MI Comment: Letting the kite of the bag

For a long time we and others have written about aluminium's dominant long in abstract terms, while the LME's locals and other cognoscenti have always referred to 'him' (off the record) by name. However, when a little-read newswire article about alleged losses at Red Kite Management was picked up by the Wall Street Journal on Friday morning, it appeared to send the major newswires into overdrive. Amid unfounded speculation of another Amaranth Advisors-style collapse, word spread around the LME and beyond that one of the market's most dominant players of the past two years was in trouble.

Aluminium had come off from 2750 to 2730 in early dealing, even after SHFE stocks had fallen 9,000t. The initial article in question took a while to spread around dealing rooms, though when LME stocks rose 4,425t prices came off further, bottoming at 2698 before we went to press.

Values bounced to 2722 before the end of the premarket, though as the story then flashed up on dealers'screens around the world, the whole complex went into varying degrees of meltdown. Over lunch the light metal fell to lows of 2670, from where it recovered to 2720 as order was restored and the move had failed to trigger a collapse in the nearby backwardation. The forward market held its nerve too, slipping only marginally in most places, while 2009 tightened by $1.50/mth.

Ironically, in Monday morning's updated WC warrant banding report (as at cob Thursday), the dominant long was back up at 90+% of the non-cancelled warrant total after several days in the 80-90% band. Order was restored in the 3-month outright market too, with prices picking up gingerly from 2720 to 2747, while turnover stood at a measly 995 lots currently.

Ignoring market gossip and conjecture, from a strictly technical perspective Cliff Green Consultancy continued to see good support around the 200-day moving average (2640/60), with a clear break beneath there required to "regenerate downward momentum", they wrote in a report. Strong resistance meanwhile started c. 2780, with only a sustained break above 2870 improving the overall tone, they added.