For too long traders were ignoring the poor numbers out of China as speculation of a stimulus package kept doing the rounds, and today it finally caught up with them.
The disappointing trade figures from Beijing overnight triggered a massive sell-off in commodities and commodity related stocks. Metals and mining firms witnessed a major bounce back this year but today’s data from China was the perfect excuse to exit their long positions.
Investors are still viewing the economic slowdown in China as a clue that Beijing might try and boost economic growth, as speculator’s short positions on high-grade copper are at their lowest level for the 2016.
Beijing has a history of launching stimulus packages whenever they feel it is warranted, and for that reason investors who are still long are holding out for additional easing. The European Central Bank meeting is getting close, and two down days in a row may attract some buyers who feel that Mario Draghi will fulfill his promise of more stimulus.
Oil squeezed higher during the day, only to swing back into negative territory and the big energy firms are weighing on the equity benchmarks. Short interest on Exxon is up 10% year-to-date and short positions on Chevron are at a five-month high.
The mega mining companies are in the same boat, as short positions have climbed by 32% in 2016 on Freeport-McMoRan Copper & Gold. Natural resource companies have formed the foundation of the rally that started nearly one month ago, and their move to the upside since then has been accelerated by the vast amount of short covering, but whenever there is a downward move in the market it is those shares which suffer the most.