"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


Tuesday, October 28, 2014

Consumer Confidence Reading Cheers Equity Bulls

The Conference Board released their Consumer Confidence numbers today and surprised a lot of us. The reading for October came in a 94.5, which according to Dow Jones, was the highest reading since 2007. Truth be told I find that number odd given the polling taking place ahead of next week's elections which show voters in a surly mood, the vast majority believing the country is on the wrong track. Trying to square those fairly consistent poll numbers with the Conference's Board happy face, is a feat that I must admit I have not been able to master.

Maybe the Conference Board asked about falling gasoline prices instead of overall consumer confidence? who knows.

For whatever the reason, stocks liked the number.

However, ahead of the FOMC release tomorrow, the sentiment seems to be while the Fed is going to end the QE program, it is going to stand pat on the interest rate front, essentially leaving short term ( and long term by consequence) rates near zero for some time.

Equities love that environment because quite frankly it makes them the only game in town for anyone who wants to earn more than a pittance on invested monies.

As many of you who regularly read here know by now, I have long expressed my disgust at what the Fed has done to senior citizens, those on fixed incomes and those looking for SAFE, CONSERVATIVE investment options as they approach their older years. Kiss that mostly goodbye, compliments of the Fed, which lives to service its master known as Wall Street, but more particularly, the big banks.

I do not know about some of you but I am filled with disdain when I see elderly friends and family members trying to navigate this bogged-filled financial morass that the Fed has deliberately chosen to create. Oh yes, they will tell us how such things are necessary for the sake of the overall economy. Perhaps that is true, perhaps not, but that is no consolation whatsoever to those who have earned some rest, and some peace and quiet in their golden years who are now forced into spending their afternoons sitting in front of the damned television set staring at one of the cable business channels and wondering if their money will still be there tomorrow.

Enough of my mini-rant for now... I am not going to spend any time commenting on gold since quite frankly it is a gigantic bore right now. It is waiting for the magic words from the FOMC anyway.

What is much more interesting, and much more havoc wreaking is what continues to take place in the grain markets, particularly the soybeans, which are doing things I cannot remember seeing in my trading career. By that I mean soaring in price in the face of one of the largest harvests on record.

What is driving this continues to be the meal - something I have been noting for some time here now. It still comes back to the same old, same ol' at this point - namely historically tight carryover stocks from the 2013-2104 crop year have left many end users/processors scrambling to secure enough beans to crush to meet demand for meal. Toss on top of that the fact that even some of the commercials were caught flat-footed by this squeeze and you have a perfect money flow storm. Shorts have gotten annihilated.

What is being reported is that farmers seeing the rally are becoming bulled up ( big mistake in my view) and are holding beans back hoping to get even higher prices. NOTE - it has been my experience that Farmers - as good as they are at growing crops - historically, and with great regularity, are consistently bullish at market tops and bearish at market bottoms. This is exacerbating nearby supply constraints as export commitments clash with the need for meal.

However, with the Real sinking to a six year low against the US Dollar, US meal prices, and bean prices, are no longer competitive on the global markets. I suspect we are going to soon be seeing export cancellations as a result. One cannot drive prices higher and higher and higher due to a TEMPORARY supply situation and not expect to produce an expected result - namely, high prices will ration demand. The problem is we are still sitting with a huge crop out there that needs to be moved and the last thing we are going to need is higher prices to move it!

Cash flush farmers from back in 2011-2012 farm prices used that money to build lots of shiny new, on-the-farm silos. They can hold the crop while they wait for higher prices, or so they think.

Personally I think that any farmer that is not using this meal-driven rally to price some of their new crop is nuts. The meal is pulling the entire grain floor higher but when it finally does top, and top it will, I fear that the entirety of the fund contingent which has been furiously buying, either covering existing shorts or chasing prices with new longs, are all going to head to the exits at the same time with no one to support this market on the way down.

the reason I feel so strongly about this is that this temporary tightness in the meal is not going to last indefinitely. It is a short-term phenomenon brought about by the combination of a small crop in 2013-2014 and a delay in the harvest of the 2014-2015 marketing year crop. However, based on what USDA reported yesterday - 70% of the total soybean crop has already been harvested. No matter how you cut it, slice it, dice it or scramble it, that is already a huge amount of beans. There might some areas in parts of the Eastern belt that experience some harvest delays but from what I am seeing at the moment, progress is going to continue into the weekend in general. 

Remember, there is still a lot of corn that needs to come in and find a home somewhere as well. Farmers have opted to let the corn stand and go after the beans first figuring that the sunny, though cooler and dry weather, will let it dry down some more anyway. But they are going to bring it in eventually and will need to put it somewhere. While they wait, the corn market seems to be keeping a bit of weather related premium in the corn for the moment.

Also, soymeal is not a stand alone entity - it does compete with DDG's.

My point in this is that when the grains finally exhaust this fund buying binge ( small specs have been destroyed by margin calls as well) and the bids start getting taken and absorbed as commercially-tied hedge pressure begins to ramp up in earnest, we should see some pretty severe moves in the grains.

One wild card in all this is the Brazilian weather for their planting season down there. It has been dry in some areas but timely rains are coming and look pretty good overall. That should remove some concerns associated with Brazil.

Shifting just briefly to crude oil - the black gold looks like it has found support near $80. It has made two trips down below that level on the chart in the last two weeks, but both times, it rebounded and CLOSED above $80. If, for any reason, crude oil CLOSES below $80, then look out. You would then see a very good likelihood of it falling to $77 and possibly even $75.

I am not sure how to take that to be honest. I can make the case that it would actually be friendly for the overall economy as lower energy prices always benefit consumers and some business entities. However, it could also feed into the notion that the economic strength is so weak, that more sluggish growth lies ahead. That would be negative towards more of the key commodities such as copper, which by the way, seemed to like the consumer confidence numbers or something today!

It was just a short two weeks ago that copper actually managed to close below the pivotal $3.00 mark. It did however recover the next day and managed to claw its way higher. Today, it just missed hitting $3.10. Copper looks to me to be carving out a trading range as I think one would be hard pressed to come up with a reason, or to point to any concrete data at this time, to justify any sort of sharp rally in the price of the red metal. Economic growth globally is just not strong enough.

Remember that Palladium chart I posted last week? Well, that metal has been essentially mirroring the price action in the copper. It has closed higher the last 8 days in the row, after bouncing off of the region near $740-$730. This is an industrialized metal that is very sensitive towards any slowdown in growth, much like copper, so one can read it and see that for the short term, investors seem to have put "growth" concerns on the back burner.

I guess so seeing that the VIX or Volatility Index is sinking once more. Back to "What, me worry?". We went from total fear two weeks ago to " I could care less". Astonishing - the entire business cycle has just been completed in half a month! Tell me that our financial markets have not become a nest of idiocy.


  1. On days like this, I like to go over to ZombieHedge and read the comments from the dead enders over there as they twist on the gallows.

  2. 3 things on copper: a large fund short in last COT.. strike at the Grasberg mine in Indonesia.. and london copper exchange looking into reports of one participant having a 'corner' i.e. too much of the mkt.

    nov 2015 soybeans closed down -7.75 or so, does look like brazil is going to get good soakers in the 10 days ahead.

    chicago wheat seems like a decent short around last friday high, stop at 545 or 551 etc. we're definitely not gonna sell any on the world mkt at these prices.

    Corn came very close to meeting upside objectives in the mid-370s today, such as 23.6 fib and 100-dma.

    how about the ruble, a new low o f year, probably many years! the powers that be seem to have paid back russia with crude oil and currency problems fairly well!

    3 sessions to go..cheerio!

  3. be careful with that vix chart apparently every one and their families including the dog is short the vix

    1. Vix 40 sometime by the end of the year....I'm now scaling in as V long will play out...this short covering rally was baked into the cards...you could see it coming via the bpspx and some other charts...this run up was to ease the end of QE....so far its been rather easy to make money both ways on the vix....

  4. This comment has been removed by the author.

    1. Thanks for the write up Dan.
      My guess would be that the FOMC is gold negative after the initial turbulance settles down.
      The Fed won't allow themselves to look foolish or out of control and they wouldn't have ended QE on the timetable they did if they weren't confident they're doing the right thing.
      The USD benefits in the long run I think and if/when the ECB begins some type of asset purchases the USD will benefit from
      the EU needing to rescue and recapitalize some banks and corporations (and countries maybe?) at some point and a weaker EUR will result from it.

  5. Amusing video of "Gold to the moon" Peter Schiff verbally being torn to shreds.


    1. What Schiff said about the markets in that video sounds like just common sense Marvin.

      Of course theres not much common sense out there any more in the Fed's fantasy land markets and economy.

      Those CNBC guys sound exactly the same now as they did back in 2006/2007 when the laughed at Schiff for saying housing was going to collapse.

      The mistake guys like Schiff make is putting time lines on these things as the media and the Fed can delay things for a long time by keeping people believing in the fantasy they have created.

    2. Schiff is a stopped clock. Worse than useless.

  6. Marvin, don't count Schiff out, he made total azzes out of those same people on the housing collapse. Don't forget, Mark Nations is one of those CNBC pumpers who got it wrong in 2007-2008.

  7. Dan
    Rant on the effects of zero interest rates all you want. The whole financial scheme has been terrible for savers, near retirees, and retirees since the "Great Recession".

    Lots of people working harder and longer than they want if they can find work in this poor economy.

  8. Growing up as a product of parent who grew up during the depression, I was instilled with their frugality. I find that there is a war against savers. The stock market is too risky for frugal savers in my opinion. Yet the Fed has created a situation where there is no safe place to save for the future. I wanted to believe silver and gold was that place. I have been successful in growing an abundant food stuff and I give away all that I can't consume. I does make me feel successful and accomplished.

    1. TINA = There Is No Alternative. As seen on CNBC this morning.

      HDH points out below that the continuing concentration of world wide wealth in the US Stock market sets the stage for a major hit.

    2. i also agree with Peter Schiff. i also believe that gold eventually will do what it is supposed to do, unless the Federal Reserve and the US government do something, anything right. in the mean time, it is a shame that people that are prudent, and know enough to not trust the stock markets, are the losers in this system.

      also, i hold nothing against those who can successfully trade these markets. power to you, and not the machines.

      good morning all.

  9. Hi all,

    SP500 :
    - technically, the inverse Head & Shoulders 1820 - 1900 neckline on the 4 hour candle chart warned me about a potential target of 1980. We just made it. It was hard to imagine that at the moment SP was fighting with 1900 then 1920. Also, the fact that we were in a "tendance en ligne" on the SP500 warned that when you break it down through its support, the theory is that SP500 will make new highs one last time before the real correction. This last point will be interesting to follow. Anyway, at the moment, T.A was telling us to be careful about the strength of the bull trend when most bears had already lowered their guard and reinforcing their short positions around 1900. I elected to short once on the CAC40, because Europe is underperforming US, and I had a few positive signals on the shortest time units (1h, 4h), but the daily time unit was showing no sign of weakness and I was quiclky stopped out of my small position (4100 short, out 4120).

    In general, it is interesting to see how CAC40, Dax30 are underperforming strongly the SP500 and Dow.
    My personal interpretation is that there are less and less safe heavens in the financial world, and that more and more money is seeking protection at the core of the system, i.e US stocks. My personal interpretation is that this situation will eventually set the stage for an even bigger collapse on the US stocks front, when money will be concentrated enough there. I am still patiently waiting for this to happen, as the "tendance en ligne" theory reminds me that we already broke the support line on the 2week trend, and therefore, if we make new historical highs soon, they may well be the final ones this time and the real top of all the 3 year uptrend we've witnessed.

    Of course, I'm sure of nothing, and simply sharing my point of view. Don't rely on me for making trading decisions, as there is nothing more disappointing that to lose money on someone else's (wrong) advice :)
    But simplly discovering realtime with you what TA tells me and how I integrate it in my trading decisions.
    Have a nice week,

  10. Latest goldbug reason for $2k Gold;

    " A referendum that would force the Swiss central bank to hold a fifth of its assets in gold could rock foreign exchange markets, analysts have warned.

    On the 30th November, voters in Switzerland will head to the polls to decide whether the Swiss National Bank (SNB) should boost its gold holdings and refrain from any further selling of Swiss gold."

    1. eric webber;

      Thanks for posting this. I have been meaning to comment on it but did not want to take a major post to do so.

      I do not thing the initiative is going to pass once people learn that if it does,. the Swiss National Bank is not going to be able to defend its "currency peg" of the franc against the Euro.

      to do so, they will be forced to buy huge amounts of gold which will effectively cripple the ability of the bank to keep that currency where it is against the Euro. the more folks learn about the necessity of them keeping the Franc from becoming too strong and killing their economy ( and jobs), the less support the initiative will garner.

      We'll see how it goes but I think it is unrealistic.

    2. Just like every other hopium based gold or silver event that's supposed to light the PM fuse this Swiss initiative will fizz out as well.
      When will people learn that it's just one more example of grasping at straws because some hucksters are running out of props to support their grandiose assertions.

    3. I can feel sympathy for the Swiss with their currency pegged to the Euro. With a healthy domestic economy they are linked to the sickness in the Euro. This is likely a gut level factor in populist feeling that drives people to want gold reserves.

    4. Well , I guess , thats the whole point of it , it surely will be painful for the Swiss economy , but it will get them off the nasty habit . The swiss have always been independent , and they were proud of it . At the moment all they are is just another off shore centre within the EU , and completely dependent on their monetary policy ... the swiss economy is all about chocolate , cheese and watches so I am sure they will adapt quickly to the new normal if they cut the SNB wings ... I am sceptic because it is totally anti establishment , but if anybody can upset is Switzerland . We shall see ...

    5. If the swiss currency appreciates the swiss are done selling cheese and chocolat.

      Sub 1000 gold coming.

    6. Media Propaganda surrogates of the government will thwart this initiative, as opinion polls do not show a wide enough margin of support. It will be another disappointment for gold, which needs much fatter black swans to make substantial headway, and gold could fall much more. Are they out there? You might as well ask whether the sun will rise in the morning.

    7. It is a Keynesian falacy that a high currency will have negative effect on exports

      the Euro went from 80 cents to 1.45 and German exports went up steadily. Not down

  11. can get a good feel for the stock mkt just by looking at mcclellan-osc when this page updates in the evening:

    perhaps it's obvious that after the ES just bounced +8.8% it's not a place for fresh longs, even tho it might not be quite ready for fresh shorts.

    stockcharts.com is a popular place, they measure the mcc-osc differently with their 'NYMO':

    NYMO has hit 10/28/14 level (82) in 12 occurrences over last 6 yrs. $NYA topped avg 1.75 days later (max: 6)

    Bottom Line in Ags: top callers will be out again today in the soy complex, and today might be the day. I’d prefer to watch bean and meal spreads for confirmation as well as a sharp reversal in meal basis both domestically and on the export front. The market has provided an excellent marketing opportunity, and one which should be taken advantage of given the short-term nature of the rally catalysts.


  12. 14:00 ET FOMC Rate Decision

    MBA Mortgage Index 10/25 -6.6%
    ...see the uptick in interest rates keeled the floundering mortgage mkt again.

    wowo temps 15-20% higher in northeast usa by sunday! the energy buy after USO peek below former low at 38.20 on low volume, and spring back above looks better!
    ...the non commercials on CL must still be near a 52 week low, and 'crack' may blow!

    Ags Bottom line: The rally triggered by harvest delays, strong exports and South American weather concerns is a selling opportunity for those who need more price protection. Rising U.S. carryout, forecasts for another record crop in South America and struggling Chinese growth should keep prices under pressure this fall. Look to make more sales of both 2014 and 2015 production over the next two weeks.

  13. USO that peek low was hitn 30.16 and then recovering over the high volume 30.20 low. who can type and trade anyway, heehee.

    CL there's so many different charts with continuation, active continuation, dec contract shows a 79.10 low, but that was when nov was front month chart.

    VIX hit -10% yest., recall those 3 days in a row VIX moved 10% or more earlier in the week. VIX looks like a good 50-dma pivot as it's +7% currently.

    long week already freddy... still over 2.5 sessions to go, cheerio!

  14. VIX moved over 10% 3 times earlier in the MONTH, which was not a bullish item in history.

    This week's jump in Investor's Intelligence bulls was the 2nd-largest ever coming off a one-year low. Largest was 10/18/02.

  15. Bingo! This is what a bunch of levelheaded people were saying over 3 years ago and it took over 3 years for the owner to possibly accept it? Too late.

  16. Sir Alan of Greespan CBE, has announced that there will be 'turmoil' as the Fed tries to return the country to 'normality' by withdrawing QED and raising interest rates. He said that he preferred to use the word 'turmoil' rather than 'crisis'. Is he joking or what, when he is largely responsible for bringing this situation about? From super hero touching On deity, when history one day looks back on his shenanigans, he will one day be mocked and reviled as one of the perpetrators of an appalling economic crisis that is now unavoidable. Not IF but WHEN.

  17. This silly tinkering with QE and interest rates, does anyone really believe it will make the slightest difference? To raise interest rates significantly would lead to a disaster, so it is out of the question. Could they create more QE or some new version of it? Only if they want to look like a laughing stock.That just leaves psychological games using FEDSPEAK to soothe and slightly cajole the markets, which effectiveness relies entirely on the credibility of the Fed. Once that evaporates, there are no more so- called 'tools' and all hell will break loose.

  18. That's why many of us have insurance, because our houses have been doused with gasoline and there's a pyromaniac in the neighbourhood, whose name is Fed.

  19. king dollar DX up everything else down- sell bonds, sell stocks, sell gold..

    ags in their own world.. soymeal got close to limit up, so wait on shorting corn-wheat is prudent. plenty of time once they turn.

  20. No surprise to see the FOMC reaction was gold negative/USD positive.

    I think the bounce back in both of them by weeks end in the still ongoing reaction will be indicative of how this trends out.
    Lower gold and silver, higher USD, relatively stable oil $85 +/- and no crashing equity/bond markets in November.

    QE is over. The taper was in fact real.
    Of course, some will still dispute reality.

  21. Pretty happy of my recent gold trades, and thanks to Dan to have largely emphasized why he was quite doubtful about the "rallye".
    Short stop 1240, 3/3 first position
    Out 1/3 1190.
    Out 2/3 buy stop 1210
    Short stop 2/3 once more at 1239.
    I'm on the right side again and prepared for another attack of 1180 area.
    The more we attack this area, from lower and lower highs, the more it is likely to break.
    But we are not there yet, with a support area at 1200.
    Let's see if it holds.

  22. It keeps getting worse for the miners. GDX now with a 19 handle. These are October 2008 prices, while gold itself is still 50% higher. How soon will they have to do a reverse split with that turkey, like they had to do with GDXJ a while back?

    1. This comment has been removed by the author.

    2. I think you're spot-on and I've been thinking the same thing since GDXJ did it's split and then tanked.
      I should've shorted the heck out of it back then.

      I think if GDX does what you're suggesting it might be another similar short opportunity.

      I looked at the GDXJ reversal and thought to myself..."It doesn't look good if the shares trade too low plus the reversal gives the shares room to drop further later"
      "Later" is happening now.

      I see the same thing you're seeing. GDX does a reversal and gold drops further.

  23. I doubt there is much for low hanging fruit left in the short miners trade. October 2008 prices ? That's also when BP bottomed in 2010. Anyone who shorted thAt at the end got their head knocked off


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