Open interest in both gold and silver were down for Friday's session. Rollovers continue in gold with the specs moving out of the April and into the June. For all practical purposes, June is now the most active contract although volume in the April is still higher. That will end by Wednesday this week.
Some of the weakness in gold is still associated with these rollovers continuing as the inability of gold to continue pushing through $1440 last week has engendered some light long liquidation. Once we clear option expiration and the rollover activity, we will be able to get a better sense for where the market is heading next. For now it is still consolidating above $1410.
Silver too experienced some long liquidation on Friday with some of the longs ringing the cash register after it was unable to keep pushing through the $38 level.
Open interest remaining in the expiring March contract is now down to 388 contracts. Deliveries for tomorrow will be lead by Morgan for its own account. Barclays is the largest stopper once again for clients. As stated last week, Barclays has some clients who want to take delivery. Total deliveries for March thus far are 1,417.
March silver remains at a premium to the active May of about a half a cent but May is slipping some in relation to July and is now trading at a 2 cent discount to it. While the backwardation structure on the overall board is noteworthy it is not dynamic enough to keep the front 3 contract months in a full backwardation mode. That takes some of the bullishness out of it somewhat compared to what I would consider it were March and May both trading at a premium to the July. I will continue watching to see how these spreads behave as we near the end of the month.
The HUI is lower today falling further from the 580 level and establishing that as an important technical chart resistance level. It is well off its worst levels of the session however and should it be able to close the day near current levels (563) it would be somewhat of a moral victory of the bulls after the disappointment of last week's inability to clear 580. The index is trading above all the major moving averages but the 10 day is below the 20 day which is not what one wants to see for a market that is in a bullish posture. The index will need to stabilize near its current level and hold here for the next few days to allow the shorter term 10 day moving average to make a bullish crossover of the 20 day. Downside support is near 549 - 546. I would not want to see the HUI below 538 for any length of time as that would move it back down to 520.
Monday, March 28, 2011
Saturday, March 26, 2011
Friday, March 25, 2011
The Seeming Unstoppable Rally in US Equities
One of the things that has really struck me has been the comments of many of the analysts and guests on the financial TV this past week in regards to the rally in US stocks.
The common refrain seems to be something along these lines:
"Well Joe, this market has had TWO BLACK SWAN Events thrown at it in two week's time and it simply will not stay down. Whenever you see a market that does not respond to bad news and actually begins to shrug off that news and moves higher, you JUST HAVE TO BUY IT".
It is always fun listening to some of these analysts scratch around for reasons to explain this stock market strength especially when some of these same people will point to the poor labor markets and broken housing market as reasons for concern. Some go as far as expressing great hesitation over further strength given the sharp rise in crude oil and related energy prices. They sluff that off however and will point to the global growth factor as reasons for the rally in the US equity markets with that overiding everything else.
The simple truth is that the world is awash in liquidity and this liquidity is finding its way into both stocks and commodities. It is so massive that it just overpowers anything that gets in its way. In such an environment most traders are simply afraid of being short. What happens as a result of this unwillingness to aggressively sell is that it takes less and less volume to move stock prices higher because sellers are scarcer and price must move high enough to entice sufficient offers into the market to accomodate all the orders to buy.
Take a look at the following chart which I have posted previously here at the site but which I think needs frequent reference to remind us how important this liquidity has become to maintaining the rally in US stocks.
Note the sharp expansion in the Fed's Balance sheet near the beginning of this year and note how it just keeps on rising. It is that measure of liquidity that swallowed up the selling due to unrest in MENA and the tragedy surrounding Japan.
The Fed may be floating a trial balloon by talking about an end to QE to gauge how stock markets will actually react to such an event but one has to wonder how shutting off the liquidity spigot, based on this chart, is going to affect the high flying equity markets.
The common refrain seems to be something along these lines:
"Well Joe, this market has had TWO BLACK SWAN Events thrown at it in two week's time and it simply will not stay down. Whenever you see a market that does not respond to bad news and actually begins to shrug off that news and moves higher, you JUST HAVE TO BUY IT".
It is always fun listening to some of these analysts scratch around for reasons to explain this stock market strength especially when some of these same people will point to the poor labor markets and broken housing market as reasons for concern. Some go as far as expressing great hesitation over further strength given the sharp rise in crude oil and related energy prices. They sluff that off however and will point to the global growth factor as reasons for the rally in the US equity markets with that overiding everything else.
The simple truth is that the world is awash in liquidity and this liquidity is finding its way into both stocks and commodities. It is so massive that it just overpowers anything that gets in its way. In such an environment most traders are simply afraid of being short. What happens as a result of this unwillingness to aggressively sell is that it takes less and less volume to move stock prices higher because sellers are scarcer and price must move high enough to entice sufficient offers into the market to accomodate all the orders to buy.
Take a look at the following chart which I have posted previously here at the site but which I think needs frequent reference to remind us how important this liquidity has become to maintaining the rally in US stocks.
Note the sharp expansion in the Fed's Balance sheet near the beginning of this year and note how it just keeps on rising. It is that measure of liquidity that swallowed up the selling due to unrest in MENA and the tragedy surrounding Japan.
The Fed may be floating a trial balloon by talking about an end to QE to gauge how stock markets will actually react to such an event but one has to wonder how shutting off the liquidity spigot, based on this chart, is going to affect the high flying equity markets.
Silver Musings
Silver actually put in a good showing for the week closing up $2.00 higher while setting a new 31 year high in the process. It was unable to maintain its footing above $38 for long but did hold support near the $37 level.
Moving into next week if it can stay above the $37.00 - $36.80 level, it should be able to consolidate and set itself up for a run towards $38 once again. If that support level does not hold, it will drift down first towards $36.50 and then toward $36.
I would prefer to see it stay above $36 as that had been a major barrier to the upside and should now serve as a major support level to the downside if the market is going to press on to new highs relatively soon.
Deliveries for the March contract are picking up as expected since we are running out of days in the month. A total of 236 were issued for Monday with JP Morgan being the big kid on the sell side once again. I should note that there are almost evenly split between issuing silver for clients as well as for their own account. Barclays is once again the big stopper along with Prudential coming in second. Both of those firms apparently have clients who want to own the physical metal.
There has been a total of 1,383 contracts issued and stopped this month with 632 contracts remaining open in the March. I should also note here that the March contract remains at a one cent premium to the May. That is noteworthy.
Moving into next week if it can stay above the $37.00 - $36.80 level, it should be able to consolidate and set itself up for a run towards $38 once again. If that support level does not hold, it will drift down first towards $36.50 and then toward $36.
I would prefer to see it stay above $36 as that had been a major barrier to the upside and should now serve as a major support level to the downside if the market is going to press on to new highs relatively soon.
Deliveries for the March contract are picking up as expected since we are running out of days in the month. A total of 236 were issued for Monday with JP Morgan being the big kid on the sell side once again. I should note that there are almost evenly split between issuing silver for clients as well as for their own account. Barclays is once again the big stopper along with Prudential coming in second. Both of those firms apparently have clients who want to own the physical metal.
There has been a total of 1,383 contracts issued and stopped this month with 632 contracts remaining open in the March. I should also note here that the March contract remains at a one cent premium to the May. That is noteworthy.
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