Tag: Sprott Critical Materials ETF (SETM)

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Brent at $104/barrel as S&P 500 Heads for 8000

Key Points

  • Brent rallied to $104 per barrel after testing support at $100 for several days.
  • The S&P 500 is at a new record high.
  • The 10-year Treasury yield held firm at 5.28% after a solid auction.
  • The Dollar Index signals a fresh rally after breaking resistance at 102.
  • Gold is headed for another test of $4,000 per ounce as oil and the Dollar strengthen.

Brent Crude Futures (ICE December'26)

Iran is widening its attacks to restrict the flow of crude through the Strait of Hormuz and exacerbate the shortage of tankers.

At least 12 tankers have been attacked in the Strait of Hormuz since 29 September, including multiple Very Large Crude Carriers (VLCCs). VLCC rates have hit around $1.3 million a day, up from $100K (13x) in 8 months.

Following the heightened attacks on tankers transiting the Oman Lane in the past few days, Iran has now attacked two stationary tankers: one near Qatar and one near the Fujairah ship-to-ship hub. (HFI Research)

Stocks

The S&P 500 recorded a new high, heading for a test of 8000.

S&P 500

Mega-cap technology stocks lead the way, with the Roundhill Magnificent 7 ETF (MAGS)1 breaking resistance at 70.

Roundhill Magnificent 7 ETF (MAGS)

Treasury Market

10-year Treasury yields eased slightly from 5.31% to 5.28%.

10-Year Treasury Yield

From Peter Boockvar:

The 10 yr note auction, with yields hovering around 24 year highs, was solid. The yield of 5.30% was almost 2 bps below the when issued pricing. The bid to cover of 2.77 was well above the one year average of 2.51 and that matches the highest since late 2014. Also, direct and indirect buyers took down 97.5% of the auction which is the most I’ve seen.

Bottom line, for whatever reason, likely the 24 yr highs in rates, brought out the buyers and resulted in a great auction. In response, the 10 yr yield has backed off to 5.27% from 5.31% just prior to the results….

The MOVE Bond Market Volatility Index retreated, easing liquidity concerns in financial markets.

MOVE Bond Market Volatility Index

Dollar & Gold

The Dollar Index strengthened above 102, warning of another advance.

Dollar Index

Gold weakened as oil and the Dollar strengthened, signaling another test of primary support at $4,000 per ounce.

Spot Gold

Energy metals are also being sold, with Sprott Uranium Miners ETF1 (URNM) breaking support at 50.

Sprott Uranium Miners ETF (URNM)

Sprott Lithium Miners ETF1 (LITP) broke support at 10.

Sprott Lithium Miners ETF (LITP)

Sprott Critical Materials ETF1 (SETM) is testing support at 28.

Sprott Critical Materials ETF (SETM)

Iron ore is also weak, testing support at $90 per tonne.

Iron Ore

However, Copper continues in a strong uptrend, heading for another test of resistance at $15,000 per tonne.

Copper

Conclusion

Volatility in crude oil and Treasury markets will likely be crazy over the next three weeks before the November 3 midterms.

Stocks are running on massive liquidity in financial markets. Even another rate hike would be unlikely to deter them — though that is unlikely.

We expect Gold to test support at $4,000 as oil and the Dollar strengthen. But these are short-term moves, and we remain long-term Gold bulls.

The risks are too high for us to venture back into long-term Treasuries, and we remain heavily weighted in cash and short-term financial assets which in our view offer a better risk-reward ratio.

Acknowledgments

Notes

  1. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
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Bitcoin Plunge Signals Risk-Off

Key Points

  • Bitcoin plunged to $71,200, warning that financial markets are becoming risk-averse.
  • Brent crude surged to nearly $70 per barrel amid heightened US-Iran tensions.
  • Volatility following the CME margin hike, effective Monday, triggered a broad selloff in precious metals and energy transition metals.

Bitcoin2 (BTC) broke support at 85,000, the steep decline warning that financial markets are shedding risk assets.

Bitcoin (BTC)

The S&P 500 index retreated below 6900, but long tails and a rising Trend Index indicate strong buying interest.

S&P 500

However, the Roundhill Magnificent 7 ETF (MAGS) is headed for a test of primary support at 63, while Trend Index peaks at zero warn of selling pressure. A breach of support would be a strong bear signal.

Roundhill Magnificent 7 ETF (MAGS)

10-year Treasury yields are testing resistance at 4.3%. A breakout would offer a short-term target of 4.4%.

10-Year Treasury Yield

Dollar & Gold

The US Dollar Index is testing resistance at 98, but remains in a long-term downtrend. Respect of resistance will likely signal another decline.

Dollar Index

Gold is testing resistance at $5,000 per ounce after Friday’s sharp fall.

Spot Gold

The primary reason for the sharp fall in copper and precious metals was not Trump’s nomination of Kevin Warsh as the next Fed Chair. On January 29, the CME announced that it was again increasing margin requirements on futures contracts, effective Monday, February 2.

Comex Margin Increase

Comex Margins

The increase in CME margin requirements is intended to discourage leveraged speculation in key contracts that show signs of overheating.

Silver had a higher speculative interest, making it more susceptible to the margin hike, with the metal testing support at $70 per ounce.

Spot Silver

Energy & Energy Transition Metals

Brent crude is testing resistance at $70 per barrel on heightened US-Iran tensions.

Brent Crude

The Dow Jones Global Oil & Gas index is in a strong uptrend, with rising Trend Index troughs reflecting buying pressure.

Dow Jones Global Oil & Gas Index

Copper

The margin hike had less effect on copper, which retreated to $13,000 per tonne from its recent peak of $13,500 per tonne.

Copper

Copper miners were more susceptible to the risk-off shift in financial markets, with Sprott Copper Miners ETF1 (COPP) testing support at 40.

Sprott Copper Miners ETF (COPP)

Uranium

Uranium was not directly affected by the CME margin hike but was caught up in the broader selloff, with the Sprott Uranium Miners ETF1 (URNM) testing support at 70.

Sprott Uranium Miners ETF (URNM)

Lithium

Lithium suffered a similar fate, with Sprott Lithium Miners ETF1 (LITP) breaking support at 14.

Sprott Lithium Miners ETF (LITP)

Critical Minerals

Critical materials experienced a similar selloff, with Sprott Critical Materials ETF1 (SETM) testing support at 34.

Sprott Critical Materials ETF (SETM)

Conclusion

The CME margin hike, which took effect on Monday, was intended to cause a correction in copper and precious metals. However, the selloff spread to uranium, lithium, and critical materials. Risk aversion also spread to financial markets, as evidenced by a steep fall in risk assets such as Bitcoin.

Mega-cap technology stocks have experienced a selloff, with the Roundhill Magnificent 7 ETF (MAGS) approaching its primary support level. A breach of support would be a strong bear signal for the broader S&P 500 index, with market leaders falling behind their second-tier counterparts.

We can expect further CME margin hikes as the exchange seeks to curb speculative excesses. Volatility will likely discourage speculation but have minimal impact on the secular rise in demand for gold, copper, uranium, lithium, and critical materials.

Acknowledgments

Notes

  1. We analyze exchange-traded funds (ETFs) to determine market sentiment towards a specific sector, industry, or commodity. The analysis is not a recommendation to buy or sell, nor is it a commentary on the merits of the particular ETF.
  2. We analyze Bitcoin (BTC) — the most volatile risk asset — to identify risk sentiment in financial markets. Our analysis is not a recommendation to buy or sell, for which we are ill-equipped to express an opinion, nor is it a commentary on the merits of the cryptocurrency.
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