It appears the situation in Greece has stabilised and that allowed the relief rally in commodities to launch today. Tomorrow is the end of QE2, which I doubt is a factor driving the markets today because investors are usually forward looking, but it is still one more headline construed as bearish that will be history shortly. Also on Friday is the NFP data, one more typical milestone used to slug the metals regardless of how bullish or bearish those numbers may be. After that, its a long weekend.
The COT structure continues to look very good for the metals as specs have been driven to the sidelines and therefore there are fewer sellers left to influence the trading. Sure its possible fresh shorting may be a factor but considering the shorts are still dangerously exposed even after the drop in open interest, I find it hard to believe much would be accomplished in adding further shorting given the risk involved.
So in a nutshell, many of the factors that have contributed to the selling for the metals are soon to be out of the way. I feel pretty good that the lows are in for the metals.
Meanwhile the PM stocks are drifting on low volume with very little froth in the sector at all. I suspect those who having been buying on the cheap for the last 2 months are content to hold for higher prices in the fall, and those who were nervous longs have bailed out in the downdrafts and are out of the picture. Again, this suggests to me a bias for a gradual move higher. I do not think we will have to put up with much 'bubble' commentary for a while and I still do not think that nonsense was ever a real indication of sentiment.
For ECU the news of the merger seems to have been digested. The trading volume is settling down and the stock will probably be joined at the hip with AUMN from here, and both should perform in line with the rest of the sector until the shareholder approval process is completed. I still think we have at least one positive blip ahead as analysts and bullish newsletter writers update their outlook on the basis of the combination. I am encouraged that the ECU wrts have begun to trade higher because they are at a premium to the conversion price and therefore those buying wrts obviously believe there is a much higher price level for AUMN in the years ahead.
I am neither a buyer nor seller at this range. I am solidly in favour of the deal and will buckle up and face whatever the market has to throw at us, but I do think we have seen the worst. Many juniors made sharp moves higher today into the close of trading and that is a sign the bargain hunters appear to be the dominant force in the market at this time.
cheers!
mike
ECU is a paid advertiser on my website.
