Recap #
Last week rebar futures did rise steadily, reaching a high of 3114 on Friday night. The decision not to set a take-profit was correct. Going long RB2701 at 3020 with a stop-loss near 3000, if we close the position at 3110, which is the closing price of Friday night’s session, we could achieve a ratio of 9:2. I believe it’s time to close the position.
Observations #
On the Black Chain #
The rise in rebar this week can be attributed to the furious rally in coking coal, which was the most interesting development of the week.
If you look at the daily chart of coking coal, especially JM2609, you will see that from 3rd Aug to Friday night, there were only three tiny bearish candles. JM2610 closed at 1605 on Friday night, just a few points away from JM2701. Note that the JM2701 contract is the first to apply the revised delivery specifications, and sources suggest that the cost is roughly 100 yuan per ton higher compared with the previous standards. The driver was said to be tightening supply. Based on recent price-volume action, there is likely to be a short squeeze in JM2609.
It’s definitely not a good time to chase now, as the profit distribution along the chain is hugely unbalanced: downstream players, including coke and steel plants, are experiencing losses, while coking coal is skyrocketing. What’s worse, demand for steel products remains low.
I think it’s time to consider going short on JM2701, because it’s dangerous to short JM2609 and JM2610 due to the potential short squeeze. The positioning data for JM2701 shows an imbalance, with net long positions far exceeding net short positions. Also, contracts on the far end have started to fall while those on the front are skyrocketing, which is also a dangerous sign for bulls.
Recall silver in late January 2025. Reversals can be swift and fierce after the short squeeze.
By the way, sources say that it’s very unusual for JM2610 to have such large open interest, while the front-month contract is JM2609 and the main contract is JM2701. I don’t know what that indicates. Maybe it’s related to the short squeeze.
On Corn #
Corn was also very interesting this week. On Monday there was a huge bearish candle in C2611, reaching an all-time low for that contract, but on Tuesday, there was an equally huge bullish candle, followed by an even larger one on Wednesday.
It’s said that spot supply for corn remains high. The rise may be due to JPMorgan’s warning on the global food crisis.
Plan #
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