Today, I’m going to share with you three commodities setup for massive short squeezes, one of which I just bought yesterday.
Commodities are now in a new bull market.
Gold signaled the start of one, when it broke out to new highs last month, and now one by one various precious metals have been breaking out to follow it up.
Silver did it when it went through $26.00 and now silver stackers are winning.
Copper has broken out too.
So has the BCIM industrial metals ETF.
And this week platinum did it.
What is behind these rallies?
It wasn’t supposed to happen.
Many leading crypto gurus, like CNBC’s favorite Cathie Wood, have been predicting that a massive deflation would come that would enable the Federal Reserve to lower rates back down to pre-2020 levels. In a video, three days ago, she maintained her deflation prediction, claiming that the CPI will have a negative print in 2025. She has been saying that AI and new technologies, represented by innovators such as Elon Musk, would make it happen. In this recent video she calls this “Teslanomics.” People like to listen to her, because she is predicting that Bitcoin will go to a million, but this is nonsense.
Even today’s bigger than expected CPI numbers probably won’t stop her from saying this stuff.
The Wall Street Journal yesterday morning had an article claiming that the commodity rallies are a sign that the global economy is actually firming up. They cite improving industrial production numbers in China to say that a growing demand for commodities is starting.
Another line of thought, is that more government money printing, and the growing federal deficit, means that inflation is not going to go away, and will get worse, so people around the world are hedging what that fallout will bring in the future.
Maybe that is why gold hasn’t needed interest rate cuts to go up.
Whatever you want to believe, the fact that gold and many commodities are coming out of stage one bases and starting new stage two bull markets is all you need to know, as an investor or trader in them.
But, the game is just starting and some commodities are not far off their recent lows.
I went through the CFTC commitment of traders reports to look inside the futures market positioning to see if I could find some commodities vulnerable to short squeezes.
These reports breakup the futures traders into various categories, including large commercial hedgers and producers, managed money (hedge funds), and small traders. Typically, the large commercials and producers are always net short in the futures market, because they use the futures market to hedge what for them are real world operations. Think of an oil company, that is producing oil, shorting oil futures to lock in their prices. They are not speculating, in the sense of trying to bet on price movements to make money, but are using the future markets to hedge their real world operations.
They are almost always net short, as they are almost always hedging, so when they get net long in a market it is something that typically happens after a big bear market is over and they see little downside risk at all. They tend to be right at these moments, being the “smartest” players in the market, with the most knowledge of the market as they are connected to their business and the real world on the ground, unlike the managed money men and small traders, who are speculating on pure price action and often know nothing beyond that.
It’s a massive knowledge gap – and when the “smart” money is net long and the small players and hedge funds are net short you are looking at what is likely a major cycle bottom, and have all the ingredients for a big short squeeze.
Most hedge funds and small traders do not beat the market.
Corn, soybeans, and palladium are now in a position in the futures market in which the “smart money” is net long and the hedge funds and small fries have big net short positions.
Here is the latest CFTC report for palladium.
The large producers and swap dealers are long about 12k palladium futures contracts and short only 1,800.
The managed money hedge funds are long 3,801 and net short a whopping 14,506 contracts.
That’s a huge short position in palladium futures that is vulnerable to a short squeeze.
Here is a chart of palladium.
The palladium short sellers have increased their position as the price has fallen in the past two years.
In fact, these guys have never been this net short in the history of palladium futures trading!
Take a look at this chart from Barchart for Palladium with the CFTC futures data on the bottom, and you can see what I mean.
The blue line on this chart is the net short position for the non-commercials managed money people.
As you can see, it has never been this negative before.
The green line is for commercial swap dealers and the red line is for the commercial producers.
They have almost always been net short, going all the way back to before 2007, but are now net long.
In fact, there has never been this big of a divergence, between these guys being net long and the managed money people being this net short, ever before.
This is historic, so I decided to go long palladium yesterday and align myself with the smart money.
I did this by purchasing the abrdn Physical Palladium Shares ETF.
It’s symbol is PALL.
Here is the recent price action in this ETF.
PALL has been trading in a range between 100 and 80, with a temporary spike up through 110, in December, since October.
100 is resistance for it.
It even got to $100 in pre-market trading today and then came down after the bad CPI numbers hit the markets and the metals complex too.
I took a position with a mental stop loss on it at $80.
I think this ETF can go to the 200-300 range in the next 16-24 months.
I’d actually prefer it to stay below $100 for a few weeks, trading within the circle I drew on the chart, before breaking out, because if it did that I would likely accumulate more, but it’s just as likely to rally through its 200-day moving average and pivot into a stage two bull market sooner than I’d like.
The metals, such as silver, pretty much shook off their gap down opens on the CPI news.
I bought it with a small position, so I can hold with a stop loss at 80, for now.
Palladium has a price history of just going on big runs quickly out of a bottom.
It’s hard to predict what will happen, but the hedge funds who have kept adding on to their short positions this far off the top, after two years of declining prices, are insane.
I guess they are listening to the Cathie Wood deflation predictions.
According to the last CFTF report, there are 22 “managed money” pools long palladium and 46 who are short, to form a crazy herd.
I know there are weird hedge fund managers out their involved in crypto too, who are disconnected from the real world, but listen to these crypto gurus, like Cathie Wood and Real Vision, who keep making wild predictions.
If they were doing that then that was their mistake.
Whatever they were doing, if I was them I would close out my palladium short position as quickly as possible, because they may be putting their entire fund at risk now if they do not.
You have to do more than latch on to baseless guru price predictions and deflation calls, like this one, to be more than a flash in the pan trader or investor.
I took a look at soybeans and corn, but there is no good ETF to play them.
All I could find for each of them are ETF’s that hold only futures contracts in them, and these ETF’s have a history of diverging from the proper futures prices at times.
So, you really need to play the futures themselves to get involved.
Also, the price patterns suggest to me that the upside for them is 50-100%, and they trade with a history of having sudden spikes and then declines.
Palladium trades a bit similar to other metals, although it historically tends to get locked up into what are straight up and down moves over a twelve month period once they get going. They trade more smoothly once they are in a trend, much like currencies do.
About 40% of global palladium production is in Russia.
That’s probably why the last major peak in the price of palladium coincided with the Russian invasion of Ukraine and then it went into a bear market that lasted about two years. It’s also an industrial metal, used mainly in car production, so demand for it declined as the bear market in China ensued too. You’ll still find negative articles and predictions on it if you go do a google search for it. That’s typical, though, of what you find when a commodity makes a long-term bottom.
Again, this is an investment/trade I have made and nothing is guaranteed to work.
That’s why I have a mental stop loss at $80 on my PALL buy.
I see it looking to risk $1 to make $5 or possibly more for each $1 at risk.
-Mike
