"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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Friday, January 24, 2014

Market Response to Emerging Market issues Taking a Deflationary Tone

These credit/currency related crises that we have experienced since 2008 all have produced the same thing after the market begins to sift through the details - a DEFLATIONARY reaction.

By that I mean a rush into the relative safety of US Treasuries out of equities. The result is a drop in interest rates as investors seek return OF capital and not necessarily return ON capital.

In the process, the Japanese Yen has tended to be the recipient of inflows. I am still unclear as to why anyone would regard the Yen as a safe haven currency but I suspect it might have more to do with Yen carry trades being unwound which puts upward pressure on the funding currency as those trades are reversed.

The other thing which typically has happened is we get a spike higher in the Volatility Index or VIX. Here is a chart of what I prefer to call the Complacency Index. For those of you who might be newer to the markets, this index measures investor sentiment in general (derived from option premiums). When it is rising, it indicates investor unease/discomfort/concern with current events. When it is soaring it indicates downright fear/panic. When it is falling or flatlining it reflects complacency/ease/lack of concern/confidence.


To provide you with a better longer term perspective - I am also adding this weekly chart. Note that the current spike upward does not seem to be much when viewed in this light does it?


I am also noticing that commodities in general ( there are some exceptions ) are weak today especially as the US Dollar has actually worked up off its session lows and moved into positive territory. Yesterday the Euro was seen as a safer place to park money than the US Dollar - that has completely reversed today. ECB President Draghi's comments are certainly not helping the Euro especially when he stated that while the economy is recovering, risks on the downside remain and unemployment remains very high. Not exactly a full-throated endorsement of confidence is it?

Copper, another key benchmark, is also lower today. This late session recovery in the US Dollar and further downward movement in equities is actually bringing deflation fears back to traders' minds and as those fears strengthen ( at least for this immediate moment) gold is fading lower along with silver and copper and the other metals.

24 comments:

  1. Get ready for the wild ride!

    ReplyDelete
  2. Probably time to short Natural Gas, Cattle Futures, Gold, etc.

    Another "Trade of a Lifetime" as Yellen, Draghi, Abe are most certainly going to crank up more money printing in response to emerging markets blowing out, and more printing leads to a stronger dollar and crashing commodity prices.

    Anyone here want to load up on UGAZ, UNG, GLD, GDX short?

    ReplyDelete
    Replies
    1. Mark

      Please share the size of your short position on those items.

      Walk the talk

      Delete
    2. "Time to short Nat Gas...." The weather, reserves might have something to say about that.

      Delete
  3. Dan: Your analysis is on the mark.
    Bernanke ( like Maestro Greenspan ) is praying that the seas look calm till he retires soon.

    ReplyDelete
  4. Mark,
    Gold is about rally very strongly near term. I don't think that it's made the final bottom but it is very oversold. As money exits the stock market some will enter gold. February will be a very ugly month for stocks. Btw Mark, Netflix is ripping but this is the blow off. I'd short Netflix if I was you.

    ReplyDelete
  5. AAPL, PCLN, AMZN, NFLX unfazed by all this turmoil as usual.

    Commodities and commodity country currencies destroyed at the first sign of crisis and contagion.

    Everyone flees to the safety of U.S. Treasuries and Muni-Bonds as usual.

    "Paper" once again is the paragon of safety during a crisis period when money printing is the highest, LOL!!!

    Simply amazing.

    ReplyDelete
  6. I am not sure how credible this Andrew Maguire is, but if he is even half right, then Gold should be on its way to $1300+ per oz. The Indians have already been paying a premium of $150 and/or 10% customs duty over the spot price.

    http://kingworldnews.com/kingworldnews/KWN_DailyWeb/Entries/2014/1/24_Maguire_-_Stunning_Physical_Gold_Buying_Terrifies_Shorts.html

    ReplyDelete
    Replies
    1. Mr. Wolf,

      If you want to see how credible Andrew is, listen to his archived interviews and then look at the gold charts following those interviews.

      Delete
    2. Can you please summarize if he is worth listening to ; I am busy like hell today but may find the time tomorrow.

      Delete
    3. I would not buy/sell anything based on his past performance. He's one of those "gold is always manipulated " and "it should go up no matter what" crowd. My opinion only.

      Delete
    4. Jasper/ Abraxas: Tks; it appears that whole King club is a bunch of hype artists; always caling for the end of the world. I must add that there are some credible folk ( like Dan, Art Cashin, Mauldin)who lend their credibility to KWN, which baffles me a little. I guess ego can be a motivational driver.

      Was a good week for me re: Gold and Gold stocks but I will admit I sold half of all my GLD and gold stocks ( IAG, KGC, SA) on Thu since I began to see some non-confirmations between GLD and GDX/GDXJ and another important non-confirmation between GLD and SLV. Everthing is not yet 100% aligned for Gold. Things are not in sync. I made a mistake earlier today selling morning my SDS and TVIX positions much too soon. I did not foresee SP500 breaking the 1800 level; in any case one cannot be too greedy. Only very lucky people and liars can pick tops and bottoms. HOWEVER GOLD DID ACCOMPLISH A MAJOR FEAT THIS WEEK IN CLOSING ABOVE 1265-67 GIVE OR TAKE. GOLDS SHORTS WILL NOT HAVE A RESTFUL WEEKEND

      Delete
  7. He is not worth listening to....

    ReplyDelete
  8. http://www.zerohedge.com/news/2014-01-24/jpmorgans-gold-vault-has-biggest-one-day-withdrawal-ever

    ReplyDelete
  9. Copper still a "basic" descending triangle.
    Though silver's support at 19 $ seems to hold, as it is partially correlated to copper, I'd be careful before going long on that metal as long as copper remains within this triangle.

    http://i44.tinypic.com/15wbi4p.jpg

    ReplyDelete
    Replies
    1. Zoom in the daily time unit.
      Copper managed to go hit very briefly the median of the blue pitchfork, to make Andrews happy, then went back under the weekly resistance in grey (descending triangle area of resistance).
      I'll be interested to see what happens in the vicinity of the mlh inf of the pitchfork, near 3.25 $. Will the pitchfork hold?

      http://i39.tinypic.com/erh1kw.jpg

      On the SP500, despite the more impressive daily red candle, SP seems in a hurry to test its real support on the longer time unit, i.e imho 1780, also the ema15 weekly. That's where I'll be quite interested to see if SP will bounce on that support, as that's probably where the bulls will regroup their forces under Mark's flag.
      Mark, are you still long SP500? :)
      Have a nice weekend,

      http://i43.tinypic.com/29yjtko.jpg


      Delete
    2. Last chart about SP.
      If the recent tops were to be the real and final top of this uptrend move from under 700 $, well...the Fibonacci retracement levels would beautifully coincide with supports and resistances on the way up.
      A coincidence?
      Maybe... :) let's say that if 1780 fails to hold, the 23% retracement level of that move is at 1576. The 38% will be at 1402 $.
      Can I imagine a retracement of 38% of the whole uptrend move, technically speaking? Yes... :)

      So I'm watching 1780 carefully.

      http://i43.tinypic.com/23ics5l.jpg

      Delete
  10. Gold was weak today (even though it was up), I expected more follow through after breaking through $1260. Looks like gold is waiting for the Fed meeting before deciding which way to go.

    ReplyDelete
    Replies
    1. Yes John, it seems that all of the markets are waiting for the verdict from the masters of the Universe. The markets are "free" insomuch they are free to react to the FED decisions.

      Delete
    2. I'd rather say it looks like gold is working its way through a heavy area of resistance between 1260-1270. It is therefore imho normal that it is being slowed down. The fact that we worked through the upper level, up to 1274, and that we closed near the top of the day, is not bad. But we are still just below the top level of that resistance, with the ma20 weekly right there, for example.
      Still, gold is now nearly 100 $ above it's lows.

      Delete
  11. Good morning,
    Here is an update of my charts regarding gold, daily and weekly.

    http://i40.tinypic.com/dmr9ci.jpg

    - Weekly time unit.
    So far, so good. We are now working the upper area of the resistance (the grey downards resistance is about to be broken, but we are still too close from it and still under the ma20 weekly. Next week is going to be quite important to confirm that we broke that level.
    Also, the MACD just broke through its propagation axis, which was linking 3 previous tops. Not bad.
    Also, both CDURS have been going up since beginning of the year, and their synchronization is pushing prices up as well. As long as they keep well oriented, it's another help for prices.
    My target on this price unit is : 1330 $, i.e the first level of retracement of Fibonacci, pretty close now from the upper bollinger band of this time unit and the mlh sup of the red pitchfork which gives a trend to this move.
    So, unless something new comes, my first target is 1330 $ on the weekly time unit. It's a target. Not a forecast.

    - Daily time unit.
    That's the time unit which allowed me twice to go long.
    Prices have bounced twice on the ma20 daily, which is very good, as it is now going up, so, we have a nice support zone to follow. The bollinger bands are both going up, good as well.
    More important : for the first time since long, prices didn't respond to the CDUR going down in its cycle. It means that the downtrend is clearly losing strength. Prices do not follow the cycle down on the Cdur anymore. Let's watch what happens to them when CDUR goes up. If they don't answer either, there won't be an exploitable trend on that time unit, prices will be drifting.
    Now we can see that we are still in the danger zone with this blue horizontal neckline near the 1270 level. Beginning of next week will be quite important.

    ReplyDelete
  12. Thanks Hubert, how significant is this 1267-1270 level?

    Things appear to be aligning quite nicely with gold, do you think silver will follow next week?

    ReplyDelete
    Replies
    1. Hi lids,
      I'm not sure gold will have enough thrust to keep going up early next week. If not, it will still be capped by its downwards weekly ma20, so the battle will still be on between the upwards daily time unit and its short term supports, and the main obstacle weekly now i.e ma20.
      But at least we will start most probably the week above the downtrend grey channel, which is pretty good : from resistance, it may become a support as well.
      So I'm still unsure where gold will be headed next week, but I'll be watching those levels :
      - weekly ma20
      - daily ma20
      - middle of daily upwards marubozu of last week, around 1250.

      For silver, there is a resistance above around 20.50 $.
      To motivate me to go long silver long-term, I want to see silver break above 20.50 (or go back to 19.00 once more and steadily stubbornly hold and bounce there, with a close stop loss if I go long).
      I don't like to go long silver now with a support at 19 $ and a resistance at 20.50. It's not very good in terms of risk/reward ratio.

      Delete

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