Stock Market Contra-Indicators: Financial Products
Stock Market Contra-Indicators: Financial Products
A contrarian sign of positivity for the carbon markets.
The only ETF offering stock market investors exposure to voluntary carbon markets will cease trading on March 14th.
KraneShares, the investment management firm, is shutting down its $KSET ETF due to a lack of investor interest.
It’s no secret that carbon markets have lost any semblance of hype they once had.
I cover the topic regularly in my social media content.
The interesting aspect of this news… is what often happens after something like this.
An introduction or halting of financial products tends to be a fantastic contra-indicator.
A sign that a sector might be reaching a top or bottom in sentiment.
Why?
If the interest in a market or investment is obvious enough to create a financial product around it… that’s a clear signal that everyone who could be invested already is.
Once a sector is out of new buyers– the only way to go is down.
Bitcoin
Take Bitcoin for example.
The market has regularly topped out in direct correlation to the creation of a new financial product.
In 2018, CME launched Bitcoin futures, and the price tanked immediately.
In 2021/2022, after another bull run, Coinbase went public, along with ProShares introducing a Bitcoin futures ETF. The price began to falter once again.
Uranium
We can also look to another hot sector for a similar result, uranium.
While the commodity is currently amid another bull run, the last one was in the early 2000s.
You might be wondering what happened in 2007 as the price topped out…
The NYMEX just launched their new uranium futures contract.
These are just two examples, but this happens across financial markets or industries.
Coal
Just as the creation of a financial product can be bearish, the loss of one can be bullish.
This is exactly what happened in the coal sector.
In 2020, the only ETF dedicated to coal, VanEck’s $KOL, stopped trading due to a lack of demand.
Not long after, the price of thermal coal proceeded to 5x.
In the same vein as the other industries I mentioned earlier, once a sector hits rock bottom— when a stock runs out of sellers… there’s only one way to go.
A Difference to Take Note Of
By no means am I saying that financial products make for perfect indicators.
In fact, both uranium and Bitcoin have recently seen the creation of funds that buy the physical commodity/currency itself. Not just futures contracts.
This can be quite bullish as those funds are actively taking supply out of circulation by accessing capital through public markets.
Generally speaking, this doesn’t tend to be the case.
Regardless, financial products, magazine covers, and other financial or media-driven aspects of financial markets can serve as powerful sentiment trackers.
Will the closing of the $KSET ETF serve as an indicator that the voluntary carbon markets are set to turn around soon?
Only time will tell, but I’ve placed my bets.