Agressive Hedge Fund Selling Plagues Silver

One look at the intermediate term chart for Silver is all it takes to realize that the metal has distinctly fallen out of favor with the hedge fund community.

Oddly enough, the hedgies made a big push into silver in early June of this year so much so that they managed to build the largest net long position that they have had in nearly 4 years.

The large Swap Dealers were more than happy to sell to them however with the result that once the "inflation is coming" sentiment ran out of steam, the hedge funds had no one left to sell to when they had to bail out.

Look at the collapse in those net long positions of the hedge funds and compare that to the above price chart in the second week of July of this year. Out they went and as they did, down went the price of silver. As said many times here - large speculators drive markets.

Don't worry however because we are assured from various precious  metal dealer commercials that a certain billionaire fund manager has predicted that silver prices "go north of $50 this year because China and India are trying to corner the silver market".

All I can say to that is it is one tall order! With 4 four months left in the year, inflation expectations had better change in one big hurry! Again, it is so tragic that people will run out and spend their hard-earned money and precious investment capital on investments touted by those talking their book instead of doing some hard-nosed, objective analysis of the markets.

When one looks at the various commodity sector indices ( I am currently using the Goldman Sachs Commodity Index) they are hard-pressed to find the least bit of inflation in tangibles. With the Dollar beginning to surge higher, and with the entire commodity complex under selling pressure, making the case for sharply higher silver prices is a fool's errand at the moment.

Can things change in that regards? Sure they can! The one thing about markets is that they are always changing. For the time being however, one must respect the charts and right now the charts are saying  that the notion of $50 silver before 2014 comes to an end is a  quaint fairy tale, without some sort of stupendous event occurring. Such claims may work to sell silver to the naïve and unsuspecting while enriching those whose main source of income is derived from ties to the metal, but they do nothing but discredit such carnival barkers in the eyes of objective observers.

I do not have the words to properly describe the disdain I feel when hearing these ridiculous commercials or when reading articles advocating heavy investment into the grey metal. The same people have been singing from the same song book for nearly 3 1/2 years now and have been utterly and completely wrong. One would think that shame and embarrassment would be enough to silence them but no, it goes on and on and on, hardly skipping a beat.

Here's the prognosis from the chart and let's leave it at that for now:

The metal is making a series of lower highs on the weekly chart while continuing to find buyers between $18.50 and $18.00. So far that support is intact. If one is inclined to own physical silver, it would make sense to look for opportunities to acquire the metal if it revisits those levels again. However, be prepared to sit on those holdings for some time without much in the way of overhead gains UNLESS the metal can burst through the $24 level and stay there at the end of a trading week. That would be the first sign that things might be changing in regards to silver sentiment.

 Keep in mind that markets can often sit for long periods of time in trading ranges, moving back and forth, or up and down and essentially going nowhere as they mark time. Silver could be carving out a range along those lines or the metal could fall through its lower support level and actually begin another leg lower. I honestly do not know what it will do in the future - guess what? Neither does anyone else. They can talk confidently about it but the simple truth is that unless they can foresee conditions across a broad variety of inputs a year out from now ( or a month or two years or whatever), they are just guessing, no matter how dogmatic that they might be about it.

Watch the charts instead. They are your friend and will let you know what the metal wants to do. Ignore the carnival barkers, the hucksters, the flim-flam artists with the extravagant headlines meant to regale you and think for yourself. Trading/investment is hard and demanding work - it requires a tremendous dedication to your craft and endless hours researching, comparing, back-testing, analyzing, etc. to be successful. Ignore the impulse to rush out and throw your money into some investment because someone with some sort of reputation is touting it at the moment. Do your own homework and then trust your own judgment.

So what if you make a mistake! Learn from it and if the chart tells you that the trade was not a good one at the moment, get out of it and try another asset class or another time. The market is not going to disappear. It will be there tomorrow giving you another opportunity to be successful but only if you learn from mistakes and learn to ignore the carnival barkers. The truth is that few ( if any ) of them are going to be there to take care of your family or loved ones for you. If you fail, what harm have you done to them? But you will have harmed yourself or your investment goals if you blindly follow these people. No one cares more about your investment goals and your personal success than YOU! Remember that!

Processors Still Chasing Old Crop Beans

The show must go on! The show I am speaking of is the continued squeeze of the shorts in first, the July, and then the August and now finally the September bean contract. Processors are trying to pull enough beans out of the hands of those who still own them to keep them supplied while they eagerly wait for the new crop to start flooding in.

The storyline of Feast vs. Famine or better, Famine vs. Feast, has perhaps never been more aptly illustrated in the soybean market than by the price action between the two crop years. As the 2013-2014 marketing year winds to a close, the tight carryover has resulted in a lack of deliveries as tight-fisted holders of the beans try to squeeze every last nickel out what they still own while the rest of the market braces itself for a massive harvest. This has sent the spreads widening out once more and made for a September bean contract which is pulling the entire grain floor higher as short-term oriented technical-based traders come in and buy.

ProFarmer was out with their usual news about how "disappointing" corn yields are going to be in Iowa this year, compared to what USDA is projecting but nothing that comes out of Pro-Farmer ever surprises me. That is putting a bid under the corn market as well.

I suspect we will see the game in the September bean contract continue as we head into the delivery process ( I believe FND is next Friday). It will be interesting to see if we have the same lack of deliveries that allowed the August to soar prior to expiration or if the holders of these beans finally decide to get rid of them while they can still fetch some of these stratospheric prices prior to harvest pressure commencing. The combines will be doing their thing in the Delta sooner rather than later at this stage. Expect some pretty wicked volatility in this contract as the days progress.

There is some heat coming into parts of the Midwest today and through the weekend but that has been preceded by fairly decent rains. Temps should fall off somewhat early next week. In my view, this is a very good scenario for the crops. With sufficient moisture in most areas, heat will work to speed development. It is one thing to have very hot temps without moisture; it is altogether another issue to have heat and moisture, especially when corn is through its pollination stage and beans are mainly setting pods or in the process of filling them.

Gold is hanging above support just above $1270. The support zone is noted on the chart. It extends from $1280 - $1270. A downside breach of this zone will send the market down towards $1240. Right now the only thing gold has going for it is geopolitical in nature. Ukraine, Gaza, ISIS, etc. From what I can tell at this point, large traders are selling rallies; however, there is enough interest coming in from those buying it for a safe haven from geopolitical unrest that it is not falling sharply. Range trade is still the name of the game in there. Some are squawking about Russia sending a humanitarian relief column into Ukraine without asking permission and that is firming the metal somewhat today after it was pressured early in the session.


Fed Chair Janet Yellen's remarks in Jackson Hole today were considered not friendly for gold as they were construed along the same line as the FOMC minutes released this week, namely, hawkish. Still, the decision to move on the interest rate front will be data dependent as it has been for some time now.

The Dollar is definitely on the move. The double from the FOMC and from Yellen's remarks this AM, combined with some decent economic data this week, has sent it moving strongly higher on the charts. The breakout from that band of congestion is impressive. There does not look to be much in the way of overhead resistance until one nears the 82.60 level. Resistance in the USDX seems to be coming in near the ".50" levels. ( 82.50, 83.50, 84.50, etc.).

 

In retrospect, it is now obvious that Draghi ( urged by Euro zone exporters) has gotten exactly what he wanted for, namely, a weaker Euro. Whether the 1.40 will prove to be a MAJOR LONG TERM HIGH in the Euro is yet unclear but it certainly is a Intermediate term high. With the Fed talking interest rate hikes and with some bemoaning "Europe's lost decade", higher interest rates are not coming to the Eurozone any time soon.

With the Euro perched precariously just above another downside support layer near 1.3200, any violation of that will allow the currency to drop another 100 points towards 1.3100. The RSI demonstrates how weak this market has been for some time now.

The way things are looking right now, homeowners in the US Northeast are going to catch a nice break this winter on their heating costs. Heating oil prices have been steadily moving lower throughout this year, but especially over the last few weeks. Price is approaching what appears to be a pretty strong level of support near $2.80 - $2.72 however. That might hold it. However, if we see crude prices continue to weaken, heating oil will likely melt right through this support zone. I want to keep a close eye on this market as we approach the 3rd quarter and begin to move towards the colder weather later this year.

Gold stocks continue their range trade as well. You can see the two large, well-defined ranges drawn on the weekly chart. Until price can break out from one or both of these ranges, they are going nowhere. The good news for the long-suffering gold stock bulls, is at least they have stopped going down! There is some steady accumulation taking place by those with a much longer investment time frame horizon but for those looking for momentum-based movers, this sector is certainly not "it".