There is a devastating story that came down the Dow Jones wire feed today detailing the woes of Eric Sprott and the impact of the consequent severe market losses to his flagship fund. That fund is down more than 50% this year alone!
It should be required reading for all investors/traders.
http://online.wsj.com/home-page?mod=djnwires
The article goes on to state that Mr. Sprott had under management some $3billion in 2008. That has fallen to about $350 million due to a combination of both redemptions and losses.
Here is where the impact of these enormous losses makes itself evident. The investment company, Sprott Inc., is phasing him out of the investment decisions. By the end of next year he will no longer make the firm's investment decisions.
To add insult to injury, the CEO of the company, a Peter Grosskopf, stated that Sprott would be handling "chief cheerleader duties" in addition to remaining chairman.
Furthermore, the article stated that Sprott Inc,. had already added co-chief investment officers to all of the funds. They obviously knew where they were going with all this.
Lesson to be learned - LISTEN TO THE MARKET and ignore everything else!
http://online.wsj.com/home-page?mod=djnwires
Wednesday, December 11, 2013
Gold seeing some Dip Buying; Sellers digging in
After the strong performance yesterday, gold appears to be taking a bit of a breather as traders digest the recent move and evaluate where things stand. As can be seen on the chart, the market is pivoting around the resistance zone I have noted. Dip buyers are active, but so too are sellers as the market moves up towards $1260.
Volume is mediocre at best indicating the rather quiet price action as neither side seems willing to make a big bet at this juncture. Thus we wait to see how events unfold.
If the market is going to make a run at $1290, it will have to manage to stay above $1260, preferable $1265 to indicate that. If it stalls out here I can see it dropping back towards $1245 or so in an attempt to either uncover buying or, if that fails, to press into some downside stops.
Here is a chart of the metal at noon, CST:
Some of the pressure today is related to the news overnight that a budget "deal" had been brokered here in the US. If such a deal were to be approved by a majority vote in the House first, ( It is a given that it will pass the Senate), then any concerns over another government shutdown/soap opera/drama will be averted. That removes a bit of the reason that some buy gold.
I cannot pass on the opportunity however to comment on something that occurred yesterday. As some of you know by now, early in yesterday's session, a series of large bids pushing gold higher resulted in a temporary halt in trading. For the sake of my sarcasm, I will henceforth refer to this as the
"REVERSE FLASH CRASH". And yes I am mocking those who were peddling this nonsense about the Flash Crash recently as evidence that evil forces were conspiring to beat up on poor ol' Yeller.
I pointed out then and will do so yet again, there was nothing the least bit sinister about these large sell orders. They are being generated by hedge funds who are completely unfamiliar with the concept of SCALE DOWN BUYING and SCALE UP SELLING. Only those of us who have been around these markets for a very long time remember these concepts. The modern hedge fund knows nothing about the concept of "finesse". They brutalize those markets in which they trade. Ask any soybean trader or livestock trader and he will confirm that.
In other words, these enormous bids or enormous offers are now becoming the NORM, instead of the exception. They are merely the symptoms of markets that are increasingly at the mercy of hedge fund computerized buying or selling.
There are those who keep pointing out that no one looking to maximize their selling price would ever sell in such a fashion as to overwhelm all the available bids. That is true - but the fatal flaw in their reasoning is that they erroneously ASSUME that the entities doing the selling are looking to maximize their selling price. They are not. Once the computers start selling, there is NO THINKING. The response just comes. It is all about pushing price in your favor.
It is one thing to note a series of large bids or offers. It is another thing to draw fanciful conclusions from them. The proper conclusion to draw is that computers have unalterably changed the nature of our markets. Traders either adapt or they lose money.
Here is another thing - why is it that there is never an OUTRAGE when gold experiences a REVERSE FLASH CRASH? Or is this outrage only reserved for trips south in the metal? How about the poor shorts who are "unfairly attacked by such nefarious and blatant attempts" to force prices higher so as to paint the charts to favor the positioning of those traders who are on the long side? ( Note - the internet does not allow for sarcasm to be easily observed).
The refuge for those on the losing side of a market is always the same: "But based on the fundamentals, the market OUGHT TO BE DOING SUCH AND SUCH". Guess what? When a market does not "DO SUCH AND SUCH" according to what one thinks it ought to be doing, it does not care about those things which the other side claims to be most important. That is the hardest thing to get many to understand. All that matters is what the price does. All of these things are already well known by market participants. If the price does not respond in the direction that some expect it to go based on such things, then the simple truth is that those things do not concern the MAJORITY of market participants at that time. That is not to say that at some point in the future sentiment or opinion regarding these things could shift. It is to say that they are not important until at some point they become important. Grasp this simple concept and you are well on your way to becoming a professional.
I hope you can see my point - it is one thing to attribute lower price moves in gold to the bullion banks during periods in which gold is sharply rising and the feds are attempting to contain it. It is yet another to blame nearly every single move lower in the metal on nefarious forces.
Here is yet the irony of this. All the hedge fund selling managed to do ( I am talking about the Flash Crashes ) was to provide an opportunity for JP Morgan to pick up the metal at an even better price. Out of the total of 4,469 deliveries issued thus far for December gold, JP Morgan's HOUSE ACCOUNT has stopped 4,194! This is not insignificant!
Keep in mind that we are now entering what I and many other professional traders term, "the Silly Season". By that I mean we are going to see liquidity begin to slowly decline as many traders will be closing out positions/squaring books, in anticipation of taking some time off for Christmas. Some will be out of the market next week and will not come back until the start of the New Year. The result of all this can be increased volatility with sometimes unpredictable and inexplicable swings in price as relatively large orders encounter air pockets both above and below the market.
Also, some of the commodity indices are increasing the percentage of gold and silver in their weightings for next year. That will bring in additional buying by those index funds who benchmark against those particular indices - more fuel for the Silly Season.
For you Silver guys and gals out there - the grey metal is holding above the $20 market and is no longer a Teenager". That is constructive but it has a lot of technical damage to undo before it is going to see any upside fireworks that endure. I need to see the metal scale the $21.25 barrier at a bare minimum before turning friendly towards it. It does seem to continue tracking quite closely with copper. By the way, Chinese data has been supporting copper recently.
The HUI is also digesting some of those big gains from yesterday. While not a technical level, I would like to see the index hold above the 200 mark, which is more of a psychological support level than anything. After all, we are talking a five year low here so keeping afloat above 200 would provide some consolation to the battered mining bulls.
As I type these comments, I am noticing Barrick is lower but well above the top of the huge gap on its daily price chart. As long as it holds that gap, the odds strongly favor a bottom in this stock. There is definitely some two way trade occurring in these mining shares now. That is a far cry from the one way trade that we have been seeing for a long time now. Goldcorp continues to reap some buying based off that recommended BUY from one of the analytical outfits yesterday.
I am noting something a bit peculiar at this time of the day - equities are lower ( almost 1% in the S&P), but long bond is also lower. Meanwhile the Dollar is also lower. That is certainly not the usual pattern we see. We rarely have seen all three of these markets down at the same time. Not sure what it might mean right now but it is certainly peculiar.
With the VIX shooting up above 15 once again, we would normally get some "safe haven" or risk aversion flows INTO TREASURIES and into the US DOLLAR. We are getting some of those flows into the Yen, which is the norm (even it is a ridiculously insane response ) but not into the Dollar. Again, I am not sure if this is a one day wonder tied more to position squaring or if it is the beginning of something more significant. I am inclined to believe it is more the former rather than the latter right now.
Bonds have come up off of their worst levels for the session but still remain lower as I type these comments meaning longer term interest rates are actually moving a wee bit higher even as the equities slide lower.
Some news in the livestock markets ( not actually market moving but interesting ). It appears that the growing number of drug resistant bacteria has caught the attention of the FDA. They are planning to now ask animal health companies and global drugmakers to voluntarily change the labeling on some widely used antibiotics which are routinely used in the industry. The idea is to bring such drugs under the oversight of veterinarians and do away with the over-the-counter use. Cargill just announced today that they have already been working to minimize the use of antiobiotics.
Another interesting tidbit of news today - EIA gave us some data that states the US demand for foreign oil was just 26.8% of the total demand of some 18.554 million barrels a day last week. That is the lowest level since February 1991! In 2005, foreign oil was a total of 60% of all US oil demand. This shale drilling has revolutionized the US oil picture and I am thrilled to see it. We are not even talking about federally owned lands either. Those remain largely shut to oil production.
Volume is mediocre at best indicating the rather quiet price action as neither side seems willing to make a big bet at this juncture. Thus we wait to see how events unfold.
If the market is going to make a run at $1290, it will have to manage to stay above $1260, preferable $1265 to indicate that. If it stalls out here I can see it dropping back towards $1245 or so in an attempt to either uncover buying or, if that fails, to press into some downside stops.
Here is a chart of the metal at noon, CST:
Some of the pressure today is related to the news overnight that a budget "deal" had been brokered here in the US. If such a deal were to be approved by a majority vote in the House first, ( It is a given that it will pass the Senate), then any concerns over another government shutdown/soap opera/drama will be averted. That removes a bit of the reason that some buy gold.
I cannot pass on the opportunity however to comment on something that occurred yesterday. As some of you know by now, early in yesterday's session, a series of large bids pushing gold higher resulted in a temporary halt in trading. For the sake of my sarcasm, I will henceforth refer to this as the
"REVERSE FLASH CRASH". And yes I am mocking those who were peddling this nonsense about the Flash Crash recently as evidence that evil forces were conspiring to beat up on poor ol' Yeller.
I pointed out then and will do so yet again, there was nothing the least bit sinister about these large sell orders. They are being generated by hedge funds who are completely unfamiliar with the concept of SCALE DOWN BUYING and SCALE UP SELLING. Only those of us who have been around these markets for a very long time remember these concepts. The modern hedge fund knows nothing about the concept of "finesse". They brutalize those markets in which they trade. Ask any soybean trader or livestock trader and he will confirm that.
In other words, these enormous bids or enormous offers are now becoming the NORM, instead of the exception. They are merely the symptoms of markets that are increasingly at the mercy of hedge fund computerized buying or selling.
There are those who keep pointing out that no one looking to maximize their selling price would ever sell in such a fashion as to overwhelm all the available bids. That is true - but the fatal flaw in their reasoning is that they erroneously ASSUME that the entities doing the selling are looking to maximize their selling price. They are not. Once the computers start selling, there is NO THINKING. The response just comes. It is all about pushing price in your favor.
It is one thing to note a series of large bids or offers. It is another thing to draw fanciful conclusions from them. The proper conclusion to draw is that computers have unalterably changed the nature of our markets. Traders either adapt or they lose money.
Here is another thing - why is it that there is never an OUTRAGE when gold experiences a REVERSE FLASH CRASH? Or is this outrage only reserved for trips south in the metal? How about the poor shorts who are "unfairly attacked by such nefarious and blatant attempts" to force prices higher so as to paint the charts to favor the positioning of those traders who are on the long side? ( Note - the internet does not allow for sarcasm to be easily observed).
The refuge for those on the losing side of a market is always the same: "But based on the fundamentals, the market OUGHT TO BE DOING SUCH AND SUCH". Guess what? When a market does not "DO SUCH AND SUCH" according to what one thinks it ought to be doing, it does not care about those things which the other side claims to be most important. That is the hardest thing to get many to understand. All that matters is what the price does. All of these things are already well known by market participants. If the price does not respond in the direction that some expect it to go based on such things, then the simple truth is that those things do not concern the MAJORITY of market participants at that time. That is not to say that at some point in the future sentiment or opinion regarding these things could shift. It is to say that they are not important until at some point they become important. Grasp this simple concept and you are well on your way to becoming a professional.
I hope you can see my point - it is one thing to attribute lower price moves in gold to the bullion banks during periods in which gold is sharply rising and the feds are attempting to contain it. It is yet another to blame nearly every single move lower in the metal on nefarious forces.
Here is yet the irony of this. All the hedge fund selling managed to do ( I am talking about the Flash Crashes ) was to provide an opportunity for JP Morgan to pick up the metal at an even better price. Out of the total of 4,469 deliveries issued thus far for December gold, JP Morgan's HOUSE ACCOUNT has stopped 4,194! This is not insignificant!
Keep in mind that we are now entering what I and many other professional traders term, "the Silly Season". By that I mean we are going to see liquidity begin to slowly decline as many traders will be closing out positions/squaring books, in anticipation of taking some time off for Christmas. Some will be out of the market next week and will not come back until the start of the New Year. The result of all this can be increased volatility with sometimes unpredictable and inexplicable swings in price as relatively large orders encounter air pockets both above and below the market.
Also, some of the commodity indices are increasing the percentage of gold and silver in their weightings for next year. That will bring in additional buying by those index funds who benchmark against those particular indices - more fuel for the Silly Season.
For you Silver guys and gals out there - the grey metal is holding above the $20 market and is no longer a Teenager". That is constructive but it has a lot of technical damage to undo before it is going to see any upside fireworks that endure. I need to see the metal scale the $21.25 barrier at a bare minimum before turning friendly towards it. It does seem to continue tracking quite closely with copper. By the way, Chinese data has been supporting copper recently.
The HUI is also digesting some of those big gains from yesterday. While not a technical level, I would like to see the index hold above the 200 mark, which is more of a psychological support level than anything. After all, we are talking a five year low here so keeping afloat above 200 would provide some consolation to the battered mining bulls.
As I type these comments, I am noticing Barrick is lower but well above the top of the huge gap on its daily price chart. As long as it holds that gap, the odds strongly favor a bottom in this stock. There is definitely some two way trade occurring in these mining shares now. That is a far cry from the one way trade that we have been seeing for a long time now. Goldcorp continues to reap some buying based off that recommended BUY from one of the analytical outfits yesterday.
I am noting something a bit peculiar at this time of the day - equities are lower ( almost 1% in the S&P), but long bond is also lower. Meanwhile the Dollar is also lower. That is certainly not the usual pattern we see. We rarely have seen all three of these markets down at the same time. Not sure what it might mean right now but it is certainly peculiar.
With the VIX shooting up above 15 once again, we would normally get some "safe haven" or risk aversion flows INTO TREASURIES and into the US DOLLAR. We are getting some of those flows into the Yen, which is the norm (even it is a ridiculously insane response ) but not into the Dollar. Again, I am not sure if this is a one day wonder tied more to position squaring or if it is the beginning of something more significant. I am inclined to believe it is more the former rather than the latter right now.
Bonds have come up off of their worst levels for the session but still remain lower as I type these comments meaning longer term interest rates are actually moving a wee bit higher even as the equities slide lower.
Some news in the livestock markets ( not actually market moving but interesting ). It appears that the growing number of drug resistant bacteria has caught the attention of the FDA. They are planning to now ask animal health companies and global drugmakers to voluntarily change the labeling on some widely used antibiotics which are routinely used in the industry. The idea is to bring such drugs under the oversight of veterinarians and do away with the over-the-counter use. Cargill just announced today that they have already been working to minimize the use of antiobiotics.
Another interesting tidbit of news today - EIA gave us some data that states the US demand for foreign oil was just 26.8% of the total demand of some 18.554 million barrels a day last week. That is the lowest level since February 1991! In 2005, foreign oil was a total of 60% of all US oil demand. This shale drilling has revolutionized the US oil picture and I am thrilled to see it. We are not even talking about federally owned lands either. Those remain largely shut to oil production.