Continuous Commodity Index back above its recently broken support level

Some of the readers might recall seeing the chart of the CCI that I posted not long ago detailing my concerns as to whether a deflationary mindset was creeping back into the markets. That was based on the pattern of the weekly CCI chart which showed a breakdown of the support level thereby forming a double top in the process.

Today, the risk trades were back in force with the US equity markets roaring higher once again. That had most commodity markets seeing hedge fund money flowing in after it all flowed out for the past two weeks.

In the process, the CCI was able to move back above the broken support level shown on the chart which set off the double top alarm bells. This is a significant development as it shows that the bulls are not yet ready to throw in the towel on the commodity sector as a viable asset class. Here is the key however - today's move was impressive but there are still two days remaining in the trading week.

How this index closes Friday afternoon will be a very big deal. If it can hold this level which comes in near 640 and stay above that, preferably moving above the previous week's high at 650 while so doing, it would give us the very real possibility that a bear trap was sprung and this index is going to try pushing back towards 660 for starters. That would immensely benefit both gold and silver bulls.

Should the index fail and drop back below 640 for the week on the close, the bears would have dodged a bullet and the bulls will be back on defense.

Obviously we are all back to trading risk or not risk. "Wax on Daniel San; Wax off Daniel San". If Risk is back on, then the index will move higher. If not, it will move below support once again.

By the way, the long bond chart shows the return of risk trades in today's session with a huge downside move forming a bearish engulfing pattern on the daily chart. Whether that holds is anyone's guess. As manic as the hedge funds are, they could stage an outside day reversal to the upside tomorrow. However, after having moved nearly vertical for the past 5 weeks, the bonds are overbought technically giving traders a reason to book profits based off the bearish chart signal today.

I would feel a bit more confident about a breakdown in the bonds if we get some followthrough selling in tomorrow's (Thursday) session. They are still above the 10 day moving average and need to at least take that out to get the bulls wavering a bit further. Also note that the bonds have completed a move to the 50% Fibonacci retracement level from the decline off the late October high where they promptly failed. The bulls will need some ammunition to prevent some bears from getting a bit more confident.

4 Hour Gold Chart

Gold continues its range trade and has now moved to the top of that range between $1500 and $1480 - $1470. A strong push past $1500 would be a psychological boost to the gold bulls and would unnerve a few of the weaker shorts as well. We could expect to see their short covering provide enough fuel to take it to $1510 should that occur.

It will take a close through $1520 to let it challenge $1530 and give it the potential to then attack $1550.

Downside moves towards $1480 - $1470 continue to attract buying and with the Dollar fading from near the 76 level again, that buying should continue. I would not expect $1470 to give way unless the USDX were to be able to push towards 76.50.

Must be a Slow Day at the FDA

Apparently the Food and Drug Administration has nothing better to do with their time than hunt down those crafty food terrorists also known as the Amish.

I am shocked, simply shocked, that raw, unpasteurized milk was being sold to willing buyers. It is just a matter of time before the names of these devious dairy farmers appear on the no-fly list. Then again, maybe the feds will come up with a "no horse buggy ride" list instead.

Feds sting Amish farmer selling raw milk locally

A yearlong sting operation, including aliases, a 5 a.m. surprise inspection and surreptitious purchases from an Amish farm in Pennsylvania, culminated in the federal government announcing this week that it has gone to court to stop Rainbow Acres Farm from selling its contraband to willing customers in the Washington area.

You can read the entire story here:

http://www.washingtontimes.com/news/2011/apr/28/feds-sting-amish-farmer-selling-raw-milk-locally/

 

XAU attempting to bottom

The XAU and the HUI are both showing some good resilience at these levels. Three times over the last 4 trading sessions the XAU has bounced from off the level near 193. It is can take out 200, it should spark some short covering which will be indicative of the shares moving a bit higher from current levels as they are grossly oversold.

Gold - 4 Hour chart update

Gold is rangebound as is silver as it continues to attract buying on forays down towards $1480 and below. It has resistance at the top of its range coming in first near $1495 and then again up near $1510.

Silver - 4 hour chart

Silver has bounced off of support down near $33 once again and is moving higher at this hour. Thus far it is reinforcing that level as good buying support with selling coming in near $36 - $37. It might very well be carving out a new range.

Keep in mind that as equity markets move higher, so too will silver and as equity markets move lower, silver will follow. It is all about risk trades and money flows for the time being and whether or not the hedge funds are putting those on or taking them off.

Ron Paul proposes that the US sell gold to pay its debt

Those of you out there who believe that Ron Paul can do no wrong, would be well advised to read his comments proposing that the US sell some of its gold reserves to pay its debts.

Chalk up a hair-brained idea from the Congressman from Texas. While we are at it, why not just sell off the Brooklyn Bridge, Yosemite, Yellowstone and the Everglades. And to think that I actually believed he was very solid on monetary matters.

The Republican party, which by the way has control of the House of Representatives, could simply refuse to raise the debt limit and insist on obtaining strict spending cuts to get the US economic house in order but that would require something that most of our elected representatives do not have. AFter all, all spending bills are required to originate in the House. If the House does not approve the spending bill, the money cannot be spent.

Instead the proposal reeks of the same sort of desperation seen by spendthrifts who end up scouring their old dresser drawers and boxes in their closets looking for family heirlooms and other valuables to go hock at the local pawn shop. The very fact that this idea is actually floating around out there fills me with complete disgust and disdain for the political class. These damn fools spent us all into the toilet and now are considering having to sell what belongs to the US citizenry to cover their rear ends.

Study history - the nation with the most gold will be the nation which holds economic supremacy. Here's a bit of advice for the pols in Washington, including Mr. Paul - stop spending money you do not have. It is not your money that you are spending; it is ours and our children's money.

This is one of the few times that I believe the spokesman for the Obama administration makes sense.


If the US was wise, it would be the first to introduce some sort of gold backing to its currency (after significantly upwardly revaluing the official price at which those holdings are currently valued). That combined with serious attempts to rein in the out of control spending and pro-growth policies would enable the US to begin to grow its economy and create the necessary jobs to supply the desperately needed revenues that the policy makers are looking for.

Of course, if they actually did sell it, India and/or China would gobble it all up in one fell swoop.

See the entire article here.

http://www.nysun.com/national/selling-gold-at-fort-knox-emerges-as-next-big/87350/

Selling Gold at Fort Knox Emerges as Next Big Question in Debate on Federal Debt Limit

Congressman Paul Endorses the Idea, Amid Showdown Between Congress, Administration

By DAVID PIETRUSZA, Special to the Sun | May 17, 2011

NEW YORK — The next big question on the federal debt limit could be whether to start selling the government’s holdings of gold at Fort Knox — and at least one presidential contender, Ron Paul, has told The New York Sun he thinks it would be a good move.

Is a Deflationary Mindset creeping back in?

Take a look at the following four charts and judge for yourself.

First - the overall Commodity Complex as illustrated by the CCI (Continuous Commodity Index). It continues to trade below the support level delineating a double top pattern. Until it climbs back above this level, it tells us that commodities as a sector are currently out of favor with the hedge funds. While the steep, near term uptrend has currently been broken, the longer term uptrend remains solidly intact however.

Translation - while the hedgies are currently disgorging long positions in the commodity sector as a whole, the major trend towards higher commodity prices over the long haul is still very much alive. Short term trend - bearish. Long term trend - bullish.

Second - the Long Bond - it has now broken out to the upside and is moving higher dropping yields lower. The long bond in particular is a good gauge of trader expectations of inflation. Bonds are now in a "see no evil, hear no evil, speak no evil" mode when it comes to inflation. This is the exact same thing they did back in 2008 when the carry trade was unwinding and commodities were buckling.

Note that the bonds have moved exactly to the 50 week moving average, a critical resistance level. If they break through this, they are going to head towards the 50% Fibonacci retracement level of the decline that began last year when talk about the next round of Quantitative Easing began surfacing. They then completely broke down as traders correctly feared the inflationary impact of Ben's helicopter drop. This is the reason I suggest that if the equity markets begin to implode as QE2 supposedly comes to an end when the month of June expires, that the FOMC may very well possibly cook up a new QE3 if economic data continues to deteriorate and the payrolls situation does not begin to improve. The economy can only continue to muddle along for so long before cries for the Fed to "Do Something" will surface.

Thirdly - the US Dollar continues to trade above its 50 day moving average. While it has yet to close above tough resistance near 76 on the USDX it is still holding above that major moving average. If it falls back down below this level, it should encourage the risk trades to come back on, at least for a while. That would push commodity prices higher. If it moves higher and takes out 76 on a closing basis it would indicate that a run towards 77 is very likely. Such a thing would feed into further unwinding of the carry trade and would pressure commodities overall.

Fourthly and lastly - the S&P 500, which is the best representation of the broader US equity markets. While its daily chart is showing definite signs of weakness, the weekly chart still shows a market in a solid uptrend. This is perhaps the one thing that is keeping the deflationary mindset from becoming firmly entrenched and what is keeping this from becoming a replay of 2008. As long as this market holds the uptrend, weakness in the commodity sector should not become too serious. If this market were to break down on the weekly chart however, we would have to expect more weakness across the commodity sector as a whole, especially if the US Dollar were to break through 77 on the USDX.

Keep in mind that this is perhaps the worst volatility that we have experienced in some time. Various factors are producing severe crosswinds which are creating instability and confusion in the minds of traders/investors as such attempt to discern the impact of Central Bank action or inaction on the markets. Sovereign debt woes in Euroland have added yet another mixture to this bizarre witches' brew of uncertainty. Inflation fears in the emerging economic powerhouses of China and Brazil add yet another component for those attempting to see through the fog and ascertain the status of the overall global economy. Energy prices have soared fanning the fears of inflation only to come crashing back to earth once traders feared their dampening impact on global growth. Now that these same energy prices have dropped so sharply, does this work to improve growth prospects as the "energy tax" impact dissipates? Or is this a sign of deflation creeping back in? That same questions could be asked over food prices in general.

With all of these factors many traders are just saying, "enough" and are heading to the sidelines. That works to create even more volatility as it tends to exaggerate or amplify price swings in the markets on account of the reduced liquidity.

Expect the unexpected and you will be okay. Look at the longer term charts to keep your perspective and try not to be too distracted by the day to day gyrations. Respect the technicals on the charts as our modern markets are governed by these, whether we like it or not. If you do, you will come through this perhaps a bit bloodied but you will come through it as a survivor. Be foolish enough to attempt to impose your will on the market, and you will be crushed and left for dead on the trading floor. Remember that the markets could care less what any of us think or say about them. They are what they are. Professionals know this; Novices will learn this soon enough, much to their own chagrin and impoverishment.