HardAssetsInvestor

Mike Norman, Hard Assets Investor (Norman): Hello everybody, and welcome to HardAssetsInvestor.com. I’m Mike Norman, your host. Today my guest is Wayne Kaufman, chief market analyst at John Thomas Financial. Wayne, thanks very much for coming on the show.

Wayne Kaufman, chief market analyst, John Thomas Financial (Kaufman): Thanks for inviting me.

Norman: You're welcome. Now, you’re a technician. You look at the markets through the lens of technical analysis. Give us your outlook now on the commodity markets, based on your technical analysis.

Kaufman: Right now, in commodity markets, there's some very, very interesting things going on. I do classic charting analysis, looking at different timeframes daily, weekly, monthly. In addition, I look at other aspects of commodities, like there's something called the Commitment of Traders report. And that’s put out every week by the CFTC, the Commodity Futures Trading Commission. And they break down the positions of three groups. You have what are called the commercials—these are the people or companies that actually own the underlying asset.

Norman: Right, that transact in the actual business of that commodity.

Kaufman: Correct. And they're considered the “smart money.” Then they have what are called the large speculators. Those are big hedge funds. They're just speculating. And then you have the third group, which is the small speculators. That’s the average guy who might decide to trade some futures. They are considered the “dumb money.”

Norman: So are we really looking more at the commercials, the smart money, and the small speculators—the dumb money? Or how much now of a factor have the big hedge funds and speculators become? Because in the past, it’s more or less been, What are the hedgers doing? And, What are the small speculators doing? And you’d like to be on the side of the hedgers.

Kaufman: That’s correct. I would say most of the time, we’re looking at what the commercials, what the smart money is doing. But when you see the other guys at extreme levels, you want to go the other way.

Norman: So they're a good contrarian indicator.

Kaufman: That was a great question. And that’s exactly right.

Norman: So looking at the landscape now, in some markets—for example, metals or oil—what are the commercials doing? Are they giving us any signals right now as to maybe upcoming market moves?

Kaufman: Well right now, the most interesting area that I'm watching is gold, because gold has made, on the charts, a nice move. It’s broken back above its 200-day moving average for the first time in a while. It really had a nice breakout on the charts. Commercials are usually short. So the thing you want to do is see the degree of short.

Norman: Right.

Kaufman: So, for a multimonth period, they had a very small short position, which meant they were bullish on gold. Well, now that gold's actually broken out, they are very rapidly going short, or a much greater degree short. So that’s a conflict.