Funds are still keen, with the end of the month likely to bring even more money to commodities due to the good performance they've had during January. It's a self-fulfilling prophecy at the moment.
It is difficult to know what is happening -- it may be profit-taking, but it is certainly not a trend reversal.
Correction? What correction? With the shorter-term players locking in profits and systematic CTA (Commodity Trade Adviser fund) selling met by trade and hedge fund buying, base metals have stabilized after a volatile 24 to 48 hours.
An unprecedented amount of new fund money has been attracted to the LME by virtue of index buying (commodity indices) and structured products.
However, the market may be prone to wide trading ranges and choppy price movements while current consolidation continues, with more liquidation possible in the absence of upside momentum.
The main story is still fund money. Stocks are low.
The market remains fund-driven. No one wants to go short while consumers buy in dips and producers are reluctant to sell, hoping for yet higher prices.
We may not be out of the woods yet and further liquidation and selling could be lurking. Tonight's weekly chart closes will be important in determining near-term price direction.
We are in a new ball game - a new paradigm. You just have to go with the flow now.
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