One of the rather interesting aspects of developing one’s own content for a blog site involves looking at who (we’re talking company, not individual) pays us a visit. Since we launched this blog back in December of 2007 we’ve garnered two unique sets of visitors ” manufacturers (which we expected given our backgrounds and who we wanted to reach out to) and the other, traders, research analysts and banks. We find this second group of visitors quite interesting (we find the first group interesting too mind you) mainly because the lens from which they see the world can look very different from how we see the world.
Over the course of the next one to two days, we will examine the aluminum market in greater detail, only this time, by taking a more technical trader’s perspective. And you can be sure we won’t get all of this right. But what we will attempt to offer are some alternative ways at looking for the bottom of the market and in particular the bottom of the aluminum market.
Yesterday, Stuart and I attended a call hosted by an aluminum research firm, Harbor Aluminum entitled: How close are we to the bottom? I won’t begin to throw charts and technical terms out (I’ll leave that for Stuart and a guest blogger this week). The comments I found most interesting involved the road markers, or the signs to look for when the market reaches bottom. Those four indicators of reaching bottom appear as follows, according to Harbor Aluminum:
- The VIX (the layman’s term -fear index) needs to be at 25 or less. As of Monday, the CBOE Market Volatility Index rose 13.59 percent to 52.65, according to Forbes. We covered this index in a previous post last week.
- Central banks must stop easing global interest rates. The thinking goes when rates stop falling, aluminum prices increase
- The over-supply situation needs to return to normal levels
- Harbor Aluminum has their own sentiment index which needs to be above 50
We would argue that the first two points appear pretty straightforward. Fear has definitely played a role in both the stock market and the wider commodity indexes. And we do believe that fear does indeed drive behavior. Interest rates are a non-starter. Alan Greenspan may go down as the man who caused much of the troubles by keeping US interest rates artificially low for such a long period of time. Points three and four however appear quite subjective. For example, will China and the remaining BRIC countries return to their pre-recession super-cycle consumption levels? Once we reach bottom what does the time horizon look like to bring volumes and demand back to where we started? 18 months? 3 years? 10 years? The sentiment index, measured as bullish comments as a % of total analyst comments in the previous seven weeks, appears to be a good measure of ‘Group Think’ though if 7 out of 10 respondents appear positive, well, whom am I to say nay? I have another word I can substitute for bullish though but I won’t. If you review what all of the analysts had said about aluminum in as late as October 2008 in regard to aluminum prices, we could re-name this sentiment index, the rosy glasses index.
But perhaps both manufacturers and traders/analysts can all agree on one thing: by combining technical analysis with market analysis perhaps we can all make good buying decisions. Which by the way, most everyone agrees, aluminum won’t be selling for this much under the cost of production on a long term basis. If you have the demand, now might be a good time to lock up some market beating pricing. It won’t last forever.