TD Securities Senior Commodity Strategist Daniel Ghali has noted that there is a growing downside asymmetry in the market, but it will take a significant downturn to trigger large-scale selling activity. Despite this, there is still large-scale CTA buying activity occurring, particularly in the aluminum markets. Ghali points out that algorithmic positioning has created extreme asymmetries, leading to trend-following algos covering their remaining shorts and building a net long position. This is expected to result in a buying program totaling +11% of their maximum size during this session.
However, Ghali predicts that this surge in algo buying may be reaching its peak, as future price simulations indicate that the upside asymmetries that have fueled the recent rally may be diminishing. As a result, the market is now seeing a buildup of downside asymmetry. Ghali highlights zinc as being particularly vulnerable to large-scale selling activity in this scenario. Despite the potential for a market downturn, it will likely require a substantial downtape to trigger widespread selling.
It is important to note that the market conditions are fluid and subject to change, as they are influenced by a variety of factors including global economic trends, geopolitical events, and changes in supply and demand dynamics. As such, traders and investors should closely monitor market developments and adapt their strategies accordingly.
Overall, while there are signs of downside asymmetry building in the market, it will likely take a significant event to spark widespread selling activity. In the meantime, CTA buying activity continues to play a significant role in driving market movements, particularly in the aluminum markets. Traders should remain vigilant and prepared to adjust their positions based on changing market conditions.
