Saturday, April 23, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click here to listen to my regular weekly radio interview with Eric King of King World News on the Weekly Metals' Wrap.
Thursday, April 21, 2011
A BRIEF CONSIDERATION OF SILVER'S OPEN INTEREST
Time permitting, I hope to have more on this later but wanted to throw a brief comment or two about silver's rocket move higher.
This has been a strange market to read with what I consider to be confusing CFTC COT reports and various changes in the daily open interest as well as all manner of rumors surrounding the delivery process. If I had nothing to go on but price action, I would say that a large short or shorts are in serious trouble and are attempting to get out but are not being allowed to by some very big and committed buyers who are going after them. I have seen enough cornered shorts being hounded by wolves who smell blood in the water during my trading career to be fairly confident that this is behind some of the price action in silver.
However, based strictly on the changes in open interest it is unclear if this is actually occuring. The sharp push from $34 to $42 was accompanied by a rather sizeable increase in open interest indicating that it was not primarily driven by short covering. If anything, fresh shorts were piling in, each of them attempting to pick a top or with other purposes in mind and kept on coming in as silver moved an incredible $8 higher in less than a month's time.
From $42 to $44 there was short covering occuring as some of the shorts were throwing in the towel and giving up leaving a lot of blood on the floor of the pit as they departed. However, once again the open interest has stabilized and actually ticked up some Wednesday as price soared above $45. Clearly some new shorting is occuring as top pickers are once again trying to strike what they think is paydirt. I am especially eager to see the numbers from today's sharp push through $46.
At some point the top pickers are going to get it right but as long as they keep coming in and the determined buyers keep showing up, we should see more bouts of this sort of change in open interest - namely - it increases as these fresh shorts take on the new buyers only to see the same shorts run for cover and close out their short positions with large losses as the market buying pressure forces them out. The process can then repeat with open interest rising and then subsequently falling and then repeating again.
If we do indeed get a serious short squeeze, and I mean one in which we see a total capitulation of the large short that has ruled this market for many years previously, we are not going to see any increases in open interest but rather a sharp fall in the total OI as they finally and completely give up. Whether that happens is anyone's guess. I would have thought it would already have commenced seeing the enormority of the paper losses that are accruing to those on the short side of this market. The margin calls and the need to constantly raise more cash to maintain these deeply underwater short positions must boggle the mind at this point. Just the run from $34 to $42 was a loss of $40,000 per single contract! Imagine holding hundreds if not thousands of these!
Having been on the wrong side of a market at various times in my career I can tell you from firsthand experience, the emotions that one deals with run the gamut from fear to despair to panic and total desperation. It is a horrid thing to live through mainly because the losses mount at such a rapid clip. What makes matters worse is that you keep waiting for a setback in price, any setback, to try to buy back those shorts and it never seems to come. Prices just keep going up and up and up and up. You learn very quickly the terrible, awful power of leverage gone awry.
We will just have to wait and see how this all ends but for now, with so many apparently eager top pickers coming in, it is difficult to say that this thing has run out of upside just yet. They are providing the firepower to take it higher as they are forced into buying it all back at a higher level and taking their losses with them. Perhaps when we see an end to efforts to pick a top, this thing will actually top out. Either way, it has been one helluva ride already. The thing is that if you look at silver in inflation adjusted terms, the gray metal is still cheap by comparison to where it was in late 1979, early 1980.
This has been a strange market to read with what I consider to be confusing CFTC COT reports and various changes in the daily open interest as well as all manner of rumors surrounding the delivery process. If I had nothing to go on but price action, I would say that a large short or shorts are in serious trouble and are attempting to get out but are not being allowed to by some very big and committed buyers who are going after them. I have seen enough cornered shorts being hounded by wolves who smell blood in the water during my trading career to be fairly confident that this is behind some of the price action in silver.
However, based strictly on the changes in open interest it is unclear if this is actually occuring. The sharp push from $34 to $42 was accompanied by a rather sizeable increase in open interest indicating that it was not primarily driven by short covering. If anything, fresh shorts were piling in, each of them attempting to pick a top or with other purposes in mind and kept on coming in as silver moved an incredible $8 higher in less than a month's time.
From $42 to $44 there was short covering occuring as some of the shorts were throwing in the towel and giving up leaving a lot of blood on the floor of the pit as they departed. However, once again the open interest has stabilized and actually ticked up some Wednesday as price soared above $45. Clearly some new shorting is occuring as top pickers are once again trying to strike what they think is paydirt. I am especially eager to see the numbers from today's sharp push through $46.
At some point the top pickers are going to get it right but as long as they keep coming in and the determined buyers keep showing up, we should see more bouts of this sort of change in open interest - namely - it increases as these fresh shorts take on the new buyers only to see the same shorts run for cover and close out their short positions with large losses as the market buying pressure forces them out. The process can then repeat with open interest rising and then subsequently falling and then repeating again.
If we do indeed get a serious short squeeze, and I mean one in which we see a total capitulation of the large short that has ruled this market for many years previously, we are not going to see any increases in open interest but rather a sharp fall in the total OI as they finally and completely give up. Whether that happens is anyone's guess. I would have thought it would already have commenced seeing the enormority of the paper losses that are accruing to those on the short side of this market. The margin calls and the need to constantly raise more cash to maintain these deeply underwater short positions must boggle the mind at this point. Just the run from $34 to $42 was a loss of $40,000 per single contract! Imagine holding hundreds if not thousands of these!
Having been on the wrong side of a market at various times in my career I can tell you from firsthand experience, the emotions that one deals with run the gamut from fear to despair to panic and total desperation. It is a horrid thing to live through mainly because the losses mount at such a rapid clip. What makes matters worse is that you keep waiting for a setback in price, any setback, to try to buy back those shorts and it never seems to come. Prices just keep going up and up and up and up. You learn very quickly the terrible, awful power of leverage gone awry.
We will just have to wait and see how this all ends but for now, with so many apparently eager top pickers coming in, it is difficult to say that this thing has run out of upside just yet. They are providing the firepower to take it higher as they are forced into buying it all back at a higher level and taking their losses with them. Perhaps when we see an end to efforts to pick a top, this thing will actually top out. Either way, it has been one helluva ride already. The thing is that if you look at silver in inflation adjusted terms, the gray metal is still cheap by comparison to where it was in late 1979, early 1980.
US Dollar posts the lowest Weekly Close in 32 Months
Not much more needs to be said about the US Dollar than this headline. They managed to push it just barely above the support level ahead of the long holiday weekend but it certainly looks weak heading into next week. The problem is even though the "short Dollar" trade is crowded, there does not yet exist a fundamental reason to buy the Greenback.
That bodes poorly moving forward, oversold, crowded or extreme bearish sentiment notwithstanding.
That bodes poorly moving forward, oversold, crowded or extreme bearish sentiment notwithstanding.
CMEGroup (Nymex and Comex) markets closed for trading tomorrow
Gold and silver will not be trading on the Comex tomorrow in observance of the upcoming Easter Holiday according to the CME press release. They will reopen Sunday evening.
Thursday, Apr 21
NYMEX & COMEX® and DME Products on CME Globex 1615 CT / 1715 ET – Regular CME Globex close for trade date Thursday, Apr 21
Friday, Apr 22 CME Globex is closed
Sunday, Apr 24 1700 CT / 1800 ET – Regular CME Globex open for trade date Monday, Apr 25
Thursday, Apr 21
NYMEX & COMEX® and DME Products on CME Globex 1615 CT / 1715 ET – Regular CME Globex close for trade date Thursday, Apr 21
Friday, Apr 22 CME Globex is closed
Sunday, Apr 24 1700 CT / 1800 ET – Regular CME Globex open for trade date Monday, Apr 25
Silver - 30 Minute chart
Here is a 30 minute chart of Silver noting the current support and resistance levels at this time.
A push through the region near $46.25 should let it run towards $47. A breach of $45.50 would imply a drop towards $45.10.
A push through the region near $46.25 should let it run towards $47. A breach of $45.50 would imply a drop towards $45.10.
Wednesday, April 20, 2011
The US BOND market has become the most important market on the Planet
It is my opinion that out of all the markets that the monetary officials are keenly interested in, some to the point of tinkering with constantly, no one market has become more important to them than the US Treasury market. Not even the Dollar has them as extremely on edge as the long bond in particular.
The reason for this is twofold. First of all, since the Fed is engaging in QE2, they cannot afford to allow the bond market to break down technically on the price charts. That would send a signal to every single hedge fund computer algorithm in existence to slam this market down sharply lower. The resultant rise in long term interest rates would choke off the economic "recovery" and would utterly and hopelessly short circuit the very reason for their massive purchases of Treasuries, purchases which I might add have resulted in their balance sheet holding more Treasury paper than the total reported holdings of China.
Second is the massive US federal debt level, a level which is looking increasingly like one associated with a banana republic. The cost of servicing the interest alone on this debt ratchets up with alarming rapidity with each and every tick higher in interest rates. As more and more new debt is issued, it then comes with a higher price tag for the federal government. A sinking bond market would compound this inescapable problem and add an entirely new dimension to the crisis.
That is what must keep monetary policy planners as well as fiscal policy planners awake at night and why so much attention is fixated on the bond market. It is also the reason that whenever any of the Fed governors sound a hawkish note on the US economy, Bernanke and the rest of the doves on the Board are so quick to counter. Their comments always serve to rescue the bond market from any potential sell offs.
Take a look at the following chart and note the nearly perfect correlation between the price action in the broader equity markets as illustrated by the S&P 500 chart and that of the long bond. The area within the rectangle is what I would like you to focus on. Note also the level of the S&P at its recent peak near 1340 and the level of the bond at that time, which had a 117 handle on it.
Now move to the right of the chart to see today's closing price on both. The S&P is a mere 14 points off its recent high and yet we see the bonds sitting with a handle of 121, fully 4 points higher than the last time we were anywhere near 1344 on the S&P.
Combine this print on the bonds with the fact that the Continuous Commodity Index ( CCI ) put in an ALL TIME HIGH today with strength seen in the surging energy and precious metals markets, and one can see just how greatly the Federal Reserve has DISTORTED the interest rate markets in the US.
What they are attempting to do (and succeeding I might add) is to camoflauge or better yet, counterfeit, the message being generated by the bond market. They are duplicitly masking the inflationary results of their policy of QE.
I might add that if this were not fradulent enough, it also comes on the heels of a stunning downgrade of the US credit outlook by the ratings agency Standard and Poor. Imaging this even being possibly contemplated a decade ago!
In the face of a falling dollar, a US credit outlook downgrade, a surging stock market, and soaring commodity prices, the bond market, thanks to the interference by the Federal Reserve is telling us all that the only thing we need to fear is fear itself.
History is going to record this sham and I trust will not deal kindly with those who have perpetrated this fraud upon the American citizenry.
This will not end well.
The reason for this is twofold. First of all, since the Fed is engaging in QE2, they cannot afford to allow the bond market to break down technically on the price charts. That would send a signal to every single hedge fund computer algorithm in existence to slam this market down sharply lower. The resultant rise in long term interest rates would choke off the economic "recovery" and would utterly and hopelessly short circuit the very reason for their massive purchases of Treasuries, purchases which I might add have resulted in their balance sheet holding more Treasury paper than the total reported holdings of China.
Second is the massive US federal debt level, a level which is looking increasingly like one associated with a banana republic. The cost of servicing the interest alone on this debt ratchets up with alarming rapidity with each and every tick higher in interest rates. As more and more new debt is issued, it then comes with a higher price tag for the federal government. A sinking bond market would compound this inescapable problem and add an entirely new dimension to the crisis.
That is what must keep monetary policy planners as well as fiscal policy planners awake at night and why so much attention is fixated on the bond market. It is also the reason that whenever any of the Fed governors sound a hawkish note on the US economy, Bernanke and the rest of the doves on the Board are so quick to counter. Their comments always serve to rescue the bond market from any potential sell offs.
Take a look at the following chart and note the nearly perfect correlation between the price action in the broader equity markets as illustrated by the S&P 500 chart and that of the long bond. The area within the rectangle is what I would like you to focus on. Note also the level of the S&P at its recent peak near 1340 and the level of the bond at that time, which had a 117 handle on it.
Now move to the right of the chart to see today's closing price on both. The S&P is a mere 14 points off its recent high and yet we see the bonds sitting with a handle of 121, fully 4 points higher than the last time we were anywhere near 1344 on the S&P.
Combine this print on the bonds with the fact that the Continuous Commodity Index ( CCI ) put in an ALL TIME HIGH today with strength seen in the surging energy and precious metals markets, and one can see just how greatly the Federal Reserve has DISTORTED the interest rate markets in the US.
What they are attempting to do (and succeeding I might add) is to camoflauge or better yet, counterfeit, the message being generated by the bond market. They are duplicitly masking the inflationary results of their policy of QE.
I might add that if this were not fradulent enough, it also comes on the heels of a stunning downgrade of the US credit outlook by the ratings agency Standard and Poor. Imaging this even being possibly contemplated a decade ago!
In the face of a falling dollar, a US credit outlook downgrade, a surging stock market, and soaring commodity prices, the bond market, thanks to the interference by the Federal Reserve is telling us all that the only thing we need to fear is fear itself.
History is going to record this sham and I trust will not deal kindly with those who have perpetrated this fraud upon the American citizenry.
This will not end well.
Tell me that Political Leaders don't put pressure on Ratings Agencies
Fox News is reporting a story that contributes further towards my cynicism towards political leaders, manely that the Obama Administration was pressuring the ratings agency S&P, not to downgrade the credit outlook for the US government as they did from "stable" to "negative".
Here is the headline:
I find this particular galling giving the fact these reckless spenders have created a situation in which the US Dollar is sinking under the weight of this massive debt load and continued monetary policy foolishness. Instead of wasting time twisting the arms of the rating agency, which is finally doing what it should be doing and sounding an appropriate warning, these people who help create this unmitigated disaster should be doing what responsible statesmen should be doing, namely stop spending the damn money that they do not have.
The more stories like this surface, the worse the light it puts the US government in and the more it leads to skepticism that anything will be done to address the most monumental issue of our day.
You can read the entire story here:
http://www.foxnews.com/politics/2011/04/20/obama-officials-tried-convince-sp-issue-credit-warning/
Here is the headline:
Obama Officials Tried to Convince S&P Not to Issue Credit Warning
Published April 20, 2011
| FoxNews.com
The more stories like this surface, the worse the light it puts the US government in and the more it leads to skepticism that anything will be done to address the most monumental issue of our day.
You can read the entire story here:
http://www.foxnews.com/politics/2011/04/20/obama-officials-tried-convince-sp-issue-credit-warning/
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