2016 is turning out to be Year of Short covering.
Short covering is a trade by which traders close existing short positions by buying. Traders do that because assets stop falling even on bad news
There is a saying: When too many people sit on the same side of the boat, it overturns. The same logic applies in financial markets - when everyone sits on the same side of the trade - the trade fails and the reverse move happens.
Don't get carried away by fundamentals....see this is what short covering does
Brent Crude is now at $40
— Worth W. Wray (@WorthWray) March 7, 2016
There is no other way you can explain spectacular rise in Crude Oil in last 1 month.
It's quite fascinating that crude inventories globally are rising at alarming pace. In US alone - the crude stockpile stands at levels above 500 million barrel - last seen in 1930. It means there is no taker for crude even at depressed prices but crude prices still rallied. And when that happens, traders who have short positions rush to cover, in other words, buy. That possibly explains the current rally. Brent Crude can still rally to $42.5 - resistance point.
Huge Rally in Gold in 2016
It started with Gold. Gold after disastrous three years - 2013, 2014 and 2015 has made a huge comeback in 2016. The amount of money that has moved in Gold this year is huge. Analysts have described it as panic money moving into Gold
Look at what happened in Iron ore today
Iron ore’s 19 percent jump follows copper’s move back above $5,000 a ton on Friday
— Bloomberg Markets (@markets) March 7, 2016
All this rally in the end can turn out to be real because of Central Bank madness
Remember, in the era of negative interest rates - why would anyone keep money in financial assets - and there is the possibility of money moving back into hard assets like commodities and Gold. Every turning point move starts with a strong short covering and then fundamentals kick in. 2016 has just started and looks like lot more fun is ahead of us
In the end, I can only say this
feels like a trap is being set, just not sure for who
— StockCats (@StockCats) March 7, 2016
1. Text book Analysis at work
2. What is Gold Chart trying to tell us?
3. This is one stock I like the most in current market environment
4. Which is the best performing market in Asia in 2016?
5. The story from Last Budget to this Budget
Disclaimer – The state of the market notes is Deepak’s perspective on the market. The column is purely for educational purpose. Nothing contained herein is a solicitation to trade or a recommendation of a specific trade. By reading this publication you agree to make no trade relying in whole or in part on the comments of the writers