"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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Thursday, July 10, 2014

Economic Jitters out of Europe, Geopolitical events supporting gold

Iraq turmoil; Portugal turmoil; Israel turmoil; Ukraine turmoil - add them all together and you get a higher gold price. The flip side is lower equities. Translation - safe havens plays are in vogue. How do we know this? If you guessed the Japanese Yen is trading higher, go to the head of the class.

I will have to keep these comments brief as I have my hands full with the livestock markets today. For now, something that stands out to me is continued weakness across the commodity indices such as the Goldman Sachs Commodity Index.


Look at the plunge across the sector. The index is now at a three month low. Oddly enough, copper prices are firm today. I have no explanation for that one. This is spite of the fact that the dollar is benefitting from fears arising around the Portugal situation which has undercut the Euro.

My grain index hit a 31 month low today. By the way, both the October cattle and the October hog contract hit limit down today during the session although neither remained there.


I bring this up because based on the general fall in commodity prices that we are seeing, I remain somewhat cautious about the lasting ability of the current gold rally. The charts are very much improved on gold however and for now, that is all that matters.

Gold has managed to clear overhead resistance noted on the chart, a level which had successfully stymied it for almost three weeks now. The next level that it should have to contend with begins up near $1355 and extends just past the $1360 level. There is some light resistance showing up near $1340.


One of the indicators that I use reflects some negative or bearish divergence, suggesting upward momentum is waning but that is not unusual to see when a market has been trading sideways around a resistance zone as gold has been doing. I am monitoring it however as I would prefer to see it confirm the move higher by pushing to a fresh peak, or at the very least, reaching the previous peak reading.

The ADX continues to rise but remains below 30, a level that I generally look for when attempting to see whether markets have entered a trending phase. I get the distinct impression when watching the price action that this move is one being driven by shorts who are reluctantly exiting their positions ( buying them back). As of yet, based on the volume readings and general price action, there still looks like there remains a great number of skeptics about the current rally. The push through $1334 this morning nailed the overhead buy stops and fired them off generating a great deal of activity but since the time that those stops were taken out, volume has been lackluster.

Bulls have a good shot here at generating some further excitement if they can reach $1360 and surmount it. They might be able to pull this off if the notion that the shaky conditions existing in that bank in Portugal (Banco Espirito Santo) are going to spread further among other European-based banks and possibly precipitate some sort of bond buying program by the ECB.

Euro gold in particular seems very strong as a result of this thinking ( call it contagion fears). It is right into the resistance level noted on the chart near 985 and looks strong. Depending on how things go over in the Eurozone, it looks well-positioned for a try at 1000 Euro. That is a big psychological number.

I should also note here that the big gold ETF, GLD, reported holdings at 800 tons yesterday. That is very promising as one wants to see this key sentiment indicator moving upside along rising gold prices.


The junior miners as evidenced by the GDXJ look strong on the charts as they gapped above resistance this morning which is bullish but have encountered nothing but selling pressure since. If this index can close through 46, it would portend a push towards the next level of resistance near 48.



There is a type of flag formation on the chart ( It is not a classic one but similar) which suggests as a potential target a move all the way to the 52 level. Obviously bulls would need to clear 48 for a shot at that. The recent consolidation that occurred the last two weeks of June looks healthy in hindsight as the run higher was too far, too fast prior to that. Traders wanted to take a breather and survey the scene before getting too aggressive. Once again they are now into an area on the charts where it looks as if they want to pause once more. We'll see what we get to end the session today but especially to end the week tomorrow.


We have a big USDA report due out at 11:00AM CDT tomorrow which could send some further excitement into the grain markets. I will get some info on that report up sometime tomorrow. Grains have been anticipating a bearish report heading into the release. One thing I can tell you with certainty, livestock producers are very happy right now with these lower input costs. So too are the poultry guys, although rooster fertility issues are being noted through that industry.

Crude Oil, which succumbed to that long liquidation that some of us were concerned about, looks like it might be trying to find its footing down here. The jury is still out on that however but it is holding together pretty well after the recent beating it has taken.

13 comments:

  1. Thanks Dan,
    I'm reading all your comments though I'm not trading most commodity markets...but I may extend my range soon to soybeans, corn and other "exotic" markets (exotic for me :)) soon thanks to your posts.
    Have a great week,

    ReplyDelete
    Replies
    1. Hubert;

      You're welcome bon ami'.

      Just be forewarned, if you start trading soybeans, they make gold trading look like watching paint dry by comparison!

      Also be prepared to become a weather watching junkie.

      Livestock are even worse!

      Crude oil can be decent to trade although you have to watch for geopolitical events much as you do for gold.

      Have a great day ( or is it evening)!

      Delete
  2. yep great stuff Dan!

    the stock markets with so many indexes making all time highs recently, well they won't give up easily.

    today was a 'holy grail' trade in NQ (or NDX).. the grail was in the raschke book, and it's a retrace to the 20-period moving ave when adx is greater than 30 (indicating a strong trend).. the NQ had adx of 38 and the 20-DMA at 3828, wow a perfect grail long as it turned out thus far. goal of the grail is a retest of the high (or low if downtrending).

    ES did not have the 30 adx, but held the 20-DMA in conjunction with the former all time high of june 9th at 1947.25. classic stuff :)

    interesting the RUT holding the 50-DMA lookn 'hammer' and USO and outside day up thus far at 50-DMA..

    i wouldn't be short oil down here off the USO look and it's oversold, and grains i'm lookn for reversal trades off usda 11CT manana. novy beans that 1088 is a good goal (the jan low), and corn-wheat just need a new low on low volume and 'spring back' above to try the long side.

    cheers!

    ReplyDelete
  3. Horrific Collapse in GDX into the closing bell, while gold has barely sold off.

    Watch out!!!

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  4. The question for Gold is will technical factors outweigh and overpower Everything else when geopolitical turmoil subsides...

    ReplyDelete
    Replies
    1. it may not subside, it may get worse.

      Delete
  5. Talk about miners turning on a dime while energy held a bit better, could be from armstrongs bullish crude outlook yesterday.

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  6. Junior Gold and Silver stocks getting killed today. FSM, SAND, MUX, JNUG. What do the sellers know or think they know??? Or big profit taking? I would think they would hold after making a key technical move recently...http://tradermc.com/miners-metals-jul-9/

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    Replies
    1. With natural gas tickling its lowered end resistance and gdxj tickling upper end moving into the hotter period of summer i can see the head fake here

      Delete
  7. Dan,
    With soft commodities getting killed the last few days. Why is COW the livestock etf down today so strongly. Shouldn't cheaper feed be good for them? Or is just because it is a etf and thinly traded? Thanks.

    ReplyDelete
    Replies
    1. Concord;

      I told the reporters from Reuters today that what is going on is fears of high priced beef choking off consumer demand as we head into the summer. Fund selling kicked in when key moving averages were taken out and those guys don't ask questions - whether they are buying or selling - their machines just take over.

      Livestock markets have been incredibly volatile this week. Very demanding on we traders because they are flipping back and forth in violent waves on an intraday basis.

      Cheaper feed is generally considered good for livestock producers but bearish for the complex in general because it encourages production expansion although any expansion from cheap feed will not be felt for some time.

      The key for beef is whether consumers can afford to eat the stuff at current levels. I through a brisket on the pit smoker for some friends over the July4th holiday and paid almost $50 for the thing!

      Delete
    2. Dan thanks for analysis and the comments on cattle. I guess the old adage of "the best cure for high prices is high prices" applies even to beef?

      Delete

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