Platinum futures are up more than 600% over the past 10 years and have almost doubled from 1,200 to 2,053 over the past twelve months.
What catches my eye is the extreme run-up over the past two months as the metal seems to be making a climax run (out of character during the 10-year up-trend). Similar action started to happen in PTR and I highlighted it in the exact manner as I am doing here with $PLAT in a post titled The Real PTR Climax Run.
Petrochina, currently trading at $150, is now 50% off of its high of $266.81, a number reached during the climax run. I was a little early with PTR when I wrote the post Petrochina (PTR) Climax Top? back in September 2007.
Based on my PTR analysis, wait for the breakdown in Platinum to begin prior to picking a top, if it even happens. This is a game of odds and we can’t be 100% certain that Platinum is going to breakdown and correct by more than 20% over the next six months. However, I will establish a position when the ideal entry presents itself. The ideal entry could be a large reversal on heavy volume while making new highs early in the day and/or week or it could be a series of large down days on increasing, above average volume.
I do want to be clear that I am not suggesting that the long term multi-year run in Platinum is over but a correction of more than 20% may be in the works.
What do you think?
I am not one to short strength. However, if we assume that one is to take a small speculative short position on platinum. Would that only be viable for the platinum Futures? or is there an ETF/Stock that highly correlates with the moves in platinum?
Thanks.
I need to replace the catalytic converter in my car. Looking at the chart, I could probably save a few bucks if I wait for platinum to break…
Seriously though, I find your potential entries for climax tops interesting. I’m more inclined to trade the bear flag that they sometimes form after the climax top. The problem is I miss a lot of opportunities because the flag never forms.
Hey guys,
It’s not a short yet and especially not one long term but be on the lookout for signs. I had people telling me CROX was a “safe bet to hit $100 by 2008” when I said it looked like it could get slammed. We know how that worked out. I trade signs, not opinions and the signs are just starting on a very small scale. Very small. The long term trend is still strong.
Regarding the prior post,
Absolutely hilarious. Good stuff. I almost fell out of my chair laughing.
Also a funny poem by MS above.
Great blog by the way. Is there a way to find volume on the PLAT futures? It seems it would be a great help in determining a climax top or not.
I was also curious about a possible alternative to trading it than the futures, an ETF possibly?
Thanks.
Hi Chris,
Great site! I’m a huge fan.
Please forgive me if this is a basic/odd question; I’m a beginner trader.
Which of the 3 main players in the futures markets (hedgers, large speculators, and small speculators) do you think is likely responsible for this parabolic price action in platinum? Do you think the small time speculator would pay attention to platinum, or would they be more inclined to trade in gold (eg gold’s 1980 climax top)? I think platinum would be considered foreign to the small time speculator. I don’t think hedgers would be responsble from climax action. So it is most likely caused by the large speculator. Any thoughts?
Thanks
Nice Post! I haven’t followed platinum nearly as closely as you, but I agree from your charts that some warning signals are worthy of attention. I do see any of the traditional Cstick indicators the rally is over, but your first chart is dead on that a shooting star could be forming.
Thanks for the heads up!
VT
JM,
Volume is not available on these charts, not from my stockcharts service. I’ll check my broker software to see if I can get a read.
The Clemens stuff is funny. The whole thing is a joke. Why is congress wasting our tax dollars?
The PTR comparison is educational – as you observed, you were early – and there is no way to pick the top in real time. PTR gained over 40% since you highlighted it, and is now down 20% from the price at the time of your post.
Is the market not interesting enough without searching for low risk/reward scenarios like this?
Eric,
I can’t answer your question because I just don’t know. I assume large volume spikes are generated by the large investors: institutional investors that can move markets.
Most small time speculators ignore platinum but not all. Besides, they can’t move the market anyway. Guys and gals like this (me) can only trade the trends the bigger boys set.
D,
I don’t understand the question/ statement. The PTR trade worked beautifully the second time it was put on. It was a loss the first time but a small one I should add.
Hi Chris,
A lot of the exponential growth in platinum prices is due to the electricity crisis in South Africa (mines closing, little supply), but demand still being large. Until concrete evidence is given for a method to improve electricity supply, platinum shouldn’t correct much.
S,
Maybe so! Like I said, the trade hasn’t initiated yet. No signal as of today.
However, if the market was logical, millions more would be wealthy. News, speculation, so-called demand, natural disasters, etc. aren’t very accurate predictors of the market. Technical analysis tells the story long before the news hits the wire and logical thinking can adjust. Long before situations change.
I am not picking a top. I got an alert so I wrote about it. The alert stated that red flags are starting to appear. That’s all folks!
Trading is about getting signals, setting up the risk/reward and taking the high expectancy trade. Some are wrong, some are right. Basing my trades on “what is going on in the news, media and South Africa wouldn’t be too smart”. I will follow the chart and take the trade if is signals!
Options are a great way to go. This thing is trading five standard deviations with a mean price of 1790. We are expecting a Minor Seasonal Cycle in the February 25/28th timeframe, which may usher in an intermediate high. The final high is not expected until the late-April/early-May timeframe. A pullback into the 1800/1790 over the next 3-5 weeks seems likely and with options you can position yourself for a move back down with limited downside risk to your portfolio.
Chris, great work!
Lots of places to find volume for platinum futures (hint – try looking at the exchange’s web site). Without typing in all of the numbers, it generally ranged from 1000-3000 contracts per day up until the beginning of the month, and has increased to about 3000-5000 contracts a day since then.
Options always work great in theory, but platinum has no options that actively trade (no surprise with such low volume). Plus with a 28 (using historical here) vol, they would be expensive as hell. A put with a 2100 strike (versus a current price of 2167.8) would cost 1.58% (34.25 or 1712.50 per contract) – plus the bid/ask spread. You would basically need a hundred point drop from here (in twenty-five days) just to break even.