Wednesday, June 15, 2011
European sovereign debt woes erupting once again
Growing fears of a Greek government debt default have sent the Euro plummeting in today's trading session. It has also fueled a mad rush back into US bonds after the bottom fell out of that same market in yesterday's session. As I mentioned in my post last evening, the US bond market was liable to reverse course in a heartbeat as soon as the fear index rose once again. That is exactly what happened.
Investors fear a domino-like contagion effect upon the big European banks holding a substantial portion of Greek debt. Combine that with an Empire State Manufacturing Index reading of negative 7.8 (anything below zero shows contraction) plus a 0.3% rise in the core CPI reading (the sharpest rise since 2008), and stocks were hammered while the long bond regained most if not all of its huge losses from yesterday.
What we have here in the US seems more and more like the stagflation of the late 1970's - a slowing economy in which prices continue to rise - a notable exception being that wages are going nowhere. None of this is positive for consumer spending moving forward. While US companies that do a large portion of business overseas are showing good earnings, it is not translating into growth at a sufficient pace to put a dent in the lousy job market.
Oddly enough, I read some news this morning that housing prices in the Silicon Valley are surging as new found wealth from the recent technology IPO's has fueled what looks like another one of those insanely stupid buying binges with all the new rich kids tripping over themselves to bid up the price of their newest status symbol. In some cases they are bidding ABOVE the asking price. It was that same sort of imbecilic psychology that helped contribute to the housing bubble in many communities across the nation back in 2004-2007. I am sure the realtors there are extremely happy but I have to shake my head in bewilderment that many in this nation never seem to learn a single thing.
I think that is what happens when money is made too easily and too quickly instead of sysymetically increased year over year. Don't get me wrong, I begrude no ones success, but there is something that happens to those who find themselves suddenly extremely wealthy. They lose a sense of the value of wealth and how difficult it is to make it and hold onto it. Show me someone who has made a lot of money and then lost it, only to make it back through hard work and I will show you someone who is far more careful of it and far more frugal than those who meet with sudden success. More often than not, it goes straight to their head. It is said that youth is wasted on the young and foolish. I think the same thing could be said of riches on the young and foolish.
Back to the markets however - the collapse in the Euro has sent the US Dollar surging higher as risk trades from yesterday are being yanked off today. This is why I keep saying to traders - do not let any single day's price action fool you into thinking a trend is developing and spur you into placing large positions on. Only the dipsticks that run the hedge funds do that sort of thing. (As you can tell I have nothing but contempt for the majority of hedge fund managers - they are the worst traders on the planet). Smart traders will look at this schizophrenic market behavior and reduce position size or just get out altogether and enjoy some hobbies. Let these other fools shred each other to pieces. You can still trade but just trade in size that will not seriously hurt you if you are on the wrong side of the daily price action.
As the risk trades come off, the equity markets sink ever lower and the commodity markets see further downside. The S&P 500 is getting perilously close to the 1250 level, the level at which it goes negative for the year and at which it threatens to put in a double top on the longer term weekly chart. Should it do so, consumer confidence will fall off the charts. Consumer spending will suffer as the psychological impact of losses in their 401K and other retirement accounts, combined with home values that are also underwater, dampens the desire for big ticket items and forces further retrenchment on that part of the US economic engine. All this will do is build further pressure on the Fed to act. And thus the addiction to monetary stimulus continues until the junkie is hopelessly ruined.
Earlier in the session, gold had recaptured broken support near $1530 and looked like it was attempting to get its footing there. As the equity markets dropped near midsession, the unwind in the risk trades derailed it and took it lower towards $1520. I might add here however that in terms of both the Euro and the British Pound, gold is holding very firm. That should keep it supported in US Dollar terms and prevent a sharper selloff such as what we are seeing in the grains, fiber and energy markets.
As can be expected in this sort of environment, the Continuous Commodity Index is taking a sharp hit and has sunk below 650. As long as it stays above 640 it is still range bound however. A decline through that level which cannot be recaptured quickly will not be good news for commodity bulls as it will reflect the return of the deflation mindset. Rest assured that Bernanke and company are closely watching this chart also.
The Dollar's rally has it strongly back above the 50 day moving average. What is more important that that however is the fact that is has now reached the 100 day moving average. It fell below this critical moving average in January of this year and has been unable to put in a close above it since that time. Should it manage to push past 76 one has to give the move higher respect from a technical perspective. If it can push above 76.50 and hold those gains, we could see the Dollar make a run towards 78 in short order.
Investors fear a domino-like contagion effect upon the big European banks holding a substantial portion of Greek debt. Combine that with an Empire State Manufacturing Index reading of negative 7.8 (anything below zero shows contraction) plus a 0.3% rise in the core CPI reading (the sharpest rise since 2008), and stocks were hammered while the long bond regained most if not all of its huge losses from yesterday.
What we have here in the US seems more and more like the stagflation of the late 1970's - a slowing economy in which prices continue to rise - a notable exception being that wages are going nowhere. None of this is positive for consumer spending moving forward. While US companies that do a large portion of business overseas are showing good earnings, it is not translating into growth at a sufficient pace to put a dent in the lousy job market.
Oddly enough, I read some news this morning that housing prices in the Silicon Valley are surging as new found wealth from the recent technology IPO's has fueled what looks like another one of those insanely stupid buying binges with all the new rich kids tripping over themselves to bid up the price of their newest status symbol. In some cases they are bidding ABOVE the asking price. It was that same sort of imbecilic psychology that helped contribute to the housing bubble in many communities across the nation back in 2004-2007. I am sure the realtors there are extremely happy but I have to shake my head in bewilderment that many in this nation never seem to learn a single thing.
I think that is what happens when money is made too easily and too quickly instead of sysymetically increased year over year. Don't get me wrong, I begrude no ones success, but there is something that happens to those who find themselves suddenly extremely wealthy. They lose a sense of the value of wealth and how difficult it is to make it and hold onto it. Show me someone who has made a lot of money and then lost it, only to make it back through hard work and I will show you someone who is far more careful of it and far more frugal than those who meet with sudden success. More often than not, it goes straight to their head. It is said that youth is wasted on the young and foolish. I think the same thing could be said of riches on the young and foolish.
Back to the markets however - the collapse in the Euro has sent the US Dollar surging higher as risk trades from yesterday are being yanked off today. This is why I keep saying to traders - do not let any single day's price action fool you into thinking a trend is developing and spur you into placing large positions on. Only the dipsticks that run the hedge funds do that sort of thing. (As you can tell I have nothing but contempt for the majority of hedge fund managers - they are the worst traders on the planet). Smart traders will look at this schizophrenic market behavior and reduce position size or just get out altogether and enjoy some hobbies. Let these other fools shred each other to pieces. You can still trade but just trade in size that will not seriously hurt you if you are on the wrong side of the daily price action.
As the risk trades come off, the equity markets sink ever lower and the commodity markets see further downside. The S&P 500 is getting perilously close to the 1250 level, the level at which it goes negative for the year and at which it threatens to put in a double top on the longer term weekly chart. Should it do so, consumer confidence will fall off the charts. Consumer spending will suffer as the psychological impact of losses in their 401K and other retirement accounts, combined with home values that are also underwater, dampens the desire for big ticket items and forces further retrenchment on that part of the US economic engine. All this will do is build further pressure on the Fed to act. And thus the addiction to monetary stimulus continues until the junkie is hopelessly ruined.
Earlier in the session, gold had recaptured broken support near $1530 and looked like it was attempting to get its footing there. As the equity markets dropped near midsession, the unwind in the risk trades derailed it and took it lower towards $1520. I might add here however that in terms of both the Euro and the British Pound, gold is holding very firm. That should keep it supported in US Dollar terms and prevent a sharper selloff such as what we are seeing in the grains, fiber and energy markets.
As can be expected in this sort of environment, the Continuous Commodity Index is taking a sharp hit and has sunk below 650. As long as it stays above 640 it is still range bound however. A decline through that level which cannot be recaptured quickly will not be good news for commodity bulls as it will reflect the return of the deflation mindset. Rest assured that Bernanke and company are closely watching this chart also.
The Dollar's rally has it strongly back above the 50 day moving average. What is more important that that however is the fact that is has now reached the 100 day moving average. It fell below this critical moving average in January of this year and has been unable to put in a close above it since that time. Should it manage to push past 76 one has to give the move higher respect from a technical perspective. If it can push above 76.50 and hold those gains, we could see the Dollar make a run towards 78 in short order.
Tuesday, June 14, 2011
Gold and the summer doldrums
The summer months are TYPICALLY not a particularly strong period for both of the precious metals. A lot of traders in the West are taking vacations with their families as the kids are out of school. Then there is the lack of the far East festivals during which large amounts of gold are generally purchased for gifts.
This summer will be very interesting however as the Fed ends its QE2 program in two weeks time. As we get nearer this date, many traders are going to be particularly interested in seeing the kind of economic data releases we are going to be getting from the feds. If the data continues to deteriorate and disappoint, there will be growing pressure on the Fed to "do something". I have already mentioned that there will also be pressure from some in political positions to get some sort of stimulus from the government (in some quarters the complaint is that the former programs were "too small"). I do not think that will happen however as the Republicans control the House of Representatives and they are in no mood to spend and further worsen the deficit. As you know, a growing battle over raising the federal debt ceiling is now fully engaged. The notion that the Republicans will allow any sort of additional stimulus-type deficit spending is wishful thinking on the part of some as those legislators who might be inclinded to vote for it, will find themselves being primaried by the Tea Party.
That means if anything is going to occur, it will be left up to the Federal Reserve. Do they act and kill the Dollar in the process or do they cross their fingers and hope and pray that the economic data improves? What happens if the S&P 500 takes out the critical 1250 level? Then what? Remember that the Obama administration now fully owns this economy and if the stock market tanks further and consumer confidence plunges even further while on its watch, kiss his election hopes goodbye. The entire Democratic party knows that their fortunes are tied directly to the well-being or lack thereof of the US economy. It was thanks in no small part to the plunge in the stock market in September 2008, that Mr. Obama found himself and his party with complete control of the federal government. Should the economy remain as pathetic as it currently is, their party will be the ones getting a good old-fashioned ass-whipping at the polls in 2012.
I have said all this to prime the way for the analysis of the gold market and the Dollar. Right now both markets are in sideways patterns waiting and watching and pouring over every single bit of economic news, no matter from what source, in an attempt to glean what the next move of the Fed will be. Today we got news that the Chinese economy did not slow as much as some had expected (funny how the Chinese naysayers continue getting it wrong over there). That set off a huge short covering squeeze in the broad US stock markets as bulls pushed the shorts out on the idea that the global economy was not slowing quite as much as some were anticipating or fearing. Sales numbers were also not as bad as expected. When markets get lousy news that is not as lousy as they initially feared, they go up. That is what happened today.
That same news and stock market reaction pulled the rug out from under the long bond which had a huge down day losing over a point and a half. The thing with the bonds however is that the first bit of bad economic news once again, and back up they will go while the stock market goes right back down.
Market conditions like these are extremely dangerous to trade for all except a handful of day traders and players with expensive computer algorithms who think nothing of reversing yesterday's trade completely or even last hour's trade. TRend traders had best forget about it if they expect to pile on large positions. the only thing that will lead to is a dwindling trading account. Be smart - trade smaller and forget about the big score. Your number one priority is to stay alive and be there for the next trending move when that eventually does arrive.
As far as the gold market goes, the chart is self-explanatory - it is range bound having failed to take out $1550 on the top and it is now drifting lower to see where buying will be uncovered in decent size. We should get a bit of a better feel how this market is going to fare for the rest of the summer as we actually arrive closer to the end of this month. For now, do not read too much into a single day's price action. Half of these damn hedge funds have no idea what they are doing anyway. AS a matter of fact, I would venture that 2/3 of them don't.
This summer will be very interesting however as the Fed ends its QE2 program in two weeks time. As we get nearer this date, many traders are going to be particularly interested in seeing the kind of economic data releases we are going to be getting from the feds. If the data continues to deteriorate and disappoint, there will be growing pressure on the Fed to "do something". I have already mentioned that there will also be pressure from some in political positions to get some sort of stimulus from the government (in some quarters the complaint is that the former programs were "too small"). I do not think that will happen however as the Republicans control the House of Representatives and they are in no mood to spend and further worsen the deficit. As you know, a growing battle over raising the federal debt ceiling is now fully engaged. The notion that the Republicans will allow any sort of additional stimulus-type deficit spending is wishful thinking on the part of some as those legislators who might be inclinded to vote for it, will find themselves being primaried by the Tea Party.
That means if anything is going to occur, it will be left up to the Federal Reserve. Do they act and kill the Dollar in the process or do they cross their fingers and hope and pray that the economic data improves? What happens if the S&P 500 takes out the critical 1250 level? Then what? Remember that the Obama administration now fully owns this economy and if the stock market tanks further and consumer confidence plunges even further while on its watch, kiss his election hopes goodbye. The entire Democratic party knows that their fortunes are tied directly to the well-being or lack thereof of the US economy. It was thanks in no small part to the plunge in the stock market in September 2008, that Mr. Obama found himself and his party with complete control of the federal government. Should the economy remain as pathetic as it currently is, their party will be the ones getting a good old-fashioned ass-whipping at the polls in 2012.
I have said all this to prime the way for the analysis of the gold market and the Dollar. Right now both markets are in sideways patterns waiting and watching and pouring over every single bit of economic news, no matter from what source, in an attempt to glean what the next move of the Fed will be. Today we got news that the Chinese economy did not slow as much as some had expected (funny how the Chinese naysayers continue getting it wrong over there). That set off a huge short covering squeeze in the broad US stock markets as bulls pushed the shorts out on the idea that the global economy was not slowing quite as much as some were anticipating or fearing. Sales numbers were also not as bad as expected. When markets get lousy news that is not as lousy as they initially feared, they go up. That is what happened today.
That same news and stock market reaction pulled the rug out from under the long bond which had a huge down day losing over a point and a half. The thing with the bonds however is that the first bit of bad economic news once again, and back up they will go while the stock market goes right back down.
Market conditions like these are extremely dangerous to trade for all except a handful of day traders and players with expensive computer algorithms who think nothing of reversing yesterday's trade completely or even last hour's trade. TRend traders had best forget about it if they expect to pile on large positions. the only thing that will lead to is a dwindling trading account. Be smart - trade smaller and forget about the big score. Your number one priority is to stay alive and be there for the next trending move when that eventually does arrive.
As far as the gold market goes, the chart is self-explanatory - it is range bound having failed to take out $1550 on the top and it is now drifting lower to see where buying will be uncovered in decent size. We should get a bit of a better feel how this market is going to fare for the rest of the summer as we actually arrive closer to the end of this month. For now, do not read too much into a single day's price action. Half of these damn hedge funds have no idea what they are doing anyway. AS a matter of fact, I would venture that 2/3 of them don't.
Saturday, June 11, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click here to listen to this week's radio interview with Eric King of King World News on the Weekly Metals Wrap.
Thursday, June 9, 2011
Tuesday, June 7, 2011
A potential signal for further monetary stimulus, aka, Quantitative Easing
Ever since talk began surfacing of the ending of QE2 this month, the stock market has rolled over on the technical price charts. The more convinced that the markets have become that the Fed was going to take away the fun and games, the further the equity markets have dropped. It has now reached a point where the stock market is threatening to take out a critical support level. Should it do so, consumer confidence, already reeling from high foreclosure rates, falling property values, soaring gasoline, food and other energy prices, and a lackluster jobs situation, would immediately plummet.
The one thing that has helped to keep some of the population from becoming completely depressed has been the fact that they could look at their 401K programs and still see that those were in the plus column for the year. In other words, while the rest of the world was seemingly going to economic hell, at least they were making a bit of money on their retirement accounts.
Take away this last refuge of happiness, and the mood of the public will grow foul and fester, not to mention that of Wall Street and the many brokerage houses which do not generally make money during bear markets in equities.
Look at the weekly chart of the S&P (note - I use the emini S&P for charting purposes) and you will see the rising 50 week moving average along with a critical horizontal support level that comes in near the 1250 level. That is also the level near which the S&P began the new year of 2011. If it falls below that level, all gains from the year are gone and losses begin to then mount. That is when the general public will lose its last refuge of consolation.
I mentioned last week that if 1300 were to give way on the weekly chart, it would bode ill for the broad equity markets going forward. That level is still a key level but as of now the S&P is trading below it and cannot seem to recapture its footing above it. The momentum is growing to the downside on the charts and if we continue to get economic data that disappoints and reinforces the growing perception that the economy is in serious danger of rolling over, a very strong possibility exists for a move lower in the S&P to the 1250 level.
If this level gives way allowing the market to fall down towards the 50 week moving average which currently comes in near the 1225 level, expect a chorus of voices clamoring, nay, demanding further stimulus from the Fed. Those voices will firstly come from the Democrats whose election fortunes next year are directly linked to the welfare (or lack thereof) of the US economy. It will also come from the doves on the FOMC. Lastly it will come from many in the financial community who are more willing to take their chances on a falling Dollar than a falling stock market.
If the Fed hearkens to those voices, and I have no reason to doubt at this time that they will not, expect the US Dollar to not only take out critical chart support near 73 - 72.50, but to continue sinking lower. The result will be to push gold sharply higher and into new all time highs.
The one thing that has helped to keep some of the population from becoming completely depressed has been the fact that they could look at their 401K programs and still see that those were in the plus column for the year. In other words, while the rest of the world was seemingly going to economic hell, at least they were making a bit of money on their retirement accounts.
Take away this last refuge of happiness, and the mood of the public will grow foul and fester, not to mention that of Wall Street and the many brokerage houses which do not generally make money during bear markets in equities.
Look at the weekly chart of the S&P (note - I use the emini S&P for charting purposes) and you will see the rising 50 week moving average along with a critical horizontal support level that comes in near the 1250 level. That is also the level near which the S&P began the new year of 2011. If it falls below that level, all gains from the year are gone and losses begin to then mount. That is when the general public will lose its last refuge of consolation.
I mentioned last week that if 1300 were to give way on the weekly chart, it would bode ill for the broad equity markets going forward. That level is still a key level but as of now the S&P is trading below it and cannot seem to recapture its footing above it. The momentum is growing to the downside on the charts and if we continue to get economic data that disappoints and reinforces the growing perception that the economy is in serious danger of rolling over, a very strong possibility exists for a move lower in the S&P to the 1250 level.
If this level gives way allowing the market to fall down towards the 50 week moving average which currently comes in near the 1225 level, expect a chorus of voices clamoring, nay, demanding further stimulus from the Fed. Those voices will firstly come from the Democrats whose election fortunes next year are directly linked to the welfare (or lack thereof) of the US economy. It will also come from the doves on the FOMC. Lastly it will come from many in the financial community who are more willing to take their chances on a falling Dollar than a falling stock market.
If the Fed hearkens to those voices, and I have no reason to doubt at this time that they will not, expect the US Dollar to not only take out critical chart support near 73 - 72.50, but to continue sinking lower. The result will be to push gold sharply higher and into new all time highs.
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