"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 free work will soon be available at www.traderdan.biz

Thursday, October 9, 2014

Did the Last Bull Standing Finally Give up the Ghost?

By that I am referring to the cattle markets which, as the regular readers have no doubt noticed, I have been watching carefully to see if they are going to go the way of the rest of the commodity world, namely down.

As noted in an earlier post from today, cattle are one of the very few commodity markets in which hedge funds have been overwhelmingly big longs. They have pushed and shoved, and pushed and shoved on this market for nearly two months now, even as the rest of the complex ( the GSCI) has been plummeting lower.

In my mind, it was thus just a matter of time before they gave up the ghost. While the longs have been reaping huge profits, the hapless bears have been handed their heads and then some. Margin clerks have been extremely busy phoning small specs on the short side of this market and telling them to either pony up some more cash or close out their badly losing positions.

Today, maybe, possibly, we have seen this complex top out. For me it comes back to the demand side of the equation. High priced beef in an economy that is not growing all that rapidly and in which wages are stagnant/flat will price itself out of the demand chain. While falling gasoline prices have freed up a bit more disposable income for consumers, it is hardly enough to justify the kinds of prices we have seen at the grocery counters.

I want to see how these things close out the week tomorrow but for now, it could be another commodity futures market is succumbing to the general downward price trend, albeit from extremely lofty levels.

One reason I am hesitant to get too bearish on these things is because of what they did back in early August. The beef got too expensive, it moved lower and down went the moo-moo's only to have uncovered strong demand at the wholesale level at those lower prices. That sent the cattle market right back up again, this time to make all-time record highs.

As far as a longer term top in this market, I would need to see this contract fall below the September low before being more confident that this is merely the beginning of a correction in an ongoing bull.

Incidentally, since this morning's early post, I am noting that the HUI has dropped even further as it is moving with the broader equity markets and essentially following the S&P 500. However, the latter is down 1.86% as I type these comments while the HUI is now down 4.8%.

The GDXJ is being savaged even worse as it is off nearly 6% today.

Switching briefly to the broader markets - here is the Russell 2000. Talk about something that looks potentially devastating. The close tomorrow to end the week will be extremely important from a TA standpoint. The index has fallen below the key support level noted, a level which I should add that has held the market on the downside for over a year now. Currently the index is off its peak nearly 12%. A correction is usually, for TA purposes, defined as a 10% fall off the top. Bear market territory begins, again for TA purposes, at 20% off the peak. Thus we are in the nether-realm ( Mortal Kombat fans) between the two.


  1. If the Fed monthly jamboree isn't manipulation I don't know what is. Oops, sorry, I used the M word. What I meant to say is "manage expectations." Yes, I definitely need to have my expectations managed at least once a month, and at regular intervals in between by a group of actors and entertainers called the FED. It is just like my silly attitude to Global Warming, which of course is not Global Warming but something called Climate Change. I feel better now that I am once again on the straight and narrow, and I thank my Dear Leader.

    1. The economic recovery has been Fed monetary interventions, financial engineering and deficit spending for years now, its never been a consumer led recovery.

      Not sure how the stock markets stay up if the Fed is ending QE3 in which they printed 1.5 trillion dollars over the last couple years.

      What replaces that 1.5 trillion of QE now to support the markets?

      Yet watch CNBC and almost every guest on their show tells people to keep buying stocks and that some great economic lift off is about to happen this time and that its earnings not QE driving the stock markets higher.

      Look at the volatility now in the stock markets as QE ends as it seems to say otherwise.

    2. Barney, the truth about earnings and buybacks up here is that both are bearish. The only people that have any business buying up here are old longs adding to profitable positions. Anybody looking to initiate brand new positions should be looking for failures and reversals to get short. To get long now with new $ is suicidal. Maybe I am fos, so who knows?

    3. Indeed Steve, why try to get long now if the Fed keeps exiting from supporting the markets?

  2. ES NQ CL all selling more on globex, new lows o day. CL low 84.06 ES low 1915.25.

    SPX has the 200-day MA now up to 1904.86, which is also right on the august low...next support.

    the russell perhaps it doesn't matter til it does:
    Only the 3rd time in history that $RUT down 5% YTD at Q3 end, and $SPX positive (1984, 1998). Q4 up both times $RUT.

    can't find the stat, reckon it's been the longest time without a SPX correction of 10%.

    definitely yesterday's buyers will think twice about coming back in and that includes cattle... cuing up pink floyd: welcome welcome welcome to the machine

    Funds have bought 3,000 soybeans, 1,000 soymeal and 5,000 corn and sold 4,000 wheat.

  3. HUI:GOLD closed at ~.158, just off the all time low of .157 (rounded up to 3 decimal places) on Dec 6, 2013. HUI itself closed just off it's Dec 2013 lows (may days around 190), at 193.

    What is amazing is that since then (roughly YTD) many HUI components are way down: AUY30%, IAG 27%, KGC 30%, ABX 20%…So there's a huge divergence within the index (GG up 10% YTD, EGO up 30%). The better producers are actually not flagging. Just an observation…

    While it's anyone's guess which way the HUI (and so DUST/NUGT) will go, it seems that the HUI-especially given so many all time lows--is pretty much pressed to the limit at the current price of gold. As well many of the LEAPS in the worst performing HUI components were up today. It's probably not a coincidence that he all in cost of gold for most miners (which might not be so all in depending on who you as) is roughly equal to the currently holding triple bottom in gold: $1,200 and $1,180 respectively.


  4. I would say we had a pretty decent close especially GDXJ , given the tremendous merciless rally we had yesterday ... It would be very positive if we beat the highs from yesterday tomorrow ... If bears keep fighting this , bear meat its going to get cheaper than chicken , that is farmed chicken ... of course

    1. Also I have noticed the directional line has turned in favour of the bulls , no trend yet , its a start though . In my opinion the 10 year yield at 2.30 plus gold holding up , can only mean the USD will not have it that easy going forward . Just my opinion . Tomorrow is friday ...

    2. Both GDX and GDXJ retraced to test their breakout yesterday from the long-established downtrend channel. If that breakout holds it will be a very good sign for the bulls.

      Also note that while the S&P gave back all of yesterday's gains, the PM stocks only retraced a little more than half of theirs.

  5. The crop which needs water much more than Brazil soybeans at the moment is coffee which has been rallying to beat the band on the stretch of dry weather. Since September 26th, coffee has rallied 21.9% to hit 32-month highs. Watching coffee’s performance in coming days/weeks could be a good indicator of the perceived rainfall.

    the CCI continuous commodity index (this was the crb before goldman sachs did the new one) is not doing the new lows like the GSCI, instead it's at last week's high, perhaps thanks to coffee and the metals.

    gold and silver have been poor about every friday so let's see if there is a change in sentiment.


  6. Fed should send out one of their lackeys Friday to save the Dow, saying interest rate rises are a good way off, and Dow up 300 points.

    Wheeeeh! This investing stuff is easy!

    1. You are right Peter, the Fed guys will be out talking easy money if the markets keep tanking and will the stop the QE taper even to save the stock markets?

    2. FED could send PPT to boots SP futures. Friday after noon is a perfect time to do it. Europeans gone home and Americans pack for holiday. Low volume, big volatility.

  7. @TheDomino: Remember last time Dow Industrials had at least 3 straight days of 200+ pt moves? Aug 8-11, 2011...after S&P downgraded US to AA from AAA $$

  8. 200 day moving averages are coming into view on major averages and sectors! I've been "all in" stocks for almost two years but there could be a change in the wind soon.

    I know, two year trades do not lend themselves to daily chatter on trading blogs. The medium suits the overnight stuff. But, I gotta do it "My Way". (cue the Sinatra).

  9. Of the major Sector SPDR's, XLP, XLF, XLV, XLU, and XLK remain above their 200 day's. XLY, XLE, XLI, and XLB have already given up the ship and are below.

    By market cap, OEF (mega cap) is still nicely above. SPY (big cap) is hanging by a thread. IJH ( mid cap) is already sunk.

    Another one,VNQ (REIT's) is above.

    For foreign stocks, VEA (developed markets) are out by a mile, while EEM (emerging markets) are out by a nose.

    Small caps (IWM), Gold (GLD), Silver (SLV), and miners (GDX) are all out.

    My favorite bond market proxy is TIP, and has rallied above.

    And by the close tomorrow, it could all be different!

  10. Wow...at this rate we'll see $82 oil by tomorrow a.m.

  11. Thanks for the post Dan.

    Saw this blurb related to reduced hours for livestock markets. Maybe livestock traders will get more sleep...:

    In response to a survey of market participants, the CME will reduce trading hours in livestock futures. Beginning October 27 the markets will open at 9:05 a.m. central time. On Monday through Thursday, trade will close at 4 p.m. and then reopen at 8 a.m. the next morning. On Fridays trade will cease at 1:55 p.m.

  12. Check out the Fed's most recent projection of inflation. It's hard to imagine them raising rates anytime soon with "these" projections. Time will tell...


    1. ...especially with energy and other commodity prices going south. The Fed will have to do a more convincing job to talk the dollar down or may eventually have to do more stimulus. May be in for more volatility ahead!

    2. Get your selling shoes on boys. What better signal than the break in the Russell > 9 months sideways on the weekly???? You always go after the weak sister and this one looks like Jane Russell to me, and she was a beauty for sure. You stop out somewhere over 1100, depending on what kind of line you are swinging. As far as Peak Oil and Chris Martenson goes, well, we are closer to the old break out of $40, than the Goldman blow off of $147 boys and what happens when they start fracking around the world? Huh, tree huggers? As for the grain and bean numbers today, well, I do not think Cargill and Archer are holding, but Ma and Pa probably still are and why I just do not know. Maybe they don't remember what happened to cotton 3 years ago and somehow think that corn is bullet proof, along with beans and my all time favorite, the weed, otherwise known as wheat, and it grows EVERYWHERE, not just Kansas, ladies. If not already short, sell when last night's highs are broken on the news by the algos. Good luck all.


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