"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, November 2, 2012

Commodity Index Breaks Down - So Too Does Silver

Another payrolls report today; another down day in the precious metals. Not much of a surprise here as that has been the norm for many a year. In one sense, it really did not matter what the number was as there was more than likely going to be bearish selling pressure no matter what.

When it comes to silver, if the number was a poor one, the bears would point to the fact that the QE3 was already baked into the cake and so was a non-factor. They would then point to the fact that the poor number was sign that the economy was still muddling along without any risk of inflationary factors due to the sluggish growth. Silver MUST HAVE AN INFLATIONARY ENVIRONMENT if it is to mount any sort of SUSTAINED rally.

If the number was considered friendly, then the bears would cry up the idea that the QE was not going to be continued as long as some were initially thinking since the economy was mending.

In other words, Heads, I win; Tails, you lose.

Either way, take a look at the following chart of the Continuous Commodity Index or CCI and notice that it has broken out of the recent congestion pattern. The breakout however was to the downside. Guess what; silver also broke out to the downside of its recent consolidation pattern.

I have pointed this link out to readers here for some time now - Silver is inexorably tied to the hip of the broader Commodity markets and will remain so into the foreseeable future. Next stop for the metal is today's low near $31.25 followed by a test of $31.00 - $30.80 should that previous level fail to stem its decline.

The fact that the open interest in silver refused to sharply decline during its descent was a warning that the stubborn bulls were vulnerable to a breach of chart support. There were just too many stale longs in this market which had not experienced a good and necessary cleansing. We are now finally getting that which is what this market needs in order to generate a more lasting move higher when the conditions are correct for such an event.

Note on that CCI chart, that the red support line which has been violated came in very near the important 38.2% Fibonacci Retracement level. If the index cannot rapidly recover this support level by climbing back above it and holding, it implies a subsequent test of the critical 50% level is in store.

With this in mind, observe the silver chart and note how similar the pattern is to the CCI. As stated above, the two are linked together and will generally rise and fall together.

Notice also how silver has lost support at the bottom of the recent congestion pattern which also was rather close to its 38.2% retracement level. If it cannot reverse the decline and get back above the 32 level, it will more than likely drift first towards psychological round number support near $31 and stronger chart support down near $30.70 - $30.75.


  1. What did you expect?

    More deft market maneuvering by Bernanke, "The Master and Commander", who now has 100% control of stock, currency, and commodity markets worldwide.

    Pretty much the best of all worlds today for the Fed:

    1) XRT and IYR are unfazed by today's selloff in stocks

    2) Bonds continue to surge, AGG and BND about to break out to new highs

    3) Commodities of all stripes getting slaughtered

    It is all part of the "Wash, Rinse, Repeat" cycle driving Bernanke's "Perpetual Motion Machine", which is designed to spook Risk On investors into stampeding to the exits.

    But only for a short period of time, as crashing gasoline prices and bond yields produce a huge tax cut for the consumer.

    And collapsing gold prices signal no inflation for years to come, as the implied TIPS spread is practically negative as it has been all year long.

    Overall, this market action will be looked at in awe by market historians for the next 50 years, no other man in history has been able to command such complete control of the financial markets and the economy.

  2. Yeah. Silver OI has been puzzling since late September when compared with gold OI. It's as if the longs were gone fishing despite the continuous weakness. Bizarre and has to be reduced one way or another.

  3. Funny. Real Funny. Awe."I am in amazement that anyone would look at Bernanke pinned into a corner and be in Awe. To save his job, get the dollar higher to drive down oil, gas prices so the natives dont get restless. Lies, more lies, and head "liar in chief" OBUMMER the snake oil salesman, is shouting we have made progress. Meanwhile, back on earth, no one believes the numbers. A liquidity moment again driving out the weak hands. I will buy right on down to 26, won't get that low, and 1600 (never make this low). It is falling apart and when it goes KABOOM, gold and silver will skyrocket. Especially if OBUMMER is elected, and Bernanke prints to a new WEIMAR. Lets start counting chickens shall we. Bernanke will go down as the bag man for Greenspan. If he leaves, the next Volcker will make him look like a mad man, or should I say, his great thesis (experiment) relived from the studying he did, will get him a ZERO in the real world. What he is doing is setting us up for a gigantic dollar devaluation, loss of confidence, and a landscape similar to Greece, Spain. A matter of time now., Buy, Buy

  4. Thanks Dan, you are reliable for wisdom in uncertainty. Anyone know a good place for me to monitor the CCI? I use netdania's free products a lot, looking to monitor other critical issues. Thanks.

  5. Dan,

    Once again you had been making cautionary sounds last weekend on KWN and through this week that silver 1) hadn't been sent down hard enough in the first place and 2) hadn't shown traction at support long enough.

    I really appreciate you keeping a cool head and if I am not mistaken you are the only voice at KWN that ever sounds like there could be some downside.....at least in the short term.


  6. Hi Dan,

    Kudos as always to you. Two things--Would love to know your thoughts on HUI falling through 480 & ... anything worth noting on the silver miners? specifically - most of the major silver miners fell roughly on par with silver @ 4%, while the major miners, led by NEM's poor poor earnings, sank 5-8% to gold's 2% .


  7. Wow, I just checked the chart of NEM, what a disaster.

    Now compare that chart with SBUX, WFM, AAPL, AMZN, or any of the other metrosexual "Glam Stocks" which sailed right through the European Crisis with barely a nick or a scratch.

    Another striking blow from Bernanke. We are now headed towards $7 trillion in debt and accelerating, and Ben has managed to point the Infinite Fiat Firehose squarely in the direction stocks in the consumer discretionary group.

    While natural resource stocks such as oils, coal, iron ore, steel, copper, gold, silver, etc. are left for dead.

    Nobody, I mean nobody would have predicted that the same consumer and tech bubbles would keep reinflating over and over as the U.S. and consumer debt keep exploding higher.

    Just overlay a chart of IYR vs. XAU and you will be shocked.

  8. Great news!! Rome is burning, our new tolatarian king is shouting from the rooftops "recovery" just around the corner, meanwhile Timmy is covering all the bad loans he made through the FFB, Bernanke is looking to run before the dogdo hits the fan, inflation is rampant, war is about to break loose, and we watch the Mass Media help guys make money in Tech and consumers. Rah, Rah...God help you Mark, Ben, Hussein the anti christ, muslim, devil, US President. The worst ever sitting president. It is a nigtmare, and Mark, just hold on awhile longer to your gains, they will evaporate. Poof. The world represents our bankers.The US has Negative equity, annual $1 trillion (on the books) negative cash flow, no end in sight to negative growth, but we have liquidity my friends, compliments of the great Ben. Mark, take a break will you. I am petrified for our country, our kids, our way of life. NY, NJ, god help you. I see our mayor turned away non union help for you. I see another mid 60's couple of years coming on. Mark, look up SWHC...lots of lead and 500% gains since your prince and his "muppett" took the helm and started printing.

  9. By the way Mark, I just overlayed a chart (3 month) aapl, IYR against the ^HUI...laughing out loud right at you. Did you want to mislead or just lie. It appears on a 3 month investment, just lost 5%, meanwhile the ^HUI gained 25%. I guess you are like the snake oiled salesman, socialist, Obummer screaming lies from the rooftops. Good luck in your future, maybe you can move to France, or better yet Benghazi. We will be right there with your backup. On second thought..not. Americans are investing properly in exactly what we need , gold, gold stocks, and LEAD. We will keep a few just for you, your idol Ben, and your master Hussein.

  10. Hey Wolf, I'm on your side.

    Just astonished at how Bernanke has been able to defy and bend all rules of finance in the direction he wishes.

    You must admit it is modern miracle, one of the greatest feats ever accomplished.

  11. No Mark. I consider actions of this magnitude, desperate acts of a traitor. Acts which have set this country on a path of complete and utter destruction. Acts that should be punishable by death. I am concerned by the complete division of power currently dominated by Crony Capitalism and big Govt. It may eventually be solved by civil war. I am on the side of the libertarians. REDUCE THE SIZE OF BOTH GOVERNMENT AND THE BANKING CARTEL AND AUDIT THE FED.

  12. WW,
    Same rant every time. Change up your repertoire, will ya?!

  13. It is extremely interesting for me to read this blog. Thanks for it. I like such themes and everything that is connected commodity & stock market. Thanks with Regards

    Stock Tips, NIFTY Tips, Commodity Tips


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