"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


Friday, November 21, 2014

Dollar Comments

I am going to keep these comments short mainly because I am utterly exhausted after the roller coaster ride from this week's markets.

The one thing that stands out, now that the dust has settled, is the action in the US Dollar.

One look at the chart and you can easily see the desired currency of choice among global investors. For all its problems, and there are many, the US Dollar remains the "Go-To" currency. The reason I say this is very simple - The Dollar put in the highest WEEKLY CLOSE in 51 months! It is also less than a full point away from taking out the peak made in June 2010. If it does, it is headed to 90.

Now, there are two things that were at work today which created the "Madhouse" that the commodity futures markets became.

The first was the expected inflationary outcome from a Chinese rate cut/ECB monetary stimulus measure. The latter was a deflationary outcome from the soaring Dollar and bond markets.

Interest rates are going down, not up. Many look at this as spurring more borrowing, more lending, more consuming and thus more economic growth. That group bought everything in sight today. The speed at which they did so was terrifying. I chose that word to describe it to see what a tsunami of hot money flows can do to markets when it invades them.

The flip side was another set of traders looking at the strength in the Dollar and drawing the connection between it and a general deflationary wave engulfing the commodity complex. They were big sellers.

The first group won out when the dust settled but you could see some impact from the latter during the session in the grains, and in gold. Gold had regained the "12" handle and then when the latter group came in and start selling, it promptly flopped and lost it. By the time trading ended in the pit, it managed a good close but failed to close above $1200.

Corn did something similar. It went flying higher with shorts being obliterated by the wave of hot money coming into it but in the final minute of trade, it surrendered all of the gains and closed lower.

Soybeans managed to close higher, which is even more bizarre as they had started off with a bang much like corn but during the middle of the session lost every single bit of their gains, went negative and then completely reversed and surged higher again to go out near their highs.

The thinking behind the bean move was that increased credit availability in China will mean more bean purchases from the US's largest foreign bean buyer. Frankly I don't see that connection but the people with the most money decided that was the reason to buy them and there was no one large enough by the time of the end of the session to take them on.

I can see what is taking place in the bonds and frankly, I think the group worried about inflation is greatly overlooking something but based on the bizarre and huge price swings that are being produced by all these infernal Central Bank actions, as well as Chinese actions, I honestly have no idea where all this is headed. Guess what - based on the type of trading we are seeing, no one else does either.

Here is the bond chart in closing. Note the general direction that they have been heading - UP...

Here is the yield on the Ten Year Treasury - same thing, except in reverse (yields move inversely to price) - it is moving lower reflecting the lower growth.
Lastly, here is a glimpse of the platinum chart - a metal that much like copper, tends to reflect sentiment towards global growth. It had a big up day today as the China news had industrial metal buyers giddy for some reason. It looks as if it might try to make a run towards $1280. If the inflation guys are correct, it will easily better that. If not, back down it will go.

What a week - there are times when I love these markets and then there was this past week, when Charlton Heston's classic line from the original "Planet of the Apes" is exactly how I feel.


  1. Thanks Dan, take a break and have a great weekend!


    EW...scroll that link...several gold volatility charts. Looks like volatility is down.
    I think TD just had a chart regarding this not too long ago on here.

    1. Here's the post from Weds. with a short term chart...

    2. I am not talking implied volatility, or the VIX - which doesn't necessarily pick up wild price swings. The VIX is weighted measure of the implied volatility for the issue put and call options. The puts and calls are weighted according to time remaining and the degree to which they are in or out of the money. So, what the VIX is telling you in regard to 'volatility' is not obvious.

      I am talking about the standard deviation of a sample of prices collected over a given period of time, say a set for each day spanning some period of time, such as a year. Or, one could count the number of swings beyond some dollar threshold over some given duration.

      One could do a similar test on volume of shares.

      Here is a interesting chart showing total volume on the NYSE -- seems to go crazy post 2002.


  2. Thanks Dan for taking the time today to post your thoughts and analysis. Enjoy your weekend. For fun, I may just watch that old movie.

  3. ts really not that hard to figure out,

    which ever central bank is torching their currency the least with monetary policy is the go to currency that investors will run to.

    Those guys are printing, so buy the currency that is not printing right now, which is the US dollar.

    Its nothing to do with dollar strength, but more to do with who is weakening their currency the least with monetary policy. And right now that the US dollar.

    This is nothing more than planned coordinated central bank action to keep these markets at the elevated levels the central banks have blown them up to.

    They must keep people believing some great economic recovery is going on and what better way than with the stock markets at record highs which people see every day.

    One look over at the stock market from the average guy and well things must be fine. If the stock markets tank, its over.

    The Stock markets are national security now.

    1. Are you saying you buy the currencies that are printing like the Yen?

      If so guess you are waiting for the US to start printing again so the Yen will rise back up.

      Might be a long wait as for now the dollar is King and going up.

  4. I think the currencies that are falling would still be falling no matter what the local central banks do or what governments says about it. They seem to follow the markets no matter if they think they are setting policy, usually always late to the game. Pay no attention to savers and retirees getting the shaft.

    Maybe someone had a hankering for soy bean soup and stocked up. If it was a group of speculators, they might get stuck holding the bags.

    Armstrong had a few charts this evening saying there is no history of lower rates stimulating anything. Again, if the big boys are playing the spreads they might get burnt.

    Weak consumer demand everywhere seems to be the bottom line. That governments chase investors from low rates into the regular markets is sort of a gift. Then banks think the cheap money is great until they realized they can't give it away so into regular shares banks play it. Sounds like another bubble(s) in the making.

    1. Just look at where the USD chart level was when the US central bank was doing the full 1 trillion a year of stimulus and not talking about raising interest rates. Was way lower.

      It shows investors run from currencies that are printing or perceived to be easier monetarily.

  5. Dan, just another great piece. Enjoy your weekend and if we all relax and try to not make sense of short term volatility, we will all live longer to fight another day; Sparks, of course

  6. So here is a question I am asking myself.

    If you are Putin and the Ruble is being slaughtered, I have a response back at Europe through gas and oil but a negligible response back against the US other than war.

    So I buy as much gold as my reserves will allow. Physical dries up and forces the price upward by huge amounts maybe spurring other CBs to join in. . Does this effect the US dollar in reverse while strengthening the Ruble by being gold backed?

    1. Physical will never "dry up"--there is more of the stuff available than you can possibly imagine, and more coming out of the ground every day, which miners can't even sell at a profit.

      Don't believe the crap you read on the doomer websites, if you want to keep your money.

  7. I mentioned if Russia wasn't careful they would be giving their natural resources away. A drop in oil price, trying to avoid trading in the US$, some military miscues, sanctions then they are forced to deal with the Chinese to save face while losing control of some of their natural wealth. I wonder if China should have just bought on the open market rather engage in Russian debt. Who was it that was buying and stock piling commodities at the top of the market not to long ago?

    Search for this headline:
    'The Russians Have Persuaded The Chinese To Bail Out Their Oil Industry'

  8. The action in equities has been mind boggling to say the least, Dan.

    The uptick on the SPY Friday morning was ferocious. Like you mentioned, a lot of fresh money came into the markets but although the day started off strong, the euphoria abated as the trading session progressed.

    I'm not really sure where equities stand at this point. The SPY is screaming strength, but look at IWM - it gave back its entire gap up gain by the close. And some stocks have simply not been following along with the ride up since the mid-October sell off. Take a look at FB for example - it has had consecutive closes below its 100 DMA for the first time since May. NFLX is another former Street favorite that has since fallen out of favor. YHOO just couldn't hold the 2.0 Fibonacci extension near $52 despite multiple attempts at breaking through during the week.

    I bring all of these examples up as a question of whether this latest bump in the SPY is really going to follow through with further upside or not.

    Great posts and commentary as always. You're one of a kind in the trading community - not many with your skill would go out of their way to offer what in my opinion is often times very actionable analysis that others who are often less experienced nonetheless readily charge for. You have reemphasized to me that if one just keeps their mind open to alternative points of view, then trading is a real journey that offers never ending flexibility since the market demands it of us constantly. It is an intellectual game no doubt - and a game worth playing with the right intentions.

  9. Commodities generally move in cycles over the past 200 years. The last upswing was driven, in large part, by emerging markets. Especially China. China may help fuel its down swing from 2011 peaks. Here is an article that talks about the problems in China. China is in a MASSIVE real estate bubble.

    "The End of China’s Economic Miracle?"

  10. The madness of materialism and gold fever...

    "Another theory is that the restlessness and constant wanting which fuels our materialism is a kind of evolutionary mechanism which keeps us in a state of alertness. "Dissatisfaction keeps living beings on the look out for ways of improving their chances of survival; if they were satisfied they wouldn't be alert, and other creatures would take the advantage."


  11. Hi Dan,
    I really enjoy reading your blog. Keep up the good work my friend.

    You mentioned:
    "By the time trading ended in the pit, it managed a good close but failed to close above $1200."

    Today, when I look at kitco.com. It says gold close $1202.10. So if kitco is right, then gold did close on the week above 1200.

    Please correct me if I am wrong, but if gold did manage to close above $1200 for the week, does that change your view (especially on technical analysis) going forward, or ?

    1. man, he is anti-gold. why bother asking

    2. Simon. Trader Dan is not anti-gold. Trader Dam is a trader.
      He reads charst, looks at the fundimentals and makes clear eyed decisions.

      If you are a believer in gold them please accept the possibility that you thoughts may be colored by that belief. Many here are recovering gold-bugs, including my self.

      Read listen and think for your self. Those of us who are no longer gold-bugs wish you well we are not the enemy.

      You are your own worst enemy.

    3. First off, TD being anti-gold is way off base and if you read what he's actually written here he also owns some phyz and I'm sure he'd paper trade it like crazy if he thought it was about to go up or down if he detected a trend.

      Secondly, gold was trading around $1999 when the US/NY market gold session officially closed at 1:30 pm.
      It closed just over $1202 on the Globex that finished up on Friday at 5:15 pm.

    4. Bing C;

      The pit session close is where the chart settlements occur and that was below $1200.

      $1200 is more a psychological level than anything else. From a technical analysis perspective it is not a big resistance level. Those levels are up closer to the $1240 region.

      Right now gold is showing some strength with the bulls having the upper hand at the moment. They will need to build on those gains however as the intermediate term trend remains lower.

      we'll see what this week gives us.

    5. simon;

      grow a brain and then come back here. Provide evidence of "anti-gold".

      reading charts produces a bearish view of the underlying commodity at times. At other times it produces a bullish view o the underlying commodity. It has nothing to do with being "anti" anything.

      Your comment reflects a prejudiced mind which is too poisoned to be the least bit objective. You want to be bullish gold all the time in spite of a cascading lower price - Fine - you are more than welcome to lose your rear end by watching your net worth go up in smoke. Fools do that sort of thing all the time.
      If however, you wish to be successful as an investor, or a trader, you must learn that certain asset classes fall out of favor from time to time. Attempting to ascertain when they do that is the method to prevent one from experiencing deeply shattering losses.

      In your case however, stay the course and sit on gold forever. At some point it will become a bull market and you will be smart - there is no guarantee however when or if that will reoccur.

      The same people were saying the same thing back in 1980 and they kept saying it for TWENTY LONG YEARS.. after gold had fallen from over $800 to $200. How many years did it take the metal to even get back to $800?

      Over the long haul, stocks outperform gold. that is just a fact. However, most of us here hold the physical metal as part of our portfolio as a form of insurance against Central Bank activities and other geopolitical developments.

    6. Hi Dan,
      Thank you for taking the time to reply. I appreciate it very much.
      Ive taking a big beating on these gold stocks, and just looking to try and gain some of the losses back(If its even possible)... I was an idiot, and listening to people like Russell and others was very financially painful.

    7. Simon. Take your cue from "mr gold":

      From Barrons in 2009 - jim sold many more shares since, so less then 3% became less then 1.5%!

      "he has steadily sold TRE shares into the open market. He sold stock more than 50 times in 2008. Over the years, as the stock price soared, Sinclair and his family have reduced their TRE stake from 25% in 2002 to less than 3% now, company documents show."

      -Whats good for the goose is good for the gander.
      -Jimmy doesnt walk his talk.
      -Jimmy doesnt take his own medicine. 

  12. "Yen 13-Year Bull-Run Fibonacci Stop Seen at 120: Market Reversal"

    By Kevin Buckland and Hiroko Komiya
    November 21, 2014 6:58 AM EST

    The yen’s steepest drop in almost six years is set to stall at 120 per dollar, trading patterns suggest, which would be welcome news for Japanese officials bemoaning the pace of the currency’s decline.

    “We are looking for consolidation or a potential pullback at 120,” James Lim, a Singapore-based analyst at Credit Suisse Group AG, said today by phone. “We’re looking at 115.50. That’s our pullback target. We look for this to hold before the continuation of the uptrend in dollar-yen.”

    The Swiss lender cited a momentum gauge known as the Fibonacci indicator for its call on Japan’s currency, which tumbled yesterday to a seven-year low of 118.98 per dollar. The yen rebounded 0.3 percent today after Finance Minister Taro Aso said its slide over the past week has been “too fast,” the strongest statement on the currency yet by a top official...(cont.)


    1. My guess would be that we see the yen pullback or consolidate around 120 before that snap election Abe ordered takes place.
      It would behoove Abe and the BOJ to have the yen start to regain some ground before that election.

      But afterwards, if they win, look out below! But not until after the new year begins.
      I'm still sticking with JPY 160 in 2016.

  13. "The U.S. Dollar’s Crucial Role in the Commodity Cycle"

    "...What’s happening now is the beginning of a great deleveraging of the debt and financial asset bubble — the greatest in modern history."

    "Over the next several years, more dollars will be destroyed than any other currency and that will rebalance the great devaluation of 1985 to 2007.
    "The dollar will continue to go up.
    Not forever… but at least over the next few years when this deleveraging is likely to be at its worst...." (cont.)



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