"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, November 11, 2014

Yesterday's Outside Reversal in Meal, Negated by Today's Outside Reversal

Please see the comments and chart I posted yesterday asking the question whether the Meal has finally topped out. That price action was in response to a bearish USDA supply and demand report for the beans, especially the global supply numbers that they announced.

Today, that report was completely ignored. Instead, hedge fund computers began gorging themselves on the meal and the beans early in the session with the result  being an enormous reversal day on huge volume, this time to the upside.

In other words, today's OUTSIDE REVERSAL DAY exceeded the range of yesterday's reversal day, which had exceeded the range of Friday's.

Welcome to the idiocy of the modern futures markets, courtesy of both the hedge fund algorithms and the exchange officials who not only allow it, but love it.

I should note that the volume in the contracts that I was tracking actually exceeded the volume of the USDA report day. In all my years of trading, I cannot recall seeing anything remotely like this. Report days generate massive amounts of trading and produce huge surges in volume as the markets react to what is the new demand/supply numbers provided by the USDA.

This is the reason I have to constantly take the gold permabulls to task for their erroneous, breathtaking comments and articles detailing what they naively refer to as "Flash Crashes". I have no problem with anyone noting huge swings in price but those who propose the Flash Crash theory when it comes to GOLD, use it as evidence that the price of gold is being manipulated by the bullion banks, acting as agents of the Fed, to suppress the price of the metal.

As I have written in response to this nonsense more times than I can remember at this point, "Flash Crashes" or "REVERSE FLASH CRASHES" are now the NEW NORMAL in many of our futures markets, thanks to these pestilential computer algorithms and the fact that there is such an enormous amount of hot money that has been throw into the futures markets, markets which are simply too small to handle either the ingress or egress of such huge sums of money.

This is where I fault not any supposed "evil bullion banks" but rather those who are charged with enforcing strict limits on the number of futures positions that any one entity should be allowed to place in any one market.

Many years ago, when we had transparent, honest and "normal" open outcry pits in which business was being conducted, larger positions were okay because everyone on the floor could see who was doing what and figure out the why eventually. Scale up selling and scale down buying was also a regular feature of most professional traders.

Not any more - these enormous hedge funds ( way too large) swamp everything in sight whether they are coming into a market or exiting a market. They know nothing of finesse or skill - they simply rapid fire huge blocks of buys or sells into a market, regardless of its size in relation to the number of positions they either have on or wish to add, and obliterate anything that happens to be on the other side. That also includes COMMERCIALS, a growing number of which have had enough of the kind of carnage produced by these mindless machines and their owners and are moving more and more of their business to OTC markets, where they do not have to put up with this sort of thing.

Just keep in mind this chart whenever you hear some gold perma bull start yakking about Flash Crashes once again. You will realize that they have not the faintest idea of what they are even talking about and you can safely ignore them and whatever strange and exotic conclusions that they manage to draw from it.

Hedge funds computers have NOW BECOME THE MARKETS. That is the sad truth and based on the inaction and blasé attitude of exchange officials, it is never going to change. Maybe, in a few more years, after the computers have run all of the commercial interests and small specs out of the market, and all that is left is computers trading against other computers, some enterprising group of individuals will construct an exchange in which transparency and actual price discovery once again becomes the main focus of the exchange. Wouldn't that be something?