride, and this could continue in the short term. A scenario of consolidation and heightened volatility is entirely possible. Regulatory changes, macroeconomic events, or unforeseen market sentiment could lead to periods of sharp price swings. Traders should be prepared for both upward and downward moves. Bitcoin is not an isolated asset; it's influenced by global events. Geopolitical tensions, economic shifts, and unexpected developments in other markets can have a significant impact on Bitcoin's performance. Keeping a close eye on these external factors is crucial when trying to anticipate BTC's trajectory. For instance, the Securities and Exchange Commission (SEC) is expected to weigh in on multiple Bitcoin ETF filings in the build-up to early September deadlines. I have outlined a couple of scenarios on the chart. While I don't expect Bitcoin to follow these scenarios precisely, they serve as a framework to understand possible short-term price movements. Stay Tuned for Updates: We will continue to monitor key macro events that could significantly impact the cryptocurrency markets in the near future. These events may provide us with more clarity about Bitcoin's trajectory. Please note that the advice you receive about cryptocurrency should always be taken as guidance and not as definitive instructions on what to do. Investing in cryptocurrency, like any other type of investment, involves risks, including the loss of capital. Always conduct your own research and consult with a financial advisor before making investment decisions.
CME:BTC1!Short
by Blast910
Why the EURUSD might trade higherFollowing Powell's statement at the annual Jackson Hole symposium – “We are prepared to raise rates further if appropriate and intend to hold policy at a restrictive level until we are confident that inflation is moving sustainably down toward our objective.” – markets seem more inclined towards expecting another rate hike in the US. This move, in our analysis, provides the Federal Reserve (the Fed) with added flexibility for future decisions. Meanwhile, the European Central Bank (ECB) echoes a similar sentiment, insisting on remaining stringent as the battle against inflation is ongoing. A dive into headline & core inflation shows a decline in the former for both the EU and US. However, Europe's core inflation remains stubbornly high, without evident signs of decreasing. Further, Europe's robust PMI, in contrast to the sub-50 US print, paired with this sticky core inflation, indicates that the ECB might maintain its tight monetary stance to combat inflation. The Futures and OIS market can give us some insights on market participants’ expectation of the forward rate path. Here we see similar expectations of an increase in rates before cuts are priced in. Generally speaking, interest rate differential is inversely related to the EURUSD, hence in the chart above we see this relationship in play with the US-EU Interest Rate, roughly marking out the inverted EURUSD path. From 2019 to 2022, where we saw the rate differential held constant after a period of decrease, the EURUSD traded higher during that period. Hence whether the ECB tightens further or keep in line with market expectations, we see potential for the EURUSD to trade higher given historical precedence. The US dollar is currently hovering near the upper threshold of a descending channel. The previous 3-times when RSI reached such levels marked the turnaround point for the dollar. On a longer-term chart, we see the EURUSD trading right above the 1.08 level which has been a key support & resistance level going back to 1970s. Zooming in, the EURUSD pair now trades on the lower band of an ascending channel with RSI pointing oversold. Again, the past 3 times when RSI were at this level marked the reversal point for the EURUSD. Hence, whether the ECB reacts with more hikes as expected by market participants, or it stays the expected course, the EURUSD is likely to trade higher as we look back in history. Supported by technical, and the potential for a weaker dollar as it trades near resistance, we favour a long position in the EURUSD Futures at the current levels of 1.0827 with a stop loss at 1.05 and take profit at 1.130. Each 0.00005 increment per EUR in the EURUSD futures contract equals to 6.25$. 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
CME:6E1!Long
by inspirante
USDCNH - Testing new highsThe trajectory of the USDCNH is a burning question as it approaches the highs witnessed in November 2022. Recent weeks have seen China's economic robustness wane, and as a result, attempts by its central bank to ease the situation have led to a weakening of the CNH. This dynamic becomes clearer when considering the interest rate differential between China and other nations. In contrast to the U.S., which is on a rate-hiking journey, China's recent interest rate reductions have amplified the rate gap between the two nations. Overlaying the USDCNH currency pair with this interest rate differential reveals a clear correlation: as the differential grows, the USDCNH rises in tandem, driven by the depreciating CNH against the USD. A possible factor behind this movement is the "carry trade", where investors borrow in CNH at low-interest rates to invest in higher-yielding assets. This phenomenon isn't unique to the USDCNH. Japan, another country that has adopted an easing stance, exhibits similar patterns. As the rate differential between the U.S. and Japan expands, so does the USDJPY currency pair. Examining the dollar independently, there's potential for an upward surge. It's currently trading close to the top edge of a descending channel, with the RSI indicating it isn't oversold yet. With the Jackson Hole Symposium slated for later this week, all eyes and ears will be sensitive to any unexpectedly hawkish remarks from the Federal Reserve Chair, which could lead to another surge in the dollar, driving the USDCNH higher. On the one hand, the dollar has the potential to break higher based on technical, on the other hand, the PBOC is likely to ease policy further as it deals with the economic fallout of its property sector. Considering the above in an eventful week when the Jackson Hole Symposium is to be held, we see opportunity for a risk managed long position in the USDCNH at the current level of 7.3126 with a tight stop at 7.245 and take profit at 7.460. Each 0.0001 per USD increment in the USDCNH future is equal to 10 CNH. 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
CME:CNH1!Long
by inspirante
Why Silver stands out.In the ever-evolving landscape of global economics, precious metals like silver, often serve as key indicators and safe havens. This week, we'll explore the factors making silver an interesting prospect in today's market. Current Macroeconomic Indicators: The latest Consumer Price Index (CPI) data indicates a slight increase in the US for July, registering at 3.2%, up from the previous month's 3%. Predictive models from the Reserve Bank of Cleveland suggest an impending rise for the August CPI. Concurrently, the Reserve Bank of Atlanta's GDPNow model projects a rise in GDP figures. Silver, Inflation & GDP: The above becomes important when historical data reveals that significant spikes in silver prices often follow periods of simultaneous rises in GDP and inflation. Notably, in years that saw increases in both indicators, silver recorded gains of 38% and 46% in 2009 and 2020, respectively. Conversely, 2002 saw a modest 2% return. Silver vs. Gold: A measure of relative value between the two major precious metals via the ratio of Silver to Gold, further substantiates the idea of a potential strength in Silver. The ratio is trading just off a trend support-turned-resistance and at the upper end of the symmetrical triangle. Resistance here can play out in the format of silver strengthening relative to gold. Yields and Silver: The longstanding inverted relationship of yield and silver can be observed in the chart, but the ratio provides some insights into the limits of this relationship. What’s immediately obvious to us post 2008 there has been a regime change in this relationship as yield grinded lower and silver remains elevated. With no immediate large catalyst on the horizon, it is likely the current regime will hold and hence, the ‘floor’ in this relationship is near. Meaning relative to current levels of yield, Silver is trading on the lower side. Equities vs ‘real’ economy: Beyond being a precious metal, silver's industrial applications—from automotive to solar panels and electronics manufacturing—make it a bellwether for the 'real' economy, akin to copper. Comparing the Nasdaq 100 against industrial metals illustrates a disparity between equities and the 'real' economy, positioning silver as significantly undervalued relative to peers like copper and gold. Positioning: Current market positions, particularly among net Non-Commercials, seem to favor silver with a growing bullish sentiment. Technical Analysis: A noteworthy observation is the persistence of the 22.5 level as a pivotal support and resistance mark for silver, a trend tracing back to the 80s. Prices currently thread above this level and remain supported by an uptrend that began in August 2022. Additionally, RSI points to oversold, and in the past 4 instances when RSI reached such levels, prices quickly rebounded thereafter. Against the above factors, we see support for Silver, on multiple fronts, such as economic cycle, relative value against equities, and underpriced when compared against gold. Hence, to express our view on Silver, we can set up a long position on the Silver Futures at the current level of 22.67 with a stop at 21.8 and take profit at 25.10 . Silver prices are quoted in U.S. dollars and cents per troy ounce and each 0.005 move is equal to 25 Dollars. 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.atlantafed.org www.clevelandfed.org
COMEX:SI1!Long
by inspirante
Cracking the Crack SpreadThe ‘crack spread’ is a term used in the oil industry that refers to the differential between the price of crude oil and the petroleum products extracted from it, such as gasoline and heating oil. The name comes from the process of 'cracking' crude oil in a refinery to produce these valuable products. The spread serves as a measure of refining margin, or profitability, for oil refineries. When the prices of petroleum products are high relative to the price of crude oil, the crack spread widens, and refining margins increase, making it profitable for refineries. Conversely, when the price of crude oil is high relative to the products, the crack spread narrows, and refining can become less profitable or even unprofitable. The crack spread is typically expressed in terms of the ratio between the input (crude oil) and the outputs (refined products). For example, a 3:2:1 crack spread assumes that three barrels of crude oil can produce two barrels of gasoline and one barrel of heating oil. In the futures market, the crack spread can be traded by buying crude oil futures and selling futures in its products, thus locking in the margin between input and output prices. This can serve as a form of hedging against price risk for those involved in the oil industry. This week, we will delve into various factors influencing the crack spread and evaluate their potential impact on the current spread; Geopolitical Concerns SPR Refill One of the key points mentioned when we last covered oil was the potential refills of the SPR which are still pending as an attempt to purchase up to 6 million barrels was abandoned at the last minute. As the drawdown in the SPR continues, it seems inevitable that the Biden administration will have to replenish the reserve, likely pushing oil prices higher due to increased demand. Russia Ukraine escalation The simmering tensions of the Russia-Ukraine conflict leave us wondering if the price of crude oil might escalate further. The ongoing conflict focuses on a key port in the Black Sea. Consequently, this could potentially impact up to 20% of oil exports from Russia. Although most major nations no longer rely on Russia for oil supply, some countries are still buying from Russia. This leads to the concern that such countries might have to turn to the open market to make up for their supply shortage one day. Seasonality Crack falls in the 2nd half of the year Seasonal trends indicate a pattern where the 3:2:1 crack spread declines in the second half of the year. This trend has persisted for 6 out of the past 10 years, with the average decline of 29%. Three of the remaining four years closed flat, with one year ending approximately 20% higher. Economic Growth Current economic growth weak but some soft landing expected The year-on-year GDPs for major economies are trailing their long-term averages, indicating still fragile economic growth as industries and consumers grapple with sticky inflation and high rates. Weak economic growth generally dampens the crack spread, as industries and consumers cut back on spending, reducing the demand for refined products. Currency Interplay Between Dollar, Crude, and Crack Spread The Inverse Dollar and Crude Oil has as long-standing positive correlation up until the Russian-Ukraine Crisis when both Crude Oil and the dollar move sharply higher. As this relationship now begins to normalize again, any weakness in the dollar could provide the fuel for Crude & the Crack Spread to rally again. The crack spread is also highly correlated with Crude Oil outright prices, hence any view on crude oil can also be expressed using the Crack Spread. The crack spread hit an all-time high in June 2022 amidst the Russia-Ukraine tensions. Currently, the spread trades at a higher range relative to the past two decades and seems to face some resistance at the previous all-time high in 2013. On a shorter timeframe, the crack spread appears to be breaking out of a symmetrical triangle to the upside, typically a signal of bullish continuation. With prices slightly dipping, this could present an enticing opportunity. On balance the impending risk of the geopolitical event breaking out as well as the structurally weakening dollar seems to outweigh the seasonality and economic weakness effect. To express our view on the 3:2:1 crack spread, we can set up a long position on the crack spread. This can be set up by buying 2 RBOB Gasoline Futures & 1 NY Harbor ULSD Futures and selling 3 Crude Oil Futures at the current level of 114.5, stop loss at 97 and take profit at 140. The calculation of the 3:2:1 crack spread should also be noted as: (2 * RBOB Gasoline Futures + 1 * NY Harbor ULSD Futures ) * 42 – (3 * Crude Oil Futures). The factor 42 is multiplied to the RBOB Gasoline Futures and NY Harbor ULSD Futures as the two are quoted in USD per gallon, this converts the price quotation in Barrel terms, which is the same as Crude Oil Futures. 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.eia.gov www.cmegroup.com www.cmegroup.com www.cmegroup.com www.cmegroup.com
NYMEX:RB1!Long
by inspirante
2
EURJPY in Focus: ECB Hikes and the BoJ’s Yield Curve ControlChristine Lagarde's remarks about an open-minded ECB, coupled with a robust labor market and persistently high inflation in the eurozone, continue to provide the ECB with reasons to lean towards hiking. While headline inflation may be trending downwards, core inflation remains steadfast in the eurozone. Following the meeting on July 27, the ECB raised interest rates by 25 basis points, elevating the key interest rate to 4.25%—its highest level since 2008. Interestingly, the U.S. seems to be leading the way in this regard. Inflation and core inflation peaked earlier in the US, and the Federal Reserve has been raising rates more rapidly than the ECB. Given that the EU's inflation rates remain higher than those in the US and that the unemployment rate in the EU is still low, further hikes by the ECB appear plausible—especially considering that the U.S. continues to hike, albeit at a more advanced stage. Last week, the Bank of Japan (BoJ) garnered attention by widening its yield curve control band, signaling a move towards policy normalization. Yet, markets remain skeptical. The subsequent whipsaw move placed the USDJPY pair at levels higher than those before the announcement. The yield differential between the EUR and JPY interest rates exhibits a positive relationship, with the EURJPY appreciating as the yield gap widens. With the previous yield differential increase resulting in a 21% rise in the EURJPY, the currency pair's current 14% ascent seems to have room to grow further, particularly given the larger yield difference compared to past instances. However, it's worth noting the 1999 – 2000 period, where the yield differential increased, but market reactions lagged significantly. From a technical perspective, we observe the EURJPY breaking out of a 30-year symmetrical triangle, often interpreted as a bullish continuation signal. Upon closer examination, the Relative Strength Index (RSI) indicates that the market is not yet oversold, and the moving average cross still favours upward trajectory. In conclusion, the ECB's potential inclination towards continued hikes, combined with market skepticism over the BOJ's recent moves, could lead to a stronger EUR and a softer JPY. A suitable strategy to capitalize on this view might be to take a long position in CME EURO/JAPANESE YEN Futures, quoted as Japanese Yen per Euro Increment. Entering at the current level of 156 with a stop at 152.5, and a take profit at 168, would provide a reasonable risk-reward ratio. It's worth noting that each 0.01 Japanese yen per Euro increment move equals 1250 yen. 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
Long
by inspirante
Copper Conundrum: Diverging Indicators Point to More DownsideThe last time we looked at copper was last October, and the trade played out nicely in our favor. Much has happened since then and we think another opportunity lies on the horizon now. Revisiting the same analysis now we observe the following… China, being the largest copper buyer, its currency pair CNHUSD traditionally shares a high correlation with copper. However, a divergence has emerged since May 2023. Moreover, copper's wide usage in manufacturing - from batteries to appliances and industrial machinery - makes China's import and export figures a good indicator of global economic health. These figures currently paint a gloomy picture, with YOY Exports & Imports pointing lower. Again, we notice a divergence between copper prices and these economic numbers. The Gold/Copper ratio, usually confined within a certain range, has recently tried to break higher. Despite facing resistance, the movement may still have momentum. Previous breaks upward have proven to be quite rapid. One way this could play out is if copper trades lower, the Gold/Copper ratio tends to trend higher. From a price action perspective, copper seems to be breaking out from a seven-month bull flag, inching towards the 4.00 price level. However, the significant resistance at 4.00 casts doubts on the breakout's success. Further fuelling this doubt is the emergence of a Simple Moving Average (SMA) death cross on the daily timeframe. On a shorter timeframe, the Relative Strength Index (RSI) suggests slight overselling, while the overall price structure is encapsulated in a symmetrical triangle. Summing up, we foresee short-term downside for copper due to diverging macro factors from copper’s price and a downward trend in the dollar. Moreover, price action suggests overbought levels and looming resistance. CME has the Full-sized Copper Contract or the Micro Copper Futures which we can use to express this view, taking a short position at the current level of 3.904, stop loss at 4.10 and take profit at 3.55 the next level of support and subsequently 3.30 if the symmetrical triangle breakout happens. Each $0.0005 price move in copper per pound is equal to $1.25 for the micro copper futures and $12.50 for the full-sized copper futures. 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
COMEX:HG1!Short
by inspirante