Technically, the platinum futures market moved to its highest price in over a decade during Thursday's rally.
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However, the futures market's forward curve remains in contango indicating supply and demand is not as tight as what some are talking about.
Don’t Miss a Day: From crude oil to coffee, sign up free for Barchart’s best-in-class commodity analysis. Given this, platinums parabolic rally looks to be a possible blow-off top, technically speaking.
I was visiting with my friend and market reporter for MarketWatch Myra Saefong yesterday about platinum. Myra wanted to know about the market’s “parabolic move”, what some of the technical factors were in play. I’ve talked to Myra for a number of years (decades?) and this is one of the first times I recall her asking about technical analysis specifically. It’s a bit ironic her question comes at a time when I have largely accepted the fact technical analysis is a dinosaur, something we can debate if it ever existed at all. As I’ve said numerous times, today’s markets are driven by algorithms, something I call Watson, and Watson doesn’t care about things like reversal patterns and trendlines. With the help of my son Ben, who just so happens to write our in-house trading programs, a comparison of seasonal noncommercial net-futures positions and the seasonality of the futures markets themselves shows Watson is more interested in fundamental rather than technical patterns. (Keep in mind seasonal analysis shows the normal market cycle tied to changing supply and demand.) I find this market evolution interesting, and something I’ll be discussing in more detail at a later time.
But let’s get back to platinum. After Myra asked her question, I did what everyone does and did a quick search of the subject. (Platinum is not a market I follow every day. I’m not well-versed in its fundamental drivers, meaning my blink reaction was to look at two different charts: The market’s weekly bar chart (technical) and the market’s forward curve (fundamental)). What I found was both interest and confusing at the same time.
The first story that popped up was a Bloomberg piece talking about a surge of global buying, “spurred by a lucrative arbitrage and fear of tariffs”. (What market isn’t driven by fear of what the US administration might do or say these days?) But it’s at this point of the Bloomberg piece where things get a bit confusing. The author talks about how “forward prices for platinum are now trading well below spot, a situation known as backwardation, which indicates tight market conditions (fundamentals).” So I pulled up my Barchart cmdtyView quote screen and saw the spot July contract (PLN25) was priced at $1,399.80 with the first deferred August (PLQ25) at $1,405.70 and the more heavily traded October (PLV25) closing Thursday at $1,415.00. This is not backwardation, but rather a forward curve in contango, a normal situation accounting for storage costs and interest. In other words, from a fundamental point of view, I don’t see a tight situation usually associated with a supply squeeze. Myra and I have talked a number of times over the past few years about these real situations in a variety of Softs markets, one we can still see in Cocoa.
With fundamentals not tight, at least according to platinum’s forward curve, what do we know about the market’s technical side? Keep in mind at its core, technical analysis is the study of trend, price direction over time, and trend is set by Watson’s activity. A look at the previous CFTC Commitments of Traders report (legacy, futures only), for positions as of Tuesday, June 17, and we see Watson held a net-long futures position of 23,227 contracts, a decrease of 3,752 contracts from the previous week (the latest report for Tuesday, June 24, will be released Friday afternoon). Meanwhile, the October contract hit a high of $1,440.50 Thursday, the highest mark for an October contract since the week of August 18, 2014. Yes, more than a decade ago.
The conclusion, then, is platinum looks to be creating a blow-off top with Johnny-come-latelies buying while Watson is selling and market fundamentals aren’t all that exciting. Based on my Market Rule #6: Fundamentals win in the end, from a technical point of view this spike high could be followed by a volatile selloff. We’ll see what happens over the coming weeks.
