Broad Based Selling Sweeping Markets this AM

Not only are equities being pummeled this morning, the commodity sector is also seeing heavy selling pressure. There are some individual markets within the sector that are managing to shrug off some of the selling pressure, ( coffee for instance - that doesn't count anyway since that market was set up by aliens to trap earthlings prior to whisking them away into outer space)  but overall, the entire sector is dropping sharply lower.

The GSCI just notched a brand new 5 month low  this morning, especially with the energy sector dropping as it has. Even the high flying cattle market has been unable thus far to resist the selling.

Once again, the safe havens are back on as the US Dollar and the Japanese Yen are higher with bonds pulling into plus territory after collapsing a full point earlier in the session.

End of month book squaring is further muddying the waters today.

The low reading for initial unemployment claims has spooked gold bulls who are worried that the upcoming payrolls numbers are going to come in stronger than expected. The thinking is that the Fed's hand is going to be forced to raise interest rates sooner rather than later. That remains to be seen but with the sharp drop in equities, that sort of talk is a bit premature. It does however underscore just how sensitive the gold market is to any talk of higher interest rates. Higher rates will act as a headwind to gold, which throws off no yield.

The US Dollar has not yet been able to convincingly push past 81.60 basis the USDX. If it does, look for more selling across the gold market especially with commodity prices heading lower, especially crude oil and its products.

It is going to be interesting to see whether or not the equities experience one of those famous last hour recoveries today.

Gold has fallen back below the 45 day moving average and looks to be setting up a test of the support zone noted on the chart near the $1280 level.

Crude oil lost its chart support this morning but thus far has managed to find a floor above the $98/barrel level. There looks to be some better defined support near 97.60 - 97.50. the ADX is rising but does not yet indicate a trending move. That suggests the market will find some support sooner rather than later. If the secondary support level does give way however, crude could retrace towards 96. That would put it at the lowest level since early February.

Strong GDP reading Fans Fears of Interest rate move from the Fed

Today's stronger than expected Q2 GDP number ( 4% compared to expectations of 3%) has ramped up selling in the longer dated section of the curve. The long bond is down over a full point as I type these comments. The Dollar is also benefitting, particularly against the Yen today, as forex traders are buying it and selling the rest of the majors. Talk has now shifted ( at least for today) firmly in favor of higher interest rates coming to the US before any of the other industrialized nations.

Take a look at the daily chart of the US Dollar ( USDX). Note that the greenback has run right into the zone of heavy chart resistance pictured on the chart. That resistance zone is a function of a downside gap made all the way back in September of last year. The gap has served to cap the Dollar's upward movement for nearly a year. Seeing it challenged today is therefore something that should not be ignored. If the Dollar can punch through this level on a closing basis today, and then repeat it tomorrow, we should see some additional buying come in.

The ADX is showing a decidedly bullish chart picture with the bulls firmly in control of the market. The indicator itself is above 30 and rising - evidence of a strong bullish trend. If that resistance zone does give way as noted above, this thing could turn into something stronger on the intermediate term charts. Above 81.60 there is resistance at 82 and again near 82.50.

Here is the chart of the long bond. It seems to have reached its zenith near the 139 level. Today's GDP number was simply too much for the market to extend any higher. We have a ceiling now at this level for the time being meaning it will take some sort of safe haven event to kick the ceiling down or some very bad economic news from somewhere. The indicator is turning down and getting ready to confirm the negative divergence that was created recently. We'll have to see whether the bonds are setting up a range trade or whether this is the start of a longer lasting downtrend. It is far too early to assert the latter with any dogmatism.

Copper is benefitting from the stronger GDP number.

Hog prices continue to reel from traders reassessing the overall impact from the dreaded PED virus. Record heavy weights are offsetting most, if not all, of the impact of the disease on the slaughter numbers. I mentioned repeatedly over the last few weeks for hog producers to get some hedge protection on expected Q4 and Q1 2015 production while record prices were being seen. I hope some of you hog producers out there took that to heart. I have similar concerns about the cattle at this point. Cattle producers are basking in record profits right now but these things do not last forever. Do not be penny wise and pound foolish. Get some hedges in place on expected future production while you can. Do not wait until you HAVE TO get the protection. Speculators - I am speaking to producers right now.

Bean prices are giving up the gains from their recent rally that was due to heat and dryness talk. Bulls talk that up every season so that is not new. The forecasts however are showing some rain entering the mid-West next week and with no searing hot temperatures anywhere in there, growing conditions remain very good for the majority of the crop. Yes, there are some areas where the crop deteriorated slightly ( I noted that on my Monday  take on the USDA Crop Conditions ratings) but those small pockets cannot detract from the fact that the majority of the crop is still in very good shape.

Look at what continues to happen in the overall commodity sector...

It is showing a loss on the year at this point. Simply put, those investing in commodities as an asset class this year, particularly those looking for inflationary pressures to show up, have been on the wrong side of the complex. Now of course that could change but the fact is that while overall economic growth globally has been okay, it has not been strong enough to power the sector higher. Demand is not there as it once was. We'll have to see if growth can pick up from current levels.

A stronger Dollar threatening to move into a sharper uptrend and falling commodity prices do not augur well for higher gold prices. As stated here yesterday, it is geopolitical events that are keeping gold above the $1280 level right now.

US Dollar Moving for a Test of Resistance

Since November of last year, the US Dollar has been thwarted from beginning any sort of upward trending move by the region near 81.50 on the USDX. It is once again moving towards a showdown with this critical chart region. Can the Greenback blast through and start a stronger trending move or will it merely bounce off and move lower once more? Stay tuned.

Seeing that the Euro comprises over half of the USDX, we are keeping a close eye on the currency. Ever since Draghi began his campaign of talking it down when it was near 1.40, the Euro has struggled to maintain any sort of bullish momentum for long. The reason has to do with interest rates - traders are convinced that the next move by the Fed in raising rates will be well ahead of any move by the ECB to raise rates in the Eurozone.  Simply put, while the Fed is talking about curbing monetary liquidity measures over here in the US, the conversation in the Euro zone has been whether to become more aggressive over monetary liquidity measures over there. Such sentiment favors the Dollar over the Euro.

The currency is approaching a psychological round number support zone near 1.340. Failing to hold here would set it up for a further drop down towards 1.330.

The ADX is above the key 30 level and is continuing to rise indicating the presence of a strong trending move lower at this time.

One has to wonder if gold would be able to hold $1280 should the Euro fall accelerate. In my view the only thing currently holding gold higher is geopolitical tension. Were it not for those events ( and who knows how all this is going to end) gold would be lower, especially with the Dollar strength we are witnessing. Those events should continue to bring some safe haven buying into the yellow metal for the time being which will work to mitigate any sharp drops in price that could occur.

Meanwhile, the commodity sector ( overall ) continues to display weakness. Falling crude oil prices ( it has been unable to break out above former resistance near $105), falling grain prices ( for today), and weakness in some of the softs and hogs, are pulling it lower. Silver is bucking the lower trend in commodities today for some reason. Frankly, I do not know why nor do I care. That metal tends to live it in its own little world. There might be some copper/silver spreads being unwound which is benefitting it today at the expense of copper.

Corn and Bean Ratings see Slight Decline

This afternoon's USDA Crop ratings showed a slight bit of deterioration in the crops this week. Coming from the incredible conditions that they have held for much of this growing season, it is not unexpected to see some slight degrading of the crop at this point. None of it is serious however.

Corn rated in the Good/Excellent category fell 1% to 75% from last week's 76% - hardly a devastating decline. The rating decline came not from the Excellent category which remains the same as the previous week at 22% but from the Good category which gave up 1% falling to 53% from last week's 54%. The Fair category remained the same at 19% while the Poor category rose that same 1% to 5% from 4% the previous week.

My viewing of the report shows that the big three ( the "I's" as I prefer to call them - Iowa, Illinois and Indiana ) actually improved this past week or remained the same. Iowa index increased to 109 from 108; Illinois increased to 112 from 111 while Indiana remained the same at 108. Minnesota actually improved as well to 103 from 102. Nebraska dropped a point to 107 from 108.

The slight overall deterioration in the total index seemed to come from Kansas which fell to 100 from 103 and from Wisconsin which fell to 106 from 108. For the purpose of repetition, a rating of "100" is normal. As you can see, most of the big producing states still have some outstanding corn crops at this point.

As far as crop progress goes, 78% of the corn crop is in the silking stage compared to 67% last year and the 5-year average of 75%. 17% of the crop is in the dough stage compared to a mere 8% at this time last year and the 5-year average of 16%.

Switching to soybeans, 71% of the crop is rating Good/Excellent compared to 73% last week. In the big three, the Illinois crop improved to 109 from 108; Indiana lost a point to 105 from 106 and Iowa remained the same at 107. Minnesota and Wisconsin remained the same as the previous week.

As with corn, Kansas saw some deterioration of the crop falling to 102 from last week's 104 reading. Nebraska and North Dakota each lost a point to 105 and 107 respectively.

As far as crop progress goes, 76% of the crop is blooming versus 62% last year and the 5-year average of 72%. 38% of the crop is setting pods compared to only 18% last year and the 5-year average of 31%. As you can clearly see, the bean crop remains well ahead of schedule, something which is a positive given the recent talk of drier weather ahead.

I am not sure how much of this is already in the market after today's 20+ cent gains in the beans. Weather forecasts at this stage will have much more of an impact on the bean market than the corn market although the trade will still prefer to see some timely rains. From what I can see of the longer range forecasts, I do not see any intense heat at this point. It does look dry for the next week but without any severe heat. That will allow for corn to finish up pollination without any undue stress at this juncture.

Bullish Cattle on Feed Report sends Cattle Futures Lower

Yes, you read that headline correctly - we do not call it the "Cattle on Fade" report for nothing. Cattle launched out of the session open on the heels of a bullish report indicating fewer cattle in cattle country than the market was originally expecting; however, in spite of the friendly report, futures could not hold their gains made early in the session as sellers began showing up.

Simply put, the supply shortage of cattle is not "new" news. We all have known about it for some time now. It is a given that we are going to be tight on supplies for a while into the future. What is also a given is the fact that many traders are doubting the ability of beef demand to sustain itself given the record high prices for beef. Any of you who do the shopping know full well what I am talking about if you have taken a recent trip to the meat counter.

After plunging earlier this month, cattle regained all of those losses and then some after beef prices continued working higher reaching new all-time highs day after day and surprising the trade. Apparently grocers have been able to move the stuff even after passing on the big jump in wholesale prices to the consumer. However, the market appears to be re-evaluating beef demand given the time of the year and the continued surge higher. At some point the consumer is going to balk at paying these kinds of prices. When they do, traders fear that cattle prices could take a dive.

This uptrend has been surprisingly strong however meaning that the volatility can be expected until one view or the other is confirmed.

Here is a look at the chart to note the price action. The uptrend remains very much intact but today's response to the bullish COF report is a warning sign.

Shifting gears to the grains, and particularly to the beans - Bulls are talking up increasing demand for beans, especially from China for the new marketing year, as reason that prices have fallen far enough for now. Also, the usual ( we get this talk every time, every year without fail ) hot, dry weather for August has some shorts covering positions and waiting and watching to see what the longer range forecasts might show for the upcoming month. Beans are typically made in August so any change to hot, dry weather will bring some weather premium back into the beans although my view is that they already have a weather premium in them at current levels. We'll see.

What is really at work here is the lack of aggressive selling the past few sessions, unlike that which we have seen over the last few weeks more than anything. Some consolidation is therefore due while the market adjusts to the new and lower price level to build some sort of base. Traders will be closely watching the weekly conditions report on Mondays as we move forward to see if there is indeed any weather-related stress for the beans or if it is just the usual chatter stirred up by the bulls to try to salvage what has been a horrible last few weeks for them. In actuality, some heat for the beans will be beneficial provided that we do not see any lack of rainfall extended out beyond more than a week or so.

My view is that foreign buyers of US beans are taking some JUST IN CASE, the forecasts change for the worst. They want to get some needs covered. We will be approaching harvest in the Southern part of the US very soon and that is going to bring some new crop supplies into the pipeline. If these foreign buyers get the sense that any weather scares are overblown, they will back away from the market and wait for lower prices.

Corn is being dragged higher by the beans if you want my honest opinion although bulls are talking increasing demand at these lower prices also. Short covering among speculators is behind today's gains.

Not much to say on gold - even with the slightly weaker dollar it is struggling to do much of anything. As said in previous posts - gold is boring right now and a waste of time until it decides to make a strong move in one direction or the other. For the time being it is just being run back and forth with no clear direction outside of the shortest of term charts.

Weak Chinese Demand news undercuts Gold

The Chinese trade group, China Gold Association, issued a report noting that total Chinese gold demand for the first half of 2014 fell by 136.91 tons to 569.45 metric tons. That is down 19% from the previous year same period.

It seems a dueling bit of data in the sense that while gold bar and gold coin demand fell off ( down 62% for the bars and 44% for the coins), gold jewelry and gold industrial demand picked up ( 11% increase in both of these categories).

The drop off was rather precipitous to the point that it had some questioning whether China would be able to remain in first place behind India in terms of total gold demand. We'll have to see about that however especially as concerns grow that India is not going to lift that import tariff on gold.

Either way, it was not good news for the friends of gold who need both China and India to remain very strong buyers in the face of what has been rather moribund Western-oriented investment demand. While the recent data from the giant gold ETF, GLD, has been positive, ( as it has shown increasing reported tonnage ), the fact remains that the total amount of gold in this particular ETF is up a mere 7 tons since the beginning of this year - not exactly a barn burning rate of increase especially given all the geopolitical tensions that have arisen thus far this year.

The news dropped gold back under psychological round number support at $1300. It also lost moving average support for the moment however the session is not over yet.

The ADX is falling indicating the lack of a clear trend although short term indicators are now pointing lower. We'll have to see how the metal handles the support zone near its old friend, the $1280 region, should prices dip that low. Gold bulls will not want to see it breach that level. Given the remaining geopolitical tensions, one would expect that level to hold it. If it did not, I am not sure what the bulls are going to be able to seize upon next to support their claim that higher prices are inevitable. The more talk of rising interest rates takes hold, the more headwinds gold will encounter.

It is going to take a severe undercutting of the US Dollar, a sharp rise in the commodity indices which have fallen rather sharply over the last three weeks and/or renewed geopolitical events to undergird this market and propel it sharply higher as some are hoping.  



by the way, as a side note - this is why I am personally disgusted whenever I read that claptrap that poses for analysis which is centered around permanently spinning ( read that as conjecture based on nothing of substance ) the COT reports for Gold to be perennially bullish no matter what the damned thing shows us. The COT is NOT THE HOLY GRAIL of trading and those who peddle subscriptions and newsletters claiming that they have some sort of esoteric insight into it which gives them a unique ability to predict future price action based upon their mystical interpretations of it are frauds. How is that for clarity?

As noted yesterday, sentiment can change so swiftly and so rapidly in today's markets that one had best be careful about being dogmatic about much of anything these days. Again, if trading were easy, if investing were simple, everyone who attempted it would be richer than Croesus. The truth is trading is an extremely trying profession which keeps those who are successful at it doing large amounts of research and spending long hours studying the actions of various markets in an attempt to understand what drives them. Wouldn't it be just peachy-keen if all one had to do was pull up a COT report and start loading up on positions in the market while they waited for their ship to come in!

Copper was marked up last evening on Chinese manufacturing data that showed greater than expected strength. It not only held that strength heading into New York, it added some. It looks as if the Chinese data outweighed the US new homes sales data. Copper looks as if it is headed for a test of strong overhead chart resistance beginning near $3.29 and extending to $3.31.

New Home sales data was out from the Commerce Department this AM noting a fall in June sales and a sharp downward revision to the May data. The June number was 406,000, down considerably from expectations of a 475,000 number. The big deal to the market was the downward May revision however. The previous number was 504,000. The new number was 442,000. That is significant to say the least!

Here's another tidbit from the data - the supply of new homes rose to 5.8 months at the end of last month. That was up from a 5.2 month supply at the end of April.

It is also interesting to note that the pace of sales varies considerably among the various states. Texas was big as it is having remarkably strong job growth while some other states are lagging.

Once again the data suggests an economic recovery that continues to be very slow.

I hope some of you hog producers out there took advantage of the rally to get some Q4 and Q1 2015 hedge coverage. If not, you missed a very good chance to lock in some of the best profits in a lifetime. You cattle guys might want to start thinking about doing the same on some expected production. Prices are high but they are not going to stay this high forever and the market will give little warning when it decides to turn. Prudence dictates taking some risk off of your table and locking in a portion of those profits for your ranch/operation.

I am noting that the S&P 500 notched yet another new all-time high. Simply amazing... Traders will tell you that nothing goes up forever but I am starting to wonder if the world has found an exception to that axiomatic truth.

More later... as time permits...

Thoughts on Wild Swings in Price

It is both amusing and saddening at the same time to read the continued comments from the perma bulls in the gold community who bemoan every sharp fall in gold as the work of some sinister force working to deliberately keep the price of their beloved yellow metal god from reaching its ordained higher price level. We have all seen it often enough to know it by now.

Never you mind that perceptions and sentiment shift nearly daily in our modern markets, especially during a time in which so many are unsure of what is coming our way next. Is it inflation? Is it deflation? Is the economy growing? Is it falling back into mediocrity? Are big foreign banks in danger of failing? Are they okay? Does China have too much debt? Is it nothing to be concerned about? Is the employment situation in the US improving? Is it mired in part time work? Are events in Ukraine serious dangers to world equity markets? Are they limited to the locale? I could go on and one but the reader no doubt gets the point already. Questions abound and answers are uncertain as players constantly repositioning themselves according to the perceived answers on any given day.

We witness these rapid shifts in perception not only on an almost daily basis, but also, in many commodity futures markets, in an intraday basis.

Computerized trading merely amplifies the shift as rapid fire orders, either to buy or to sell, overwhelm the orders on the other side. Huge buy orders gorge on the offers above the market in such speed that the market seems to catapult higher in a maddening frenzy only to give way with as much alacrity to the downside as avalanches of sell orders wipe out the pool of bids completely overwhelming the buy side of the market.

Back and forth it goes, where she stops nobody knows.

Take a look at the cattle market today. I have included a 15 minute chart to note the huge swings in price occurring within rather brief intervals during the session. Just looking at the chart does not capture the wild surges in emotion that result because the swings in price are so intense that the dollar extent of the movements can be enormous. Traders are more often than not unclear as to the "WHY" behind a sharp move in price and as a result, panic/fear/greed etc. soar as the players run here and there trying to protect themselves from ruin or to capture something that they "just know is the big one".

Early in the session the price moved from near 158 to 159.25 or so, a $500 move per single contract. Then price abruptly reversed dropping the equivalent of  LIMIT DOWN move as it fell 300 points off the high of the session in a matter of 45 minutes or so. IT then abruptly reversed higher moving nearly 200 points off the worst level of the session. The former down move is the equivalent of $1200 per contract while the latter is $800. Throw in 10, 20, 30, 40, 50 contracts or whatever, and you can see the extent to which losses can arise lashing, and slashing and mangling anyone of the wrong side.


As I have said many, many times here already, those who keep regaling us with this claptrap about "gold price smashes" and gold takedowns by the feds", etc., as if somehow gold is the only animal out there that experiences wild swings in price are merely displaying their ignorance of the nature of modern futures trading.

No one knows exactly when a large order is going to move prices higher or lower. What they do know however is that if they DO NOT REACT to it, they run the very real risk of getting steamrolled. One can argue for example, "Who in their right mind would sell so many cattle contracts in such large size that they are guaranteed to knock the price lower rather than being able to obtain the best possible price for those contracts that they are wishing to sell".

Does this mean that the price of cattle is being suppressed by sinister forces working at the behest of the government in order to keep the consumer happy with cheaper beef? Of course it does not. What it means is that the days of scale up selling programs or scale down buying programs have been replaced by "All-In" or "All-Out" computerized buys and sells. Hedge funds and other large speculators have moved primarily to technical based system trading. those few discretionary traders such as myself and some of my other companions are firmly in the minority in this new age.

Commercially oriented firms, who seek to hedge, understand ( or at least they should by now) that these antics by the large speculators and their computers provide them with big distortions in price at times due to the excessive nature of their buying and/or selling. They will not hesitate to take advantage of these distortions/opportunities  by selling large amounts of contracts if they feel prices are overextended to the top or buying large amounts if they feel price is undervalued based on their analysis of the market. Were it not for the actions of these commercial firms, there is no telling how whacky some of these markets could become if they were utterly at the mercy of the hedge funds and their computers.

I shudder to think what I would have to deal with as a trader if the markets were to become the arena of nothing but hedge funds. Those guys pay no attention to anything fundamental and what is even worse, they don't even care. If it moves, they chase it. It is that simple. If it stops moving, they get out and go the other direction.

By the way, on a slightly different note, have any of you readers out there who follow the Commitment of Traders reports but more particularly the breathless analysis that we are subject to nearly every Friday afternoon when those reports hit the internet, noticed how they are almost ceaselessly being spun as bullish for gold and silver. It is exactly like a "Head's - I win; Tail's - You lose" excerpt. Commercials are on the long side - wow - it's bullish. Commercials are on the short side but not as much as they were before - wow - it's bullish. Hedge funds are short - wow - it's a guaranteed short squeeze and is bullish. Hedge funds are buying - wow - they want to own gold again - it's bullish. Swap dealers are long - wow - it's bullish...etc, etc,. etc.

Moving only briefly to the grains - reports this AM of a big soymeal order and the usual chatter about heat in August sparked a round of serious short covering the beans. That pulled corn higher as well. Enough of this chatter was around that bulls were able to make use of it to spook some bears and take prices up. After the sharp fall in the price of beans over the three weeks, it was a given that at some point we would get a temporary bottom in this market. Maybe we got one today. Who knows? What we do know is that price stopped going lower today on ideas that beans and meal were cheap and that keep the sellers from being too aggressive. Bulls were then able to push price high enough to catch some upside stops. Looks like it back to watching weather forecasts once again.

The S&P 500 notched yet another brand new all-time high today. Absolutely nothing seems to faze this thing. Meanwhile the yield on the Ten Year is stuck below 2.5%. It is currently a tad lower today ( in spite of the higher equity markets) at 2.464%. The VIX is also lower. No fear anywhere once again it would seem in spite of the Gaza chaos and Ukraine.

The Dollar is a bit stronger and the Euro has now completed the second close below a significant chart support level. I will try to get some more up later with some charts if my schedule permits...

Euro Currency Breakdown

We have been watching the Euro closely here over the past few weeks and have noted that the 1.35 level has been a strong support zone on its price chart that has held the currency's downside for the last 8 months.

Today it broke through this strong level of support. As long as it held that zone, the range trade which had contained it was still intact. The top of the range was up between 1.39 - 1.40. The bottom was at or near 1.35.

From a technical analysis standpoint, the ideal price action would be a second close BELOW this 1.35 level to prove that today was not one of those many headfakes that we see more and more frequently in our markets these days.

The ADX is rising along with the -DMI ( Negative Directional Movement) indicating the bears are in control of this market and a trending move lower is looking more and more likely.

It all has come down to interest rate differentials. Traders are becoming convinced that the Fed is going to raise interest rates long before the Eurozone can even contemplate seeing them rise.

This sentiment is resulting in money flows into the Dollar at the expense of the European majors. Even the Yen gave way to the Dollar today.

This was a heavy weight for any further upward progress in gold especially with the overall commodity complex moving lower as evidenced by another move lower in the Goldman Sachs Commodity Index.

Were it not for the limit up move in cattle to new all time highs, and the resulting updraft that occurred in the hogs, the GSCI would have been even lower.

Simply put, the grain complex continues to sink under the weight of benign weather and increasing crop estimates, meaning that food costs can be expected to decline substantially later this year. While meat prices remain extremely high ( beef prices hit another all time high today) they will begin to back down as the year wears on.

Unleaded gasoline prices are still falling which is good news for the consumer. By the way, natural gas prices hit an 8 month low today for the same reason that the grains are sinking - benign weather means lower cooling demand.

 
Meanwhile the equity markets continue to shrug off one thing after another. Whether it be Ukraine, Gaza, Portuguese banks, whatever, they keep attracting buyers on dips in price as no money manager who expects to retain his clients wants to be out of this market.

How many times in recent past have you seen me put up a chart here noting a potential breakdown in the equity markets, especially the highly risk sensitive small caps as evidenced by the Russell 2000, only to see them mount a ferocious rally higher completely negating those short term negative chart signals?

Amazingly enough, the yield on the Ten Year continues to languish below the 2.7% level, even with stocks near all time highs. Real estate agents are overjoyed as their commission checks keep rolling in and piling up.

Equities remain the go-to game in town when it comes to catching and securing that much sought after entity known as "yield".

Until that changes, fighting the powerful stock market rally, except only for those who are ultra short term in their trading, is proving to be a fool's errand.

One could easily get the idea that there is not a single care in the world if all they did was observe the bond, stock and commodity markets. Falling food prices, falling gasoline prices, soaring 401K's and IRA's, cheap interest rates for home and land buyers.. hey - if we could just get those pesky red meat prices to come down sooner, this would be heaven for some!

Just look at the chart of the Ten Year Treasury... look at what has happened to its yield since January 1 of this year. It has worked lower and lower starting out near 3.03% and currently ending at 2.47. That is a larger than 50 basis point REDUCTION in rates all the while the chatter has grown that the Fed will increase rates sooner rather than later. Apparently the more one talks about them doing just that, the LOWER rates go.

Simply put, the market is not worried about inflation and until it is, no amount of our discussing this  version of the CPI index and that version of the PPI index or this doctored data or that doctored data is going to amount to a hill of beans.

Incidentally, crude oil failed at our old friend, the $105 level once again. I am closely monitoring that market to see whether or not it will retreat once more or decide to power higher.

Related to this, is the XLE; while it remains unable to breach its recent all time high, it seems to be holding together fairly well. If it can muster a strong close above 100.50 - 100.55, it should be able to retest its peak near 101.52. Several big names within the oil and gas sector remain near all time highs on their price charts. It is going to be interesting to observe their price action should crude oil move lower. Same goes for the opposite - namely, if crude goes higher.

Let me close this piece by moaning about the fact that we beef lovers are going to have to grin and bear it as we seek out some nice cuts for our bar-b-q smokers for a while longer yet. I always expected to get "sticker stock" from looking at the price of the new year car and truck models. I never expected to get it by looking at a package of hot dogs for Pete's sake!

Copper Market Signal Remains Unclear

In attempting to ascertain the overall strength of the global economy ( or at least what traders are thinking in regards to it) long time readers will understand that I prefer to monitor two key commodity markets, namely Copper and Crude Oil.

Of the two, crude oil tends to be a bit more elusive in nailing things down as it is much more liable to influences from geopolitical events which can distort its signal at times.

Copper tends to be more even-keeled and less likely to be as severely impacted by event-driven fluctuations in price.

I keep coming back to this amazing battle occurring in the Copper market which has been going on for some time now. It is a battle of the titans in my view - these titans being the large, well-capitalized speculative forces.

On the one hand we have the hedge funds. On the other hand we have the other large reportable traders.

Once again, they are at odds with each other on the future fortunes of copper.

Here is a look at the most recent Commitment of Traders chart detailing their positioning.

These two groups had recently been matching one another almost tit for tat. As the hedgies would pile onto the long side, the other large reportables were taking the other side of that same trade as they were positioning from the short side.

What this essentially translates to in the real world is that among the largest speculative forces in the market, there are two very distinct and sharply divergent opinions on which way the overall global economy is heading.

The hedge funds seem to favor improving growth, which is in line with the seemingly non-stop upward progress of the equity markets while the other large reportables favor a slowing of growth and a more deflationary looking environment as time moves forward. The view of the latter is aided by the overall fall in the various commodity indices such as the Goldman Sachs Commodity Index for example and the recently declining TIPS spread.

Here is a intermediate term view of the copper chart which provides a bit of a larger perspective on how copper prices are generally performing.

The initial view of the chart suggests that prices are in a gradual decline lower which began three years ago. Within that time span, there have been rallies upward in price but those have failed to hold and the market then resumed its DOWNWARD GRIND.

Over the last year, Copper prices have not been able to penetrate the resistance zone noted on the chart. That is near the $3.40 level. Three weeks ago, a sharp rally erupted ( noted on the chart by the ellipse) which looked as if the big bet by the hedge funds was going to finally pay off, but there was no follow through the next week. This past week saw the market retreat lower once again.

In looking over the particular indicator I have chosen to exhibit on the chart, the RSI, I am noting that it has been effectively capped near the 60 level for the last three years. In the third quarter of 2012 it managed to poke its head through that level but then quickly failed once again. As one can determine by the use of this particular indicator, copper has been in a grinding move lower as a market with strong internals will always trade above 60 on the RSI during rallies. Such is not the case with the metal.

Why I wanted to put this chart up and discuss it is because it is indicative of the great lack of certainty among traders when it comes to knowing what lies ahead for the global economy. Without a convincing change for the better in the chart pattern of this key industrial metal, it is doubtful that we will see economic growth overall exceeding current expectations. While there is no doubt that the easy money policies of the Western Central Banks have succeeded in preventing things from worsening and have allowed more borrowing ( and thus more growth) to occur, traders are unclear what is going to happen if interest rates rise in the near future. This uncertainty is what is contributing to the relatively stagnant trading pattern in copper.

For me to come around to the view that the global economy is actually picking up speed, I would want to see a confirmation in this chart pattern by seeing that resistance zone which is overhead give way. For now the bull forces and bear forces are stalemated ( remember - I am speaking of intermediate time periods, not daily movements) with neither side being able to get a clear cut advantage.

Shifting to crude oil- I do want to note the sharp liquidation that took place in the crude oil market coming off of that record net long side exposure by the hedge funds. You can see on the COT chart the plunge in their net long positions ( almost 100,000!).

Here is the resultant chart pattern in crude oil...

You can easily see the rapid fall in price  ($8.00 bbl) that their selling produced. The last three days of this week ( not reflected on the COT chart) saw the events in Ukraine and in Gaza send it back up. I would note however that Friday saw no upside followthrough from the sharp gains of Thursday. So far, the market has been unable to push through $104.

One last thing which I find interesting and it is related to the grains...

Take a look at the corn chart.

Even a novice could take one look at this chart and realize how bearish it has become. Yet if you look at the COT chart detailing the positioning of the hedge funds, ( and the other large reportables for that matter), you can see that both groups of the largest speculative traders in the market have been ON THE WRONG SIDE of this market since April. I find that utterly fascinating!

The hedge funds had built up a fairly sizeable net long position in April of this month, right about the time that prices began to collapse. Corn prices have fallen over $1.20/bushel since then and guess what? - they are still net long! They began building their net long position back in November of last year when prices were between $4.20 - $4.10 and they bought all the way to above $5.00. Price closed at $3.71 on Friday. Talk about losses! Yikes!

I have no idea what these guys are doing on the long side of the market when all of the techincals ( upon which their computer trades are based ) had all turned sour.

That being said, I find it hard to believe that now, while they are heading out of the door, that they are not going to move to the short side of this market, even after prices have fallen this low. If they do, and again, I have no way of knowing if they are indeed going to do so, there will remain considerable downside in this market.

Grains can be notorious for their sharp reversals which result from shifting weather forecasts but if the forecasts remain benign, the hedge funds have a lot more longs yet to liquidate even before they would end up on the short side of this market.

This is exactly what they did in the bean market.

Here is the COT chart for beans....

Since March of this year, the hedge funds have been bailing out of a very large long position they had built up in the bean market. This was fundamentally based around the concerns related to an extremely tight carryover. As ideas began to take hold of a large crop this year, prices began to move lower and that kicked off the round of long liquidation that merely gathered speed as the crop estimates grew larger.

Notice the sharp fall in price that has resulted!

Here is what is noteworthy, especially when one compares the positioning of the hedge funds in the soybean market against that of their position in the corn market. For the first time since 2011, the hedge funds are now NET SHORT in beans. It is not a large position, but it is one nonetheless. Traders will now be watching to see if they extend this position and begin to increase it significantly. If they do, beans have more downside.

Some of you might have noticed that I am not spending much time detailing gold these days. That is because I view gold trading in the current environment pretty much an enormous waste of time. It is being driven by geopolitical events. You tell me how the various geopolitical events will play out and I will tell you what gold will do next. The truth is I hate trading markets like that because they are too unpredictable. While the Gold ETF is showing some increase in gold holdings which is positive, a falling commodity index and a Dollar that is remaining relatively stable, are working to keep rallies in check. Also, any shift in sentiment in regards to higher interest rates coming will short circuit gold rallies.

For now, as long as traders are nervous about geopolitical events or for that matter, European banking problems, ( think Portugal ) gold will find buying support. Absent that I haven't a clue as to where it might go next and frankly I don't care. Until it shows some clear signs of a SUSTAINED MOVE in either direction, there are other ( and better ) fish to fry.

By the way, I will leave the reader with one last chart...

I am not expecting clothing prices to soar higher ( at least 100% cotton composition) any time soon...

Gold Continuing to Closely Track the TIPS spread

Here is an updated chart. Note how the pair is moving almost exactly in unison. As inflation expectations subside, gold prices move lower. As they increase, gold prices move higher.

Incidentally, for those tracking the Euro currency, it bounced off of support near that stubborn 1.35 level once again. I find that most remarkable given the more hawkish tone of the Fed of late in regards to interest rates and the continued lackluster performance of the overall Eurozone economy.

Euro Continues Closing in on Key Chart Support

Those of you who have been following this blog for a while should be familiar with my view that the currency world has been rather erratic of late. Many of the majors are in trading range market without any clearly defined trend.

The Euro is no exception. It has been contained in a range bounded by 1.370 on the top and 1.350 on the bottom for the last 6 weeks. It has begun moving lower towards the bottom of the range this week however and is setting up therefore for an important test.

I have felt that the European Monetary Authorities are not comfortable with the Euro near the 1.40 level in relation to the Dollar. That was made abundantly clear by Draghi's talking down of the currency in early May when he first broached the topic of lowering interest rates and potential forms of monetary stimulus that might be employed by the ECB to get the Eurozone economy moving.

Traders took their cue from him and responded by selling the unit. However, the bears have as of yet been unable to take it down below 1.35 for some time now. This level is once again proving to be a key chart level that should be monitored.

Neither of the indicators noted are near their respective oversold zones so IF (and this is unknown ) the Euro can break below that zone, it has the room to run down another full point initially and perhaps as low as 1.330. If it does, it will confirm a trending move as it will have broken out of its range trade.

Time will make it clear.

Downed Malaysia Airline Boeing 777 drops US Equities

How very tragic that so many innocent lives were taken in a moment. An otherwise routine flight turned into a horrible scene of death and devastation.

Equity markets reacted strongly lower with many investors fearing this incident could result in a flaring of tensions and an escalation of conflict on a larger scale. The jury is still out on that but it certainly introduces another new unknown and if it is one thing that markets hate, it is unknowns.

The old trading adage, "Sell first and ask questions later" was on display in full force in today's session.

Safe havens were in vogue as the Yen moved sharply higher and US bonds put on more than a full point with the Ten Year yield sinking to 2.475%. That is the lowest it has been at in six weeks.

I must say I am a bit disappointed in the gold price as the metal could not even stay above the $1320 level. With the backdrop of an Israeli ground operation against Hamas, and with this commercial airliner incident, one would think it would have garnered some more upside. Tomorrow is going to be an important day for the metal therefore. At least the HUI was very strong, a positive sign.

Take a look at the Russell 2000, again, a very good barometer of risk appetite among investors/traders.

The index closed below its 50 day moving average for the first time since early June.

The two particular indicators I have chosen to display are both in bearish modes as well confirming the move lower.

In looking at the chart I get the sense of a market trading in a broad range. It lacks the necessary momentum to get through the double top ( TOP of the RANGE) near 1220 but so far it has had enough buying to hold its support at the bottom of the range near 1080. Based on the chart pattern, and especially if events globally continue to unnerve investors for the short term, odds would seem to favor a move back down towards that support level once again.

The Russell could chop around in a range for some time. It does not have to necessarily either fall out of bed and collapse lower nor does it have to go rip roaring higher. Trading range markets can trip up a lot of traders as they tend to get bearish as price moves to the bottom of the range and bullish as it moves to the top. However, unless we get a clear breakout from either side of the range, odds favor a continuation of the consolidation pattern.

US Treasury Releases International Capital Flows Data for May 2014

This data, which is released once a month from the US Treasury Department, gives a fairly good sense of the appetite for Dollar denominated assets among Foreign investors and Foreign Central Banks.

It is dated however and one must remember that. Today's data is for the month of May so you can see it is not especially timely. However, it still has value in my opinion.

I am still eagerly waiting for the June data during which Treasury usually makes the adjustment from the country in which the Treasury transaction was completed to the country of origin.

In looking over the Major Foreign Holders of Treasuries data ( broken down by country), a couple of things stand out. First, China and Japan, the two largest holders of our debt, both INCREASED their holdings during the month of May.

China bought $7.7 billion worth while Japan bought $10.4 billion. Chinese holdings are down $26.4 billion from the same month last year. Japanese holdings on the other hand are up a staggering $116.4 billion from May 2013.

Belgium, the center of the so-called "conspiracy" ( among the gold perma bulls ) for surreptitious buying of US Treasuries unloaded $4 billion of the things. I guess someone forgot to tell them this month that they are supposed to be buying the Treasuries that the US Federal Reserve has stopped buying for its QE program. Remember, the theory is that the tapering has not actually stopped even though the Fed has announced that it has begun tapering and is slowing its purchases of US Treasuries. You see, the Treasury buying is really still going on. It is just being done through back channels using Belgium as the epicenter.

Sigh! It never does end does it with some of those folks.

Overall, there was a pretty healthy increase among all of the buyers for May. They increased their holdings of Treasuries to $5.976 trillion, up from $5.960 trillion in April. That is a $15.1 billion increase.

Compared to the same period last year ( May 2013), Treasury holdings are up $318 billion ( $5.976 to $5.658).  So much for the demise of the US Dollar.

Keep in mind that this particular data set is the "Holdings" data.

As far as the NET PURCHASES DATA goes, Total NET Foreign Purchases for May increased by $25 billion. That is a big improvement from the previous month ( April) when the number was a negative $13.589 billion. A negative number means foreign investors, official institutions, etc. were selling ( there was a net OUTFLOW of capital instead of a NET INFLOW).

NET PURCHASES of US equities showed another increase for May ( $10.78 billion). That comes on the heels of a net increase for April of nearly the same amount ( $10.19 billion). Foreign appetite for US stocks remains strong.

NET PURCHASES of US government agency debt jumped to $4.169 billion after falling the previous month by $2.082 billion.

The loser this month, among foreign investors, was US corporate debt. There were NET OUTFLOWS of $5.385 billion for May. That follows net outflows of $8.509 billion in April. This category is especially volatile however.

All in all, demand for US dollar denominated assets among foreign investors/institutions/official sector was strong in May.

One last thing for this set of comments - gold is moving higher today on news that the US has introduced a new set of sanctions against Russia over the Ukraine situation. Russia is not happy about it. Also, the escalation in tensions and the conflict over in Israel and the Gaza region with Hamas has fueled nervousness in stock markets and is bringing selling into equities, buying into bonds, and buying into gold. Gold is being driven of late by headlines.

It looks as if it might want to run up into the former resistance zone ( $1330- $1340). Geopolitical tensions have put a "13" handle in front of it and is offering psychological support.

You can look at the ADX and see the muddled mess on the chart. There is no clearly defined trend at the moment.

As I have been writing this, news has come out that a passenger plane has been downed over the Ukraine. That is really fueling the safe haven bids...We'll have to get the details on this as they come out.

Godzilla Destroys Tokyo

I thought that might be a catchy title because what happens across the markets, whenever we get one of these Fed Chair Testimony days, is more like what happens to Tokyo every time Godzilla goes on one of his rages.

Most people think they know what is going to be said and when the Fed Chair surprises or disappoints, then we get all sorts of market reactions.

The "surprise" today ( and I am hesitant to call it that) was that Janet Yellen and the rest of the Fed do not seem particularly worried about inflation. Ms. Yellen rightfully ( in my opinion ) pointed to the labor markets and the slack that remains in there. Frankly I wonder why anyone was the least bit surprised about that. It is widely known that while the labor markets are slowly, incrementally improving, they are anything but robust right now.

Also, take yet another look at the Goldman Sachs Commodity Index, which I have been keenly focusing on for the last week or so. It is plunging lower.

With the collapse in grain prices, and now with the crude oil complex surrendering much of its "geopolitical or fear" premium, energy prices are moving lower.

Those two big sectors have pulled the entire commodity index into negative territory on the year. With slack remaining in the labor markets and with sinking commodity prices, it is difficult to make the case that inflation is a serious concern.

This is what has concerned me about gold. It has moved higher recently solely based on geopolitical fears ( I am including the Portuguese bank situation in there) but as far as an inflation hedge, how can one argue that one needs to buy gold to protect against inflation right now when the commodity sector as a whole is moving lower? Those geopolitical events can provide support for the metal but once those events fade from traders' minds, then there is not much left to support these higher prices.

You can point to the Dollar but like so many of the major currencies right now, it is stuck in a range trade and is certainly not collapsing lower.

Some will buy gold as protection or a type of safe haven against falling equity prices but so far, stocks while they have bent, have not broken.

As to be expected on a day during which gold is falling in price, we will get the usual " someone is dumping huge quantities of gold" nonsense, as if somehow that is evidence that the feds are knocking the gold price lower,  but if the market perception, aided by the Fed Chairwoman, is that inflation is not a serious problem, then it is to be expected that gold would be sold off. If the entire commodity complex is moving lower, why not gold? We could all make the same breathless exclamation, "Someone is dumping huge quantities of crude oil on the market". Does that imply that some nefarious evildoer is working to depress the price of crude oil? Of course not!

These continuous, simplistic notions that pop up like mushrooms after a summer rain every single time gold makes a sharp move lower, do a huge disservice to objective market observers and betray a naivety that borders on ignorance. Markets are constantly in a state of flux and perceptions change daily, sometimes within the day. Why should we expect markets to be stagnant? That is what makes trading/investing so very challenging. Perceptions are constantly changing and we have to adjust to these changes if we are to be successful. One gets the idea in reading the stuff from some of the gold perma bull sites, that nothing ever changes in markets in regards to how players see things on any given day.

When markets change - good traders change. It is that simple.

Take a look at the weekly chart of corn and you will see what I mean when I speak of falling grain prices. Corn prices are at a near 4 year low. There is a good possibility that they could fall even further as it has now entered what was a former congestion zone back in 2010. The bottom of that zone is near $3.40.

This will have big implications for food costs as it will work to eventually bring down meat and poultry prices later this year and certainly by Q1 2015.

Crude fell below the psychologically important $100/bbl level today. It just so happens that this level coincides very closely to the 200 day moving average, a big technical level, so the downside breach of $100 is not only a psychological blow to this market, but it is also a big technical blow. Crude is currently holding in the first support zone noted. If it loses the lower edge of that and cannot recover it, it should fall another $1.00.

I will get some more up later on... it is a bit busy right now....

USDA Crop Conditions Ratings

USDA reports from the field are in for this week.

It might be hard to believe but the corn crop actually improved even more. Last week it was rated at 75% Good/Excellent. This week, that category increased to 76%. The improvement came at the expense of the Fair category which dropped 1 point to 19 from 20. That one point drop in the Fair ended up in the Excellent category which increased to 22% from 21%.

Improvements came in the Missouri crop. The big three, Iowa, Illinois and Indiana remained the same at a healthy 108, 111, and 108 on the ratings table with 100 considered normal.

34% of the crop is silking compared to last year's 15% and the 5 year average of 33%. The crop is way ahead of last year but right about on schedule.

On the soybean front, the percentage of the crop rated Good/Excellent remained the same at 72%. There was a 1% increase in the crop rated Excellent at 16% compared to last week's 15%. That came out of the Good category which dropped one percentage point to 56% from last week's 57%.

The Fair category lost 1% to the Poor category. 22% of the crop is rated Fair this week, down from 23% last week. 5% of the crop is rated Very Poor, up from 4% last week.

41% of the crop is now blooming, way ahead of last year's 24% and compared to the 5 year average of 37%. That earlier bloom period is important as it puts the crop a bit ahead of schedule meaning the current benign weather will keep it supported ahead of any potential heat/dryness issues that might arise in August.

There is a bit of chatter that this week's Polar Vortex (yes, you are reading that correctly) which is expected to hit the Mid-West later this week bringing unseasonably cool temperatures with it, might slow the crop down somewhat due to the lower overnight temps but I am not so sure about that. It takes soil a long time to cool off and a few days of cooler weather, along with sunshine I might add, is not going to impact soil temps all that much in my opinion. Mild day times temps will continue to eliminate any heat stress issues for these plants.

As far as the big three go, the Iowa bean crop improved to 106, the Illinois crop improved to 108 and the Indiana crop remained unchanged at 105.

Beans popped higher today on thoughts that possible hot/dry weather in August could crimp yields but that remains a ways off and thus far I have not seen any forecasts calling for that. What likely happened is that some shorts decided to book some profits after the market spiked up off its worst levels on Friday after the initial reaction to the bearish Supply and Demand report had run its course.

Corn and wheat got bumped higher as well on ideas that the sharp fall in prices would generate some commercial buying interest.

Switching gears here I am noticing that the gold miners ( HUI) is closing very near its low on the day. Ditto for the GDXJ which is down nearly 4.8% as I type up these comments.

The long bond is a tad weaker today. Expectations are that Yellen, speaking on the behalf of the Fed and not herself, will sound a bit more hawkish view on interest rates. Some of this was also a factor in the gold price drop today.

Some longs got nervous looking at the sharp spike in the number of NET LONGs among the hedge fund category. That number leapt from 51,280 the week of June 10 to last week's reading of 136,929. That is a significant increase in a mere three week period as it almost tripled.

We'll have to see whether or not gold can remain with a "13" handle in front of it. Much will depend on Yellen's testimony and obviously how the market reacts to that or how it interprets her comments.

I think people are coming around to the consensus that interest rate hikes are inevitable. No one seems to have the time nailed down however. That is what will be the focus.