Tuesday, February 8, 2022

Morning Note: Futures Trader Sentiment, Copper's "Real World Reality" -- And -- A Bit of Irony For Ya

Each week we track futures speculators' positioning among 33 different indices, commodities and currencies.

Looking specifically at U.S. equities, the sentiment among those who do their bidding in the futures market has waned of late.

For the S&P 500, they're still net bullish, just less so coming off of a multi-year high net long position:

Among the Dow, the Nasdaq and the Russell 2000 they're outright net bearish:

4 weeks running for the Dow:

Just turned, albeit barely (although that's quite the weekly move), net bearish for the Nasdaq:

And a big move to further net bearish for the Russell 2000 last week:


Ironically, and perhaps counterintuitively (and/or contrarianly), while we should respect those with the sophistication to play in the futures markets, a general decline in optimism can be a good thing for equities, as, for one, it implies a building up of cash positions that can be used to buy equities should whatever clouds influencing the rising gloom begin to clear...

In fact our own in-house "Fear/Greed Barometer" just turned ever-so-slightly green (+9.09). I.e., overall equity market sentiment -- as we glean from futures speculators' positioning, sentiment surveys, implied volatility measures, overall short interest and options positioning -- has recently moved to ever-so-slightly bearish (that's an improvement from a contrarian's perspective).

As you may know, thinking longer-term, we're firmly in the bull camp on commodities. The case is made around myriad inflationary pressures, not the least of which being the global push to go green. 

Now, while I say "global push", there are nevertheless global pressures getting in the way of the extraction of the very metals and minerals needed to make the switch, which -- being good for investors, bad for consumers -- is bullish for price.

As Bloomberg's James Atwood pointed out yesterday:
"The task of ramping up copper supply to meet growing demand in the clean-energy transition is getting harder as societies and communities resist new mines and politicians seek a bigger share of the profit, said Freeport-McMoRan Inc. boss Richard Adkerson.

While the outlook for copper is getting better and better as the world tries to wean itself off fossil fuels, the supply side’s ability to churn out more is being constrained by difficulties in gaining social licenses to operate, said Adkerson, the veteran chief executive of the biggest publicly traded producer of the wiring metal.

Chile and Peru, which account for about 40% of global supply, are weighing tax increases and stricter environmental and community rules. In Chile, Freeport is deferring a decision on a major project until it gets further political clarify, he said. Even the investor-friendly U.S. has proven reluctant to green-lighting new mines.

“That’s just the reality around the world today,” Adkerson told analysts on a conference call. Still, Freeport is well positioned for growth via expansion projects at existing operations, he said."

Asian equities, having experienced quite the volatile session, finished mostly in the green overnight, with 11 of the 16 markets we track closing higher.

Europe's definitely catching a bid so far this morning, with all but 5 of the 19 bourses we follow trading up as I type.

With energy, healthcare, REITs, tech and communication stocks trading lower, US equities are once again starting the session in mixed fashion. Among major averages: Dow up 5 points (0.01%), SP500 down 0.33%, SP500 Equal Weight down 0.19%, Nasdaq 100 down 0.55%, Nasdaq Comp down 0.53%, Russell 2000 up 0.02%.

The VIX sits at 23.37, up 2.23%.

Oil futures are down 2.01%, gold's up 0.03%, silver's up 0.45%, copper futures are down 0.63% and the ag complex (DBA) is up 0.12%.

The 10-year treasury is down (yield up) and the dollar is up 0.29%.

Among our 39 core positions (excluding cash and short-term bond ETF), 23 -- led by metals miners, banks, Viacom/CBS carbon credits and materials stocks -- are in the green so far this morning. The 16 losers are led lower energy stocks, wind stocks, uranium miners, Nokia and MP (rare earth miner).

Not to pick on utterly myopic central bankers, but here's a bit of irony for ya:
"To forgo short-term gratification for greater rewards in the future is generally consistent with higher intelligence."

--Greenspan, Alan. The Map and the Territory 2.0

Have a great day!

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