"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

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Tuesday, July 22, 2014

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!





31 comments:

  1. Trade? Just invest in smokes and take it to the Beach...

    http://www.fool.com/investing/general/2014/07/18/i-prefer-to-keep-things-simple.aspx

    ReplyDelete
  2. Apologies for ever-so-slightly hijacking the current thread, but I have just stumbled across an article which is either a highly-sophisticated spoof, or a Case Study in all that is wrong with the speculative froth in the precious metals sector.

    May I first refresh your memory on the concept of the "Thought-terminating Cliche" - http://en.wikipedia.org/wiki/Thought_Reform_and_the_Psychology_of_Totalism#Thought-terminating_clich.C3.A9 and Aldous Huxley's reference to its use to dumb-down people's capacity for independent thought: his specific example was the use of the nonsensical phrase "A doctor a day keeps the jim-jams away"

    Turn then, if you will, to http://www.24hgold.com/english/news-gold-silver-sean-rakhimov-upward-trend-a-silver-investor-s-friend.aspx?article=5652702138H11690&redirect=false&contributor=The+Gold+Report&mk=1 where we are reassuringly informed that "Upward Trend [is] a Silver Investor's Friend " which is surely a carbon copy of Huxley (and of course skips neatly over the slightly awkward question of whether this is in fact any such trend)

    Trend? Who needs a trend? When asked " Is there a telltale sign that shows investors that this upturn is real?" the author replies that "There isn't one that I use. It's more of a gut feeling" and, hey presto!, we are back in the Land of Faith-based investing. "What makes silver special? ......... If there is one adjective to describe silver, it's "indispensable." so presumably its time to go long on air and drinking water too (both of which - despite centrifugal forces from the earth's rotation - have shown a annoying reluctance to "Go to da Moon" and are therefore probably manipulated)

    The only surprising thing is that this kind of vacuous nonsense still takes my breath away - who is Sean Rakhimov, and why does anyone pay any attention to such fools? (Presumably somebody does, or they wouldn't run these articles). And the closing shot? - please, somebody, help me understand what if anything this statement is supposed to add to the store of human wisdom: If silver were oil, people would have some definite ideas about why it is important. I don't think silver has that characteristic due to its recent history. That fools people into thinking that silver is not a good option, even when it is. Silver's stigma as gold's poor cousin may well morph into gold's "better" cousin over time due to its vastly superior industrial utility.

    /RANT

    ReplyDelete
    Replies
    1. Zhang;

      Thanks for an absolutely hilarious post! You have a skill of using words like a rapier my friend!

      that quip about air and drinking water was simply a classic.

      Hey, this guy you are quoting is obviously one that wonders why the rest of mankind are not as brilliant as he is, for if only they were, they too would instinctively possess the same gut feeling.

      If I were him however I would lay off the anchovies on my next order of pizza because that is where the gut feeling is probably coming from.

      Delete
    2. Zhang
      As an engineer and linear thinker I look for connected logical statements when reading.

      Those you quote avoid this and rely on inference and emotion.

      That's sufficient for me to doubt them.

      Delete
  3. Dan - in terms of the broader commodity index do you see oil and gas having a secular rally from other commodities due to the geopolitical tensions in oil regions i.e:

    1. Syria, Iraq & Iran
    2.China vs neighbors
    3. Cold war mounting Russia vs West
    4. Africa
    5.Argentina & Falkland Islands

    Could this be why XLE is actually holding up well in addition to being oil/gas equities based?

    ReplyDelete
    Replies
    1. Prophet Elijah;
      I have always had a difficult time trying to pin down just how much "geopolitical premium" is in the price of crude oil. Also, WTI is a different animal from Brent crude so that adds another element.

      In years past, we mainly were worried about tensions in the middle East when it came to crude oil worries and that was because anything that might serve to disrupt oil production among some of the key OPEC producers in that region or anything that might impact the shipping routes through the Straits of Hormuz came onto our radar screen.

      Growing US oil shale production can alter that somewhat because the more US oil demand that is met internally by our own production, the less WTI is directly impacted by that sort of thing. It still is - do not get me wrong but nowadays Brent will react more strongly simply because it is more representative of world oil prices than WTI.

      I said all that to say that I simply do not know. Trying to look at the EIA data as a way to gauge demand for physical and separating out speculative demand tied to geopolitical events or inflation concerns is something I am not skilled enough at. I just prefer to monitor the price action and reaction to various news and then let the chart dictate what I think it might do as we move forward.

      Sorry I cannot be of any more help./

      Delete
  4. A few days ago, in the immediate aftermath of the MH-17 incident, I wrote that I was hesitant about accepting the apparent coincidence that Malaysian Airlines was involved in two sequential contentious incidents in short succession, and I noted that the Malaysian's conduct of the investigation into the first incident had been at best haphazard. In my mind, someone, somewhere knows that the Malaysians - and MAS is 70% state owned - are not going to be too methodical in their investigations, and this is a lever which can be used to some effect

    Yesterday - despite a spoof video "proving" that the Ukranian separatists were under direct instructions from the Kremlin to send the black boxes to Moscow - the flight recorders were handed over to the Malaysians: http://www.straitstimes.com/news/asia/south-east-asia/story/malaysia-airlines-mh17-crash-kl-says-hand-over-black-boxes-internati

    “The Malaysian team have taken custody of the black boxes, which appear to be in good condition,” Prime Minister Najib Razak said in a statement, referring to officials sent to Ukraine in the aftermath of the disaster. “They will be held securely in Malaysian custody while the international investigation team is being formalised,” he said. “At that time, we will pass the black boxes to the international investigation team for further analysis.”

    Now, this would be the same International Investigation Team as stipulated by the UN Security Council, right? http://www.un.org/apps/news/story.asp?NewsID=48303

    WRONG! - Less than 24 hours later we find that the Malaysians have handed the recorders over to the Dutch, who will now hand them over to the UK, who will hand the information contained in them over to the Ukranian junta http://www.bbc.com/news/uk-28424115

    I am British - and proudly so - and so what is the concern; surely, the labs at Farnborough (from where the Russians were excluded earlier this month http://www.straitstimes.com/news/asia/south-east-asia/story/malaysia-airlines-mh17-crash-kl-says-hand-over-black-boxes-internati ) are amongst the best in the World? The only other one is in France (which, of course, is selling warships to the Russians, so that is not going to work). Why am I troubled?

    Because, at precisely the same moment as this announcement, the British government is making statements like these :

    http://www.huffingtonpost.co.uk/2014/07/20/malaysia-airlines-mh17-russia_n_5603109.html

    http://www.dailymail.co.uk/news/article-2698917/It-time-stop-appeasing-Putin-resolve-Cameron-Hammond-warns-EU-veiled-dig-Merkel.html


    which are hardly indicative of a neutral and objective stance, but suggest deep prejudice and a determination to "stick it to the Russians". This is surely not the independent crash investigation commission which the UN called for, led by the ICAO? What is the West trying to hide, why the conspicuous urgency in shuffling the flight recorders from hand to hand?

    Two further things really concern me: firstly, why is there no clamour for the radar records and Air Traffic Control voice recordings to be released? Secondly, I believe there is something that absolutely stinks about the second coincidence that both the Youtube video allegedly recording a conversation between the separatists and the Russians, AND the BBC news article "What we know" bore time-stamps of 16th July, when the incident only occurred a day later on 17th. Both have of course now been taken down, but I saw both with my own eyes, and the whole set-up stinks of a set-up

    We may never find out the truth about this incident, but I cannot for the life of me accept the urgent and reflexive version of events being pumped by the West; whoever caused this outrageous tragedy, since it's occurrence the separatists and Russia have conducted themselves with clean hands, whilst the Malaysians have heeded whatever Master is pulling their strings, and NATO now holds all the critical evidence

    ReplyDelete
    Replies
    1. The first chasulty of war is truth.

      Politicians are professional liers. If he is talking he is lieing.

      Just MHO.

      Delete
    2. Absolutely right Mike, if their lips are moving, they are lying.

      Delete
  5. This comment has been removed by the author.

    ReplyDelete
  6. Well, today we have another example of indisputable truth:

    1) Printing more money means lower commodity prices

    2) Printing more money means higher currency prices

    3) Printing more money means lower interest rates

    4) Printing more money results in higher prosperity for the consumers

    5) Printing more money starts a perpetual motion machine whereby the virtuous circle of higher stock prices translated into higher confidence, which leads to more ebullience which means even higher stock prices.

    5) The most recent campaign is proof that the consumer has never been stronger, evidenced by the massive breakout in Chipotle today, up 12% to new world record highs.

    Stay in the system.

    ReplyDelete
    Replies
    1. Mark, do you think that most everyone here realizes that you are tongue in cheek while winking? Are you dragging stops up tightly underneath every day? I bet you are, because we all know that once we began going parabolic that the end game was getting closer and closer and we are not going to go sideways at the top and let everybody get out cleanly, right? ttyl and it also looks like your plat and pall continue to rally also

      Delete
  7. I wouldn't call the 7% move in the SPX since the beginning of the year "parabolic"...

    ReplyDelete
  8. Addendum

    Wednesday, July 23
    02:38 GMT:

    Moscow has handed over to the European Union the Ministry of Defense’s monitoring data on the Malaysia Airlines MH17 crash in eastern Ukraine, Russian envoy to the EU Vladimir Chizhov said.

    The documents, which are in both Russian and English, were sent “to all the interested parties,” he told journalists in Brussels, as quoted by RIA Novosti. Russia hopes the investigation of the tragedy will be “truly unbiased, independent and international,” as called for by the UN Security Council resolution unanimously adopted Monday, Chizhov said.

    “I’m surprised by statements made by certain European representatives,” he said. Even European Commission President Jose Manuel Barroso – who is on a visit in Brazil – “voiced certainty that the plane, as he said, was shot down by 'separatists.'”According to the Russian diplomat, attempts to foresee the results of an investigation “can only be considered as an attempt to put pressure on the probe.”

    ReplyDelete
    Replies
    1. That's pretty much trumps Kerry's leak that "we know where the missile came from by the trajectory".

      Put up or shut up time.

      BTW two more Ukrainian planes reported shot down this morning by the rebel rabble.

      Delete
  9. Dan- thanks for the charts/analysis today. Any idea what is feeding the cattle market these days (sorry no pun intended!) back to record highs?

    Looks like the 10 yr has pretty good support around 2.4%. Below that... the chart looks pretty ratty.

    ReplyDelete
    Replies
    1. Trinity;

      Packers appear to be short-bought cattle and with beef continuing to be able to fetch record high prices at the wholesale level, they can afford to put higher cash on the table to buy them from the feedlots.

      I am not sure how much more upside they have in them but right now there is no sign of a top, yet.

      a lot of traders have been surprised by the strength in the beef. At some point consumers are not going to pay that kind of money for the stuff at the grocery store. Just not sure at what price point.

      Delete
    2. OK thanks. Looks like the small correction last week added a little fuel to the fire.Will be interesting to watch - what goes up must come down!

      Delete
  10. Further update

    08:12 GMT:

    The inflight recorders recovered from the wreckage of the downed Malaysian plane have arrived in Britain to be analyzed, the Ukrainian government’s investigation committee told press. The Ukrainian investigators confirmed they had seen the recorders, but not handled them as per an agreement reached with the Malaysian and Dutch inspectors.

    ReplyDelete
  11. This comment has been removed by a blog administrator.

    ReplyDelete
    Replies
    1. Shikah is back, she is never tired of her constant bullshit spam to try to attract a few more donks to her master's website, who feed her based on the number of clicks on the link above.
      Needless to say that the website itself, Capital Stars, is not worth the click, another useless low quality content website with low paid writers from India to feed on Google ads and other stuff.
      Capital Stars, the perfect example of widespread useless "financial" blogs spreading like a disease through the web.

      Delete
  12. Rico, it kinda depends on which time frame and so forth one looks at to define a parabolic look or not, but I see what you mean.

    ReplyDelete
  13. Given my weekly chart, with both the Fibo levels and rising wedge making some sense, I would target next Fibo near 1.3150 and consider 1.35 area as a resistance at the moment.
    If we close the week above 1.3540, the signal would be invalidated.

    http://i60.tinypic.com/jrttw1.jpg

    ReplyDelete
  14. Do not go to Shikah's site. Not only is it worthless, but you run the risk of picking up a virus and crashing soon after. Very scummy person.

    ReplyDelete
  15. steve, I think she's a nuisance and a waste of time too, but do you have anything at all to support your notion that Shikah's website is any more likely to infect you with a virus than any other website (including this one)?

    or are you just being steve again?

    ReplyDelete
  16. PostcolonialBrit; I am ignorant when it comes to technical matters, but I do know that the more sites one visits, the more likely it is that you are going to have problems, so from a % standpoint, why take the risk? No upside here.

    ReplyDelete
  17. ..... and that concludes the case for the Prosecution

    ReplyDelete
  18. I enjoy your dry wit, PostColonialBrit. And Hubert, btw, if your Euro can close < 1.3475 Friday, that will be a new low weekly close for the YEAR. I am pulling for you chief, but I can tell you myself that I am worn out from trying to sink the Yen the last 6 months or so.

    ReplyDelete
  19. The SPY is a juggernaut. Nothing seems to matter. Ukraine, ISIS, Portugese banks, MH17, Gaza, Yellen. Meh. Not that I'm complaining, because I'm long as can be, but still...you'd think something could put a chink in the armor somewhere.

    I sit around thinking about exactly what I'm going to do when the trend changes. What my signals will be, what I will do, and when. And...nothing happens. It just keeps going up. Been like that for a year now.

    The only insight I can offer the group here is that I watch some ETF pairs that I set up, watching relative strength, to get a feel for "early" or "late" in the cycle. Most things are flipping to "late" these days.

    XLY (consumer discretionary) switched to XLE (energy). XLI (industrials) switched to XLB (materials). This week I will switch from IJH(midcap) to OEF (megacap).

    "Late" doesn't mean "the end is nigh!" necessarily. There could be a lot of upside yet, in the right sectors. Or not. It is "late" after all. Be on your toes. I am.

    ReplyDelete

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