“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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


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Wednesday, December 4, 2013

US economic data spurs Commodity buying; Equities weaken

We were treated to several pieces of economic news in today' session. The ISM number, private jobs numbers from ADP and New home sales.

New home Sales numbers were up 25% in October compared to September. The spike was the sharpest monthly increase in more than 30 years. It should be kept in mind however that the September number was especially low.

Some things I am taking away from this report - first, the average price range of the homes sold was lower. Second - home mortgage loan rates have been rising. That is pushing down the price of the home that many buyers can afford. They are obviously opting for lower priced homes.

Regardless, that coupled with the news from ADP that 215,000 private sector jobs were added last month ( the market was expecting 178,000) brought in a significant amount of buying into the copper market. That yanked silver higher as those two metals have recently been moving more or less in tandem.

Later in the session gold then seemed to finally catch up as we got yet another one of those sharp, short covering rallies that gold has been famous for over the last few weeks. We'll have to see how long this one lasts. AT least the mining shares as evidenced by the HUI stopped moving lower today as well. For once we seem to have those going higher alongside of the actual metal on the Comex. That is always helpful to the bullish cause.

I am really not quite sure what the catalyst was for the pop higher in gold other than the fact that it managed to hold above an important chart support level near $1200. Also working in its favor is the fact that crude oil prices have been moving strongly higher now for the last few days. Traders continue to anticipate that the opening of that new pipeline from Cushing down to Port Arthur is going to relieve the burgeoning crude supplies at that key point even though stocks of the black liquid remain extremely high. Notably, refinery runs are very strong and this is helping to pull down the number of barrels in storage. Traders are expecting these newly refined products to be exported out through the Gulf of Mexico. This continues to put a floor under the unleaded gasoline market which had been dropping rather precipitously of late. Heating oil prices are firm. Lots of cold weather around.

We also had another burst of money flowing into the soybean and corn markets this morning. In effect, we had higher energy prices, some higher grain prices, a rise in cotton, a rise in the base metals, etc... It seemed as if the play for today was to generally buy commodities once again. When you get the kind of rally that we witnessed today in copper, and then in silver, it is going to be hard to press the gold lower. That means short covering as shorts do not want to lose profits or if they have sold near the bottom, develop large losses.

Interestingly enough, the sharp spike in interest rates did not offer much in the way of support to the US Dollar. It basically floated around the unchanged level for most of the session. That makes the strength in some of the commodity markets all that more notable.

I keep watching this S&P 500 and it keeps looking the same to me, namely "toppy" but so far it continues to hold up. I am once again noticing a higher day in the VIX. With the yield on the Ten Year note reaching a high thus far of 2.852%, we might be seeing a general round of NERVOUSNESS beginning to creep into these equities. I remain of the view that equities are going to have to break down to give us a SUSTAINED move higher in gold.

I mentioned that I would be watching the gold delivery process as it unfolds for the month of December. As expected, JP Morgan continues to be the standout LARGE STOPPER for their HOUSE account. Morgan has been buying the physical against hedge fund selling.

Gold's bounce up and away from that critical chart support level down near $1200 has been impressive. No doubt there will be some technical chartists looking at this and calling a double bottom on the intermediate term chart. I will need to see the metal scale $1280 at a minimum however and RETAIN those gains before concurring with that view. I would also need to see some more definite signs of a solid bottom in the HUI as an additional confirmation.



Also, the big test for gold, will come this Friday as we await the next payrolls number. If the number comes in stronger than expectations, look for that TAPERING chatter to start up again which would likely pressure the gold market as it should bring some strength into the Dollar.

The problem that the Fed has however is the same as it experienced this past summer. Rising interest rates threaten to crimp consumer borrowing. The Fed gets extremely nervous as a result when the yield on the Ten Year starts creeping closer to that 3% mark. If the bond and note markets react to the number by pushing lower and thus kicking rates higher, Fed officials, especially the more dovish ones, may not welcome the higher long term rates. I would expect them to hit the microphones and beginning tamping down any tapering expectations if that is indeed the case.

Keep in mind that as traders we are watching for a change in inflation expectations/sentiment to occur in the market. Once that occurs, the metals will respond accordingly. Until it does however, rallies will be viewed as shorting opportunities. Stay nimble and do not get married to any particular view. Let the market tell us when things are changing.

26 comments:

  1. Dean there you go:

    "At the end of the day, gold WILL decline to new lows into 2014....." MA
    No coulds, woulds, or maybe's.

    http://armstrongeconomics.com/2013/12/04/gold-the-hedge-against-making-money/

    Also regarding your comment about saving marriages, makes sense in the right context. Just watch the movie Boiler Room.

    ReplyDelete
    Replies
    1. Elijah

      Yep, I get Armstrong's daily comments, I am not doubting that his targets are accurate. He is amazing.
      His ego is what I find most annoying.
      Read his archives..he pushed gold as a asset as much as the others in the past.
      Here is his report (just ONE example) from Oct 2012. I picked this at random.

      Gold is still in a position to press higher. Next week remains a target for rising volatility and the week after a turning point. The numbers are the numbers. We need a weekly closing ABOVE 17997 to signal a retest of the old high. But gold is not yet ready for the breakout. That appears to be next year and 2014 will mark the beginning of civil unrest on a more global scale. As long as gold failed to break above the 2011 high this year, then the pause (correction) is intact and that extends the cycle for a final high off in 2017 with the potential to go to 2020. Things start to come unraveled next year after the summer and a Phase Shift appears likely within the economy between 2013 and 2015.75.

      Would you have liquidated your entire position on that report?
      His analysis did not get sarcastic until this spring.

      HE is one of the reasons I bought gold in the first place.
      But take a look at the title of his latest "gold, the hedge against making money".....really?
      What's up with that bullshit ?
      C'mon Martin...grow up.

      Delete
    2. This was around the time of gold's rally from 1530 to just under 1800 if I remember correctly, and yeah it couldn't break the 17997 so it pulled back to the 1500's then whack it was lights out shortly after. So That is pretty much what happened. Now gold might finally bottom in 2014 which should spark a strong rally in gold, then pull back beginning 2015.75 with a final run in 2017 and 2020.

      I think his computer models are fluid so as you get closer to turn dates it goes from giving rough ideas to more clear dates and trends.

      As for the sarcasm, well now, since 2011 he was spat on, ridiculed and disrespected by the gold bugs, can't he have some fun now that he proved them all wrong. Even JS, who he was good friends with, signaled him out cause he had a different opinion on the direction of a commodity. Just goes to show you how carried away people can get with this stuff.

      I think it's funny how now they exchange punches on their blogs knowing who they are directing them at without mentioning names.

      "It’s time to fish. It’s time to buy – get your fishing lines ready…

      Smart money is accumulating." - JSmineset

      No coincidence that Marty posted his thoughts on gold today.

      And it wasn't Martin who started this whole thing. Personally, I think it's a shame that once good friendships have to end this way.

      Delete
    3. Elijah
      True, I think a lot of personal stuff is going on. I suspect that Jim Sinclair is one of the "club" members.
      Anyway..Martin has to understand that the majority of his readership are not into the personal conflicts he has with others.

      Anyway, Armstrong's last few posts refer to a possible cycle phase inversion, where it is possible that the Dow declines to 2015. At the very least he has stated that there WILL be a correction before it tops at approx 20k.
      This is not so different in theory what he predicted for gold.
      How long will the Dow correction be? When does it become a cycle inversion?
      The guy is accurate so this means that you should sell right now and ride out the correction then buy back in….right?
      Anyone here selling their Dow/S&P position ?
      If not, why?
      After all if it turns into a cycle inversion it could be as bad as the gold correction.
      He has also stated that the correction will have all the talking heads yelling they called the top.
      This all speaks of a pretty good correction.
      So…sell, hold..what? He never says.
      This is why these guys who write in claiming they sold their gold in the nick of time due to him puzzle me.
      I would like to know from one of these people exactly which of Martin's posts prompted them to sell ALL of their gold and go ALL in on the Dow. I have read them all..no mention of sell that I can find.

      Delete
  2. "Later in the session gold then seemed to finally catch up as we got yet another one of those sharp, short covering rallies that gold has been famous for over the last few weeks."

    Sorry for the Trading 101 question here, but how does one know if buying is short covering vs. new buyers?

    Thanks!

    ReplyDelete
  3. Hi all,
    Two quick charts.
    On the weekly time unit, we can see how, once again, and despite the hurriedness of bears, the median of the red pitchfork held once again, and allows gold to remain in this slowly bearish drifting trend I've been following, i.e within the trend given by the red pitchfork.

    http://i42.tinypic.com/91j41g.jpg

    Last time we hit this median, there was a pretty nice rally...before the trend resumed its course down. If this rallye was to be of same proportions, it may take us up to 1300 $, which btw corresponds to the bol sup in the daily time unit and the median of a newest upwards pitchfork we can trace using 1210 as latest pivot point. For me, on this time unit, gold will start getting out of the wood when it breaks the mlh sup of the pitchfork, which is now still at 1390 $. So if I want to be a bull before that, I have to zoom at the daily time unit.

    http://i39.tinypic.com/1zdpzfb.jpg

    As you can see, I put my focus on the 1260 line as a resistance and first test to be breached, then 1268 basically the neckline of the head and shoulders formed above. 1260-1270, with also the ma20, is imo an important test area. If we stay under it and this short covering is another one day wonder, nothing much will have changed for the bull case.
    Funny, Eric de Groot warned yesterday of high concentration on the gold market and possibility of a violent short covering move.
    Above 1260-1270, then why not 1300.

    So, maybe bears were too hasty at breaking important chart support areas for bulls and were vulnerable. I remember Dan's recent post showing that most bearish pressure was due to accumulating shorts, not long selling their positions.
    On the even longer time unit, the real support area I'm closely following is 1225 $. So it's a good news for bulls imho that we are now once again above this level. For me it's an important horizontal support on the 2weeks / 2months scale.
    What's the result of all that on my trading plan? Honestly, nothing :( I didn't see this big move up coming today on my indicators, so I'm flat and won't run after that train at the moment. But hey, I'm not a professional :)

    ReplyDelete
    Replies
    1. P.S : so I'm not making a lot of trades, it's the luxury I have as I'm not living thanks to trading, I can just stay out of trouble if I don't feel it. I only have one short on the SP500 for now, took at 1800 the other day, and thanks to the configuration of the SP today, I moved my stop loss just above today's highs around 1802.
      So, whatever the SP does, I don't really care, I would lose peanuts if it doesn't reach my first target of 1265+ (going up every day with the corresponding support).
      I'm stressing on this because I guess many here are in my case : they don't live via trading only, and they are not the best Professional traders in the world. So most important to stay in the game is to protect my capital first, and never mind if I miss a few things, like this last move in gold. I'm sure better traders took the move on the smaller time units. I'm not doing intraday (or very occasionally, so I pass).

      Delete
  4. GDX/GLD ratio still at lifetime, all-time, world record lows.

    That thing must be 7 deviations away from the mean by now.

    Who would have known that shorting gold miners during the greatest global money printing campaign in history would have resulted in a lifetime's worth of gains in just 2 years.

    Truly extraordinary. Guys like Alf, Peter Schiff, Bo Polny, etc. basically had their lives turned completely upside down as a result.

    Wow, what a reversal of fortune since 2009 - 2011.

    ReplyDelete
    Replies
    1. Bo Polny is still correct (for this one) as long as 1180 holds.
      At least from his free letter subscription which indicates about nothing else since then, because I couldn't convince myself to pay...well I'm not even going to write how much here per year, just go and see by yourself...all I'm saying is he'd better be correct on 1180 or he's going to have a few rich subscribers very very unhappy about his subscription service, lol. But...at the moment, and for this call of the bottom, he is still right by an inch. Ok, two inches maybe. Don't burry him just yet :)

      Delete
  5. Thank you Dan
    The mirrors have mirrors have mirrors.....

    ReplyDelete
  6. That is the thing about trading, the way I understand it, the daily volumes don't say how much of it is buying or selling a stock. Just total shares changing hands, price is only an indicator not confirmation. From there it is a guess what is really going on, short and long bets coming and going, news or rumors creating action, cycle action with bargain buyers or top dumpers, errant program buying or selling, etc. Only the long term trend is in play while waiting for a turn date to the opposite direction.

    ReplyDelete
  7. the number is 2; a 2 week short covering bounce to get all the talking heads and letter writers going again; it is December and the light volumes allow all kinds of short term moves to take place; the only bulls out there are stks, the $ and even the miserable bonds are still in a trading range; sell grains, yen and pm; that is all from sparks

    ReplyDelete
  8. Good stuff Dan and spot on analysis.

    ReplyDelete
  9. Schiff has been recommending precious metals since early last decade as well as a basket of stocks both industrial and mining in many countries, in the case of Gold the metal it was with Dow to Gold 45:1 now 12:1 so you could say the Dow is still trashed what a reversal of fortune for 13+ years.

    ReplyDelete
  10. Hi Eph,
    "Before the miners got complacent with a high price they were efficiently producing for 500 to 700."
    Question is : can they come back to discipline or not? But I agree : with prices going down, there is probably some room for better management and lower production costs. So once again...1000 $ as a simple cost production approximation? I'm choosing that option, as time increases costs anyhow.

    Now about your globalist at the head of major miners, a last report about BG :
    http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/exclusive-interview-peter-munk-on-hubris-stupidity-and-the-future-of-barrick-gold/article15769699/#dashboard/follows/

    Dave, the "bol inf" means the lower Bollinger Band. It's a very standard indicator on every platform, its standard parameter is 20 periods. Yet on my charts I'm using it also with a 100 periods, i.e a representation of the lower time unit bollinger bands on the same time scale.
    Cdur is a proprietary indicator from a friend trader of mine, Gilles Leclerc, who is quite successful in France and probably sharing the codes, and you can contact him from me here :
    http://www.univers-bourse.com/utilisateurs/johnlee

    If we attack again the support area near 1220, this time I'll probably go short.

    ReplyDelete
    Replies
    1. This is a very recent TA from Gilles, just before CAC 40 crashed.
      (in French)
      http://www.univers-bourse.com/analyses/analyses/cac-c-est-pour-maintenant

      Delete
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    ReplyDelete
  12. One has to wonder who is so anxious to sell gold with the dollar coming under pressure.

    ReplyDelete
  13. The economic recovery is really picking up steam now.

    Surest way to riches is to keep shorting gold and going long semiconductors and consumer discretionary.

    ReplyDelete
  14. one day rally. bug dud. didn't even have a chance to add to short position. Hopefully what miners are left will learn from this experience. Imagine when prices touch 1,000 (look at monthly chart - with this much technical damage a monthly chart shows that this number will be hit).

    I am no fan of Armstrong and didn't even hear of him until about two months ago when people here were mentioning him. I knew that the February 1632 failure meant a lot of pain to gold holders, including me, so I fully hedged. I didn't think that we would see these prices so quickly, but was hedged and then some at 1560, thinking we would see 1525 immediately, the days leading up to the famous plunge. In fact, I was 150% short and made more money those two days than most traders make in a year. I woke up and saw green numbers on my screen that would make most people blush.

    Anyway, I just am on the record as stating that Armstrong is one a many people I look at now. His findings on gold are congruent with mine. However, he believes there is no conspiracy on anything, including the one for world govt. He is one of about 3-4 people who convinced me to go long equities during the budget battle farce. I am glad I did. I stopped listening to the doomers as they were clearly wrong. Listening to them can be addictive even if it is depressing. What a lost opportunity cost tracking them.

    Anyway, the miners can learn to be more efficient again. i just filled up my tank for 2.80 in ABQ. I remember that price was low 6 years ago. The miners are way overextended with debt. asset impairments, etc. notice how their shares continue to fall further and further behind the gold price. In the 6/28 low GDX was 22 and change. Now it's 20.70, with gold almost 50 higher. Investors realize that the longer gold prices stay here the worse the miners will be. I do not see them hedging (they are in denial), I see no radical changes in balance sheets yet. They will come. ABX came first, because that zombie company was very foolish with debt.

    ReplyDelete
    Replies
    1. Eph:
      Miners and Debt/Equity ratios: ABX 1.13, GG .11, NEM .57, KGC .32, AUY .16 and for good measure FCX 1.04. So really only ABX, FCX and to a lesser extent NEM are "loaded up with debt."

      Nevertheless, all news is negative in a bear market. Compare these debt/equity ratios to GE 3.16, UAL 6.97, BA 1.07, DD 1.09. UAL is my favorite short target (started my position at 40). If the economy improves as Mark suggests and we get a whiff of inflation, the company will be knocked off at the knees by higher fuel prices, higher cost of debt, higher prices for capital goods (US carriers have old fleets), after having already used up all its cost cutting, financial engineering levers. Already has significant negative tangible book value, no free cash flow ever, etc. But I digress.

      I am interested if we'll see the same HUI:GOLD ratio low that we saw at the end of the last bear .146. We are 6% from there now. There will be good bargains then.

      Delete
  15. How many times with 1220 hold? 3 strikes and you are out?

    ReplyDelete
  16. Dan,

    Long time reader, first time commenter here. Do you have any thoughts on the impending test of the rising trendline created from the 2008 lows? Seems like a do-or-die moment for the uptrend of the past 10 years...

    ReplyDelete
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