KOLD Natural gas is correcting today. Yesterday, I opted for calls KOLD May 20 11's as the likely sweet spot, and today they're up 70% versus 46% for the 12's and 50% for the 10's. So far, so good.
The lemmings diving off the cliff in KOLD yesterday... were a good and valid indication that it was a capitulation event... and, a far better indication than was available in the BOIL chart...
But, that... being right for a day... doesn't make me bearish on Nat Gas now, which is undergoing a fundamental repricing... It just means I'm aware of market behavior... which tends to apply limits in the veriticality allowed in any trade... following fairly well known behavioral rules... which markets prove valid over and over again... And, in total, they work out to be a fairly rational balancing mechanism between certainty and uncertainty... requiring only that you be on the right side of excess at the right time... as market relativity requires that for every over-reaction, there will be an equal and opposite over-reaction...
Back around the end of March I had commented that it was good to see the correction that occurred then, as hopefully we'd sustain a more gradual and thus sustainable rate of increase in Boil from there. But, that didn't happen... which doesn't make me bearish on gas, only bearish on market excess.
So, charting BOIL / KOLD today... as part of seeking to parse the right moves in the trade in Nat Gas, from here... given the market context... and uncertainties in the look ahead...
The knowns are... the nature of the market we're in.. apparently at the top of a bubble... (and knowns in market sequences: stocks higher, energy higher, vix spikes higher, stocks lower, energy lower, rinse, repeat) but, also, the reality that inflation is not "transitory"... or, as some assume, at a peak now... making the error in assuming inflation has limits in market behavior like BOIL does... when it has no such limits. Also, then, the trade in relative terms, historically, and relative to current market context...seeing the conflicts in long term and short term valuation issues as change occurs... looking to see how (and when) they will be resolved. All of which is left deliberately vague... requiring detail must be filled in... And, critically, success requiring not just being right about the trends and drivers and resulting inevitabilities... but being right on the timing... since the value in the trade is timing limiting, or time wasting.
So, what I did here, was to annotate all my arrows, first... showing the reality in the markets behavior... and then wrote in my two vertical red lines... as previously discussed, the skinny one showing an inflection in the ADL as buyers from lower were cashing out... the thick one showing where new money started pouring in chasing the trade higher (included in my busy chart as the black line at the bottom between the red lines). Then, the green lines showing where "sustainable" appears it might have landed. And, only then, added the Fibonacci retracement series... finding it not at all shocking that there's apparently a correspondence...
And, that's probably all you need to manage the trade for a day or two... ?
But, what the chart can show is certainty... of that sort that occurs in the limits of market behavior. What it can't show you... is the future... by defining for you what "events" are doing... or what the fundamental value of nat gas is as change occurs, or what it should be, given the events of the day and the fundamental changes being imposed in the market. Figuring that out requires awareness of the chart and limits in market behavior... but that question is a more fundamental one, and not a "technical" question about what the trade will allow, or what it will do in arriving at a proper price... given the known knowns, and known unknowns... not requiring proceeding to the constant in unknown unknowns... but, useful to consider what is assumed known that might be wrong...
So, a good place to start in considering trades worth making... is that "buy low" means buying on off days... That doesn't mean go long nat gas today. It means... consider the trends... and what traction they should have... So, looking at an elevated and elevating gas price... in its impacts on other things... gas companies stocks... to determine whether they've priced in the changes occurring properly or not, fully enough or not ?
And then... considering "what else" in the fundamental realignment occurring in this market... matters most in this trade in gas, and is gas related things...
A lot of gas stocks may not be properly pricing in the changes in the price of gas... while down days will move them down... instead of up ?
And, the big shift... in Biden eliminating the export restrictions... meaning gas will be sold to Europe... will force convergences between European and American market prices... but, at some pace limited by the reality in limits in infrastructure... which I've been hammering on for months already ?
So, the obvious... in things like TELL... which is off a bit, today...
Maybe a lot less obvious to others... in things like GASS... which is down hard today with gas... and thus completing a fairy obvious head and shoulders pattern... It not being all that clear, perhaps, how ships that have been losing money all along... are suddenly going to stop losing money... because the price of gas is changing ?
Also the obvious in inflation... if you think its peaked... or think its only just begun ? Guess which I think ?
The inflation issue... is a market issue... because "the bubble in stocks" is driven by "the bubble in money"... only with a question or two about change in the impact resulting... both from changes in the flow itself... and in how that flow of money is FOCUSED...
QE... as its own form of money... was focused on "the market"... with the form in the money inhibiting its convertibility into other uses... The limits in the utility of the $... "prevented" it becoming inflationary... in things other than those intended to be inflated, Right ? Or, ah... hmmm... maybe that doesn't work... or, only works in the short term... and within limits ? Oh well... maybe "more" will overcome the limits ? Let's try ? /s
Ending QE... means reversing impacts... but, it means reversing impacts in the perversity of the unintended... without it meaning that "the flow" is actually being ended... rather than only "the restriction" in focus being ended ?
So, yeah... if they double M2 next month... stocks should soar in price... which says nothing about "value" ?
And, that's the knock on commodities, always... is that they're not a means to "GROW" value... but can only be a fixed value in relation to the flow. So, gold never grows in value... its only the money becomes worth less... requiring more of it to buy an ounce. And, that would be true... if they weren't also manipulating the price lower... to impose uinder-valuations that then require correction... just to get back to "fair value" in a constant dollar price adjusted for inflation ? So, the market issue... as inefficiency in pricing enables huge swings away from "fair value"... and huge swings back to... and beyond... that "proper" price... when the reality is that the dynamic in the flow of dollars is never a constant, but a variable, introducing time sensitive variation... that may or may not be recognized AT THE TIME ?
Oil and gas... also commodities... have the same influences... but different market considerations... as actually necessary to sustain functions... without which... there is no ability for stocks to grow anything...
All of which means... know the flow(s)... and know which way to go.. in the trade...
Transitory my ass... still doesn't inform you about the relative state of valuation at the moment..
The bubble in stocks... might be undervaluing them by half... if the bubble in money expands again ?
It opposite land issue in bubbles of negative pressure in negative space in commodities... ?
All hinges on expectations of the future value of money... and the sustainability of that value... under inflation.
But, if the money goes to zero... the things denominated in it... will go to infinity... without it mattering ?
So, the issue is... the degree of error entrained in fostering disconnects between value and expectations... given change in the expectation that an ounce of gold will still be there tomorrow... versus the expectation that a dollar will still be useful as money having some value, tomorrow...
Normally... the conversation is only about rates of change in "sustainable" flows over time...
Today... the conversation is... debt doesn't matter... which intrinsically means... we can make an infinite amount of new money... without it changing anything that we care about...
So, the value of the money going to zero is suddenly a real possibility...
And, the market is now torn... between being extremely over-valued in a bubble... as inflated by QE... with the palpable risk of the bubble imploding because QE being removed and rates rising... and, a sober assessment of reality... showing that they are not ever going to stop the flow... but must increase it over time... and at a predictable pace... resembling the BOIL chart... to compensate for negative impacts it imposes by countering them with more of what's imposing them...
And, there are limits in market behavior... But, behavior requires perception...
While official policy, as MOPE... is to prevent proper perception by lying...
Making it matter that lying about inflation... won't work... And, as it fails... will force recognition of all the other lies... until they also don't work...
The end of MOPE... forces a correction to reality... and we're pondering how that's going to occur... not if...
So, that's the context... and I'll end here... |
