Forums - When mining stocks "disconnect" from futures prices

Forums (http://www.elitetrader.com/vb/index.php)
- Metal Futures (http://www.elitetrader.com/vb/forumdisplay.php?forumid=55)
-- When mining stocks "disconnect" from futures prices (http://www.elitetrader.com/vb/showthread.php?threadid=240243)

Posted by clearinghouse on 04-05-12 07:54 PM:

When mining stocks "disconnect" from futures prices

I've been watching the copper and gold futures vs. FCX and SCCO, and occasionally I see these stock prices just completely ignore the metal prices. I was trying to explain why this was happening by flipping through stock indexes, related stocks, etc, but couldn't find a reason. There were no earnings, etc.

What factors could I be missing in explaining stock movement opposite all of the index futures and even related stocks in a group? Is it just some big guy looking to get rid of his piece of a portfolio?

I gambled and bought a little bit of the stocks while they were losing ground against the futures as an experiment, but I have a suspicion I am missing a piece of the information puzzle here.

Posted by Debaser82 on 04-05-12 08:27 PM:

Its either the buy of the decade or gold is going to drop to 500$ and miners are ahead.

Posted by clearinghouse on 04-05-12 08:41 PM:

Quote from Debaser82:

Its either the buy of the decade or gold is going to drop to 500$ and miners are ahead.

I suppose I'll pre-order my yacht. What are the stated theories among people who have a clue for such wide discrepancies? (I, unfortunately, am not a member of this group.) I know that some miners have had hedges in place against future production, but shouldn't intraday movements in miners somewhat mirror the intraday movements in metals futures?

I'm watching the intraday tape and some of my positions worked out, some of them look like they're subject to people who're performing real spreading. I should have done the same thing, but I was gambling on the prints hinting which leg would make the move. In this particular case, the futures came down to meet the stocks, instead of the stocks rising to meet the futures.

Posted by murray t turtle on 04-09-12 07:21 PM:

Quote from clearinghouse:

#1]I suppose I'll pre-order my yacht. What are the stated theories among people who have a clue for such wide discrepancies? (I, unfortunately, am not a member of this group.) I know that some miners have had hedges in place against future production, but shouldn't intraday movements in miners somewhat mirror the intraday movements in metals futures?

I'm watching the intraday tape and some of my positions worked out, some of them look like they're subject to people who're performing real spreading. I should have done the same thing, but I was gambling ....

==================
a]Long story short;
if George Soros//Rich Dennis are seling l gold, sell it, right??

C-house, i missed this question myself, i said yes@ first.But Rich Dennis, said [with discretion] ''No'' you do what your trend research tells you to do!

{correct answer thru Jack Schwager Top Trader books;& i got the nickname ''turtle'' as a child hood insult.LOL]

Speaking of long term trends, while some traders can make a good bearish chart for gold,GLD;
most all the long term trend are up/uptrending.SLV,silver seems much more bearish to me.......................

And even though IBD/William O Neill has proven stocks uptrend well, & downtrend well, cash & commodity gold,GLD may do it better.

[z]Wisdom is profitable to direct;
stocks may be sold because the secretary was rude. Mine co may lose billions on thier hedges, one has...

__________________
murray t turtle,nickname,not an alias

Posted by lorax2013 on 04-10-12 05:30 AM:

Watch it long enough and you'll see the stock price go to zero every time as the reserves deplete or the company has a run of bad management.

On a short time frame though, as you can guess, there can be countless reasons. Perhaps a worsening political/regulatory environment, bad management, depleting reserves, hidden liability waiting to explode, poor hedging strategy, or a legitimately undervalued company.

Since you are not a company insider or specialist it will be very difficult to learn the true reasons for the divergence you see.

Just advice from someone who has made the mistake - decide if you are a stock valuator or a commodities trader - and then stick with your area of expertise.

Posted by flipside21 on 04-10-12 06:11 AM:

Re: When mining stocks "disconnect" from futures prices

Quote from clearinghouse:

I've been watching the copper and gold futures vs. FCX and SCCO, and occasionally I see these stock prices just completely ignore the metal prices. I was trying to explain why this was happening by flipping through stock indexes, related stocks, etc, but couldn't find a reason. There were no earnings, etc.

What factors could I be missing in explaining stock movement opposite all of the index futures and even related stocks in a group? Is it just some big guy looking to get rid of his piece of a portfolio?

I gambled and bought a little bit of the stocks while they were losing ground against the futures as an experiment, but I have a suspicion I am missing a piece of the information puzzle here.

Sometimes it's simply a shift in perception that drives asset prices.
It's the same shift it perception that's driving retail out of stocks and into bonds. The same perception that makes people fearful of buying real estate when everyone wanted it back in 2005.

I think the miners are earning their way into value territory when metals are outperforming mining shares. Eventually, investors will migrate to undervalued, but growing companies. You cannot predict exactly when this will happen, only that it will happen. This is why Ben Graham said in the long run the market is a weighing machine, but in the short-run it's a voting machine.

Posted by clearinghouse on 04-10-12 06:33 AM:

Re: Re: When mining stocks "disconnect" from futures prices

Quote from flipside21:

Sometimes it's simply a shift in perception that drives asset prices.
It's the same shift it perception that's driving retail out of stocks and into bonds. The same perception that makes people fearful of buying real estate when everyone wanted it back in 2005.

I think the miners are earning their way into value territory when metals are outperforming mining shares. Eventually, investors will migrate to undervalued, but growing companies. You cannot predict exactly when this will happen, only that it will happen. This is why Ben Graham said in the long run the market is a weighing machine, but in the short-run it's a voting machine.

Growth, maybe. Copper supposedly depends on growth in the economy in general. If copper miners are to be valuable, someone has to forecast substantial demand. Precious metals seem like a different story because those metals have very different markets.

But let's consider copper miners for a second. Explain something to me: Isn't the profitability of these miners directly connected to the price of metals? Why isn't the correlation higher between copper miners and the futures price? Let's disregard local politics, miner strikes, trade issues, etc.

Or is the distortion in price strictly a function of the fact that copper stocks and copper are less liquid and it takes fewer large players to distort prices of one asset relative to another?

Posted by clearinghouse on 04-10-12 06:37 AM:

Quote from lorax2013:

Watch it long enough and you'll see the stock price go to zero every time as the reserves deplete or the company has a run of bad management.

On a short time frame though, as you can guess, there can be countless reasons. Perhaps a worsening political/regulatory environment, bad management, depleting reserves, hidden liability waiting to explode, poor hedging strategy, or a legitimately undervalued company.

Since you are not a company insider or specialist it will be very difficult to learn the true reasons for the divergence you see.

Just advice from someone who has made the mistake - decide if you are a stock valuator or a commodities trader - and then stick with your area of expertise.

Everything you say is true, but shouldn't the intraday correlations between each other be higher in the absence of news -- at least until the market digests news of non-sense? I mean if the futures go up, all bad news considered, the true price of the stock of a miner should go up in all cases except when a large participant is using the uptick to exit an unwanted position (or vice versa in the other direction.)

Posted by lorax2013 on 04-11-12 01:04 AM:

I agree they should have general daily correlation in movement in the absence of company news (and I thought this was the case for most companies). Your first post said you "occasionally" saw divergent movement - which I agree is probably due to large player stock purchases/sales or inside information. However if you say there is simply no general daily correlation between a mining stock and metal price movement, that surprises me. All I can guess then, is that the holders of those stocks are even worse investors than I imagined.

Posted by murray t turtle on 04-11-12 10:49 PM:

Quote from lorax2013:

I agree they should have general daily correlation in movement in the absence of company news (and I thought this was the case for most companies). Your first post said you "occasionally" saw divergent movement - which I agree is probably due to large player stock purchases/sales or inside information. However if you say there is simply no general daily correlation between a mining stock and metal price movement, that surprises me.

All I can guess then, is that the holders of those stocks are even worse investors than I imagined.

===========
That would be suprising [no daily correlation]
But most suprising of all would be a high daily correlation

Especially since a daily chart has much more noise [meaningless moves]than a weekly.

Its much easier for a rude seceratery to mess up a move in stocks; than silver gold, copper

__________________
murray t turtle,nickname,not an alias

Posted by Avid_Consumer on 04-12-12 01:03 AM:

expanding on Lorax's mention of hedging- commodity producers generally hedge their output... so you have a few factors at play here that can cause a producer's price to deviate substantially from the price of the underlying product:

1. what's in their hedge portfolio? could have optionality, irregular expiries, quantities, exotic features, etc that are not at all linear

2. if they hedge their production bilaterally, who are their counterparties? what is their credit worthiness and how could that be fluctuating (a mild influence, but present)

3. they have a production forecast that's potentially irregular based on new sources coming to market, expired ones depleting, grade differences, etc

4. they have costs, cash flows and internal risks as a company that are also irregular and weight against their value as a stock

All times are GMT. The time now is 03:21 AM.