Please click on the following link to listen to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
http://tinyurl.com/3bwf22e
Saturday, October 22, 2011
Thursday, October 20, 2011
Fed's Balance Sheet not growing but not shrinking much either
Take a quick look at the chart below to get a sense of what is taking place as a result of the cessation of the Fed's QE2 program and the inception of its "Operation Twist".
Recall that Operation Twist is nothing more than a rolling over of maturing shorter term Treasury debt into longer term Treasury debt in a deliberate attempt by the Federal Reserve to manipulate the rate of interest on the longer end of the yield curve.
While I personally find the idea that a small group of individuals presumes to be able to determine the exact rate of interest to fine tune an economy and make in move in the direction of their choice to be repugnant, it is what it currently is. I believe this constant interference into the interest rate sector is causing more complications than it is supposedly curing. It was the lowering of interest rates down to 45 year old levels some while back that paved the way for all this malinvestment and contributed to the excess that we are all too sadly aware of by now.
The notion that the same people who were partly responsible for creating this mess are the saviors to rescue us from it is laughable for its stupidity.
That being said, the Street loves nothing more than a Fed-induced liquidity party. As you can see, during both episodes of Quantitative Easing, I and II, the S&P 500, which is an excellent proxy for the US stock markets as a whole, moved higher, nearly reaching levels that it had climbed to just prior to the bust of Lehman Brothers in mid-2008, which ushered in the credit crisis.
As long as the Fed was expanding its balance sheet, there were "Blue Skies - nothing but Blue Skies, do I see" ahead. When the FOMC pulled the plug on QE2 in June of this year, down went the S&P, and it has not yet been able to recover from that cold turkey withdrawal of Billions in liquidity.
What the Fed is now doing with its Operation Twist is not expanding its Balance Sheet but is rather rolling over some of the maturing shorter term debt into longer term Treasuries. The effect has been to basically keep the Treasury portion of their Balance Sheet from not shrinking but also from not expanding. As their Balance Sheet flatlines, the broader stock markets are buckling under the weight of the rotten economy and global slowdown that is now taking hold.
Given the current conditions, it is difficult to gauge what might be a driving factor that would take the S&P anywhere near back to its recent peak just below 1400. Without another injection boost of liquidity, the best that the market could hope for is a period of sideways movement.
Recall that Operation Twist is nothing more than a rolling over of maturing shorter term Treasury debt into longer term Treasury debt in a deliberate attempt by the Federal Reserve to manipulate the rate of interest on the longer end of the yield curve.
While I personally find the idea that a small group of individuals presumes to be able to determine the exact rate of interest to fine tune an economy and make in move in the direction of their choice to be repugnant, it is what it currently is. I believe this constant interference into the interest rate sector is causing more complications than it is supposedly curing. It was the lowering of interest rates down to 45 year old levels some while back that paved the way for all this malinvestment and contributed to the excess that we are all too sadly aware of by now.
The notion that the same people who were partly responsible for creating this mess are the saviors to rescue us from it is laughable for its stupidity.
That being said, the Street loves nothing more than a Fed-induced liquidity party. As you can see, during both episodes of Quantitative Easing, I and II, the S&P 500, which is an excellent proxy for the US stock markets as a whole, moved higher, nearly reaching levels that it had climbed to just prior to the bust of Lehman Brothers in mid-2008, which ushered in the credit crisis.
As long as the Fed was expanding its balance sheet, there were "Blue Skies - nothing but Blue Skies, do I see" ahead. When the FOMC pulled the plug on QE2 in June of this year, down went the S&P, and it has not yet been able to recover from that cold turkey withdrawal of Billions in liquidity.
What the Fed is now doing with its Operation Twist is not expanding its Balance Sheet but is rather rolling over some of the maturing shorter term debt into longer term Treasuries. The effect has been to basically keep the Treasury portion of their Balance Sheet from not shrinking but also from not expanding. As their Balance Sheet flatlines, the broader stock markets are buckling under the weight of the rotten economy and global slowdown that is now taking hold.
Given the current conditions, it is difficult to gauge what might be a driving factor that would take the S&P anywhere near back to its recent peak just below 1400. Without another injection boost of liquidity, the best that the market could hope for is a period of sideways movement.
Another down day for the Metals
Both gold and silver continue to move lower and towards the bottom of their trading ranges. In the case of gold it dropped through $1620 and fell to just above $1600 where buyers showed up. It is currently attempting to get back over the $1620 level.
Silver violated support at both $31 and then again at $30 but it did encounter some decent-sized buying just below that latter level and has bounced back above $30 as I write this.
As expected, the HUI, once it sank through the support region near 520, fell all the way to the next support zone near 500 which extends down towards 490. This needs to hold if the mining shares are going to avoid even steeper losses.
The HUI is already deeply negative for the year but has been able to recover on each trip down towards 490 for nearly an entire year now. We would not want to see this level give way. If it does, the critical Fibonacci of 50% comes in near 470 and one would expect that to stem the selling. Should it fail there really is not muchn on the chart as far as support goes until we get all the way down towards 460-450.
Note that the weekly uptrend line on the chart has given way. The shares will need a strong rally tomorrow to go off the board for this week on a better note.
Silver violated support at both $31 and then again at $30 but it did encounter some decent-sized buying just below that latter level and has bounced back above $30 as I write this.
The HUI is already deeply negative for the year but has been able to recover on each trip down towards 490 for nearly an entire year now. We would not want to see this level give way. If it does, the critical Fibonacci of 50% comes in near 470 and one would expect that to stem the selling. Should it fail there really is not muchn on the chart as far as support goes until we get all the way down towards 460-450.
Note that the weekly uptrend line on the chart has given way. The shares will need a strong rally tomorrow to go off the board for this week on a better note.
Wednesday, October 19, 2011
Gold fails at the upper end of its trading range - moves lower
Once again, the $1680 level has proved to be too high a mountain for the gold bulls to climb.Having failed there the previous trading session, it has now begun moving back down within the recent trading range testing support levels in the process.
The first level that gave way was $1660. We are now challenging $1640. If that gives way, we then move towards $1625 - $1620, followed by the region near $1600.
The HUI is absolutely no help once again as the ratio trades are back, due mainly to weakness in the broad equity markets and the dumping of risk trades.
Traders who love changing their convictions on the markets every day, ought to be head over heels in love with these markets being there simply is no "rhythm" to them. UP- DOWN; UP - DOWN, The entire world of the equity markets has gone Bi-Polar.
Technically the HUI is still in a bearish posture as it cannot get back above the 50 day moving average. That is the first strike. Until it can clear that marker decisively, technicians are going to be selling rallies.
The second strike against it is that it cannot push through the top of its recent trading range which comes in near 555- 560. Having failed there is has now moved back down towards the bottom of the trading range but has thus far failed to hold at the important 520 level. It is now vulnerable to a dip back towards 500 or even 490 once again if the broader equity markets cannot soon rally back.
Silver failed to best very stubborn resistance at $32.50, fell back within its trading range, violated support near $31 but is trying to regain that level. If it does not, it will drop back to $30.
If you want my opinion as to when all this idiocy is going to end and we are going to get some better behaved markets instead of the madness that we are now forced to witness each and every day - it will end when this stupid attempt by the Central Banks of the West to keep the liquidity spigots open comes to an end. It is this meddling by the monetary authorities, who refuse to let the markets cleanse themselves by punishing foolish decisions, whether made by countries or businesses, and rewarding prudent decisions, which is the source of this volatility. Remove that and the markets will trend in one direction or the other. That is what terrifies them and why they refuse to stop interfering with the necessary cleansing process. All they are doing however is making matters worse and guaranteeing that the day of reckoning will be all that much worse.
The first level that gave way was $1660. We are now challenging $1640. If that gives way, we then move towards $1625 - $1620, followed by the region near $1600.
The HUI is absolutely no help once again as the ratio trades are back, due mainly to weakness in the broad equity markets and the dumping of risk trades.
Traders who love changing their convictions on the markets every day, ought to be head over heels in love with these markets being there simply is no "rhythm" to them. UP- DOWN; UP - DOWN, The entire world of the equity markets has gone Bi-Polar.
Technically the HUI is still in a bearish posture as it cannot get back above the 50 day moving average. That is the first strike. Until it can clear that marker decisively, technicians are going to be selling rallies.
The second strike against it is that it cannot push through the top of its recent trading range which comes in near 555- 560. Having failed there is has now moved back down towards the bottom of the trading range but has thus far failed to hold at the important 520 level. It is now vulnerable to a dip back towards 500 or even 490 once again if the broader equity markets cannot soon rally back.
Silver failed to best very stubborn resistance at $32.50, fell back within its trading range, violated support near $31 but is trying to regain that level. If it does not, it will drop back to $30.
If you want my opinion as to when all this idiocy is going to end and we are going to get some better behaved markets instead of the madness that we are now forced to witness each and every day - it will end when this stupid attempt by the Central Banks of the West to keep the liquidity spigots open comes to an end. It is this meddling by the monetary authorities, who refuse to let the markets cleanse themselves by punishing foolish decisions, whether made by countries or businesses, and rewarding prudent decisions, which is the source of this volatility. Remove that and the markets will trend in one direction or the other. That is what terrifies them and why they refuse to stop interfering with the necessary cleansing process. All they are doing however is making matters worse and guaranteeing that the day of reckoning will be all that much worse.
Monday, October 17, 2011
Same Play - Different Act
Gold has once again failed to sustain its footing for any length of time above the critical $1680 resistance level. Last Friday it managed to eke out a close above this level but just barely. "Just barely" does not constitute a convincing technical breakout so it had the opportunity to try to be more emphatic in today's session.
As trade moved into early European trade, the gold price took off to the upside buoyed by comments out of the G20 summit that seemed to indicate decisive action and timely action was going to occur in Europe in regards to their bank recapitalization/stability mechanism plan. It moved up towards $1700 on strong buying which then evaporated as comments out of Germany throw a bucket of cold water on the hopes of traders/investors that the bureaucrats were going to follow through on intentions expressed at the summit.
Down went gold along with silver and along with the stock markets. Up went the Dollar; up went the long bond and down went the Euro and the commodity currencies. Once more it was, "RISK OFF" and so back to the same old same ol'.
It certainly did not aid the case of the bulls in the metals to look over at the HUI and observe it disintegrating as it failed to even touch the 560 level, a level which it MUST better to get anything exciting going to the upside. It dropped back down towards support at 540 and managed a squeaker of a close above there but if it loses that level, it is going to fade towards the lower end of the range near 520 to see if any buyers will emerge there.
Silver once again stumbled at the $32.50 level and dropped back into the trading range which continues to confine it. As expected when the risk trades are being yanked, silver underperformed gold in today's session. That will continue as long as RISK AVERSION is in vogue.
As trade moved into early European trade, the gold price took off to the upside buoyed by comments out of the G20 summit that seemed to indicate decisive action and timely action was going to occur in Europe in regards to their bank recapitalization/stability mechanism plan. It moved up towards $1700 on strong buying which then evaporated as comments out of Germany throw a bucket of cold water on the hopes of traders/investors that the bureaucrats were going to follow through on intentions expressed at the summit.
Down went gold along with silver and along with the stock markets. Up went the Dollar; up went the long bond and down went the Euro and the commodity currencies. Once more it was, "RISK OFF" and so back to the same old same ol'.
It certainly did not aid the case of the bulls in the metals to look over at the HUI and observe it disintegrating as it failed to even touch the 560 level, a level which it MUST better to get anything exciting going to the upside. It dropped back down towards support at 540 and managed a squeaker of a close above there but if it loses that level, it is going to fade towards the lower end of the range near 520 to see if any buyers will emerge there.
Silver once again stumbled at the $32.50 level and dropped back into the trading range which continues to confine it. As expected when the risk trades are being yanked, silver underperformed gold in today's session. That will continue as long as RISK AVERSION is in vogue.
Saturday, October 15, 2011
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Friday, October 14, 2011
US Dollar getting hit hard as "safe haven" trades are being unwound
Over the last 5-6 weeks, as fears spread regarding the European debt crisis and the resultant impact on the large banks over that way, hedge funds and specs in general, fled out of nearly everything and into the US Dollar and Treasury markets as a safe haven. That made sense seeing that there were some suspicions that the Euro might not even survive and a breakup of the EuroZone was coming.
This panic buying took the Dollar from a major support level on the technical price chart and send it skyrocketing higher all the way towards the 80 level.
No sooner than rumors began to spread that the Europeans were working on a mechanism to recapitalize the banks and head off the contagion effect that might result from a Greek default, than the Dollar began sliding lower and forex traders went careening back into the Euro.
Take a look at the following chart drawn off this week's Commitment of Traders report from the CFTC. Note the extremely lopsided positioning of the speculators on the long side of the US Dollar. Guess what this means? As soon as any downside technical support levels are violated on the price chart, every single one of these spec longs beginto liquidate and head for the exits. The result is a cascade of selling that feeds upon itself and the paper gains turn into paper losses for those on the long side of the US Dollar trade.
That is an awful lot of potential and now actual selling that we are seeing or could see in the Dollar if it continues to move lower. The perverse thing about all of this is that the more optimistic the hedge fund world becomes in regards to the European bank situation, the more the horrific fiscal condition of the United States comes to the forefront of their minds. That translates to a wave of Dollar selling, especially seeing that the Fed's stupid "Operation Twist" mechanism is working to guarantee that foreign holders of US Treasuries are getting the lowest yield level possible for those Treasuries that they might happen to purchase when sterilizing trade flows.
The end result is that there is no reason to hold US Dollars or US Dollar based debt by foreign creditors.
As mentioned many times here on this site - the Fed's plan is to deliberately debase the US currency as a means of making debt repayment in devalued bills to its creditors. Many foreigners seeing this are working to sell their Treasuries and unload them into the arms of the Fed.
If the Dollar violates chart support at the critical 50 day moving average near 76.40, the chart picture will turn decidedly bearish and could allow a huge wave of speculative long side liquidation, plus fresh short selling, which could usher in another crisis in the Dollar, as that could drive the greenback back down towards chart support below the 74 level.
Dollar bulls had better hope the Europeans fail to get their act together and botch the recapitalization plan.
Backing out and taking a bit of a longer dated look at the US Dollar on its Weekly Chart one can see that the market remains in a longer term BEARISH TREND. Until or unless the Dollar breaks through the 50% Fibonacci Retracement Level near the 81 level, the Dollar's trend is down.
This panic buying took the Dollar from a major support level on the technical price chart and send it skyrocketing higher all the way towards the 80 level.
No sooner than rumors began to spread that the Europeans were working on a mechanism to recapitalize the banks and head off the contagion effect that might result from a Greek default, than the Dollar began sliding lower and forex traders went careening back into the Euro.
Take a look at the following chart drawn off this week's Commitment of Traders report from the CFTC. Note the extremely lopsided positioning of the speculators on the long side of the US Dollar. Guess what this means? As soon as any downside technical support levels are violated on the price chart, every single one of these spec longs beginto liquidate and head for the exits. The result is a cascade of selling that feeds upon itself and the paper gains turn into paper losses for those on the long side of the US Dollar trade.
That is an awful lot of potential and now actual selling that we are seeing or could see in the Dollar if it continues to move lower. The perverse thing about all of this is that the more optimistic the hedge fund world becomes in regards to the European bank situation, the more the horrific fiscal condition of the United States comes to the forefront of their minds. That translates to a wave of Dollar selling, especially seeing that the Fed's stupid "Operation Twist" mechanism is working to guarantee that foreign holders of US Treasuries are getting the lowest yield level possible for those Treasuries that they might happen to purchase when sterilizing trade flows.
The end result is that there is no reason to hold US Dollars or US Dollar based debt by foreign creditors.
As mentioned many times here on this site - the Fed's plan is to deliberately debase the US currency as a means of making debt repayment in devalued bills to its creditors. Many foreigners seeing this are working to sell their Treasuries and unload them into the arms of the Fed.
If the Dollar violates chart support at the critical 50 day moving average near 76.40, the chart picture will turn decidedly bearish and could allow a huge wave of speculative long side liquidation, plus fresh short selling, which could usher in another crisis in the Dollar, as that could drive the greenback back down towards chart support below the 74 level.
Dollar bulls had better hope the Europeans fail to get their act together and botch the recapitalization plan.
Backing out and taking a bit of a longer dated look at the US Dollar on its Weekly Chart one can see that the market remains in a longer term BEARISH TREND. Until or unless the Dollar breaks through the 50% Fibonacci Retracement Level near the 81 level, the Dollar's trend is down.
Thursday, October 13, 2011
Gold still being held by $1680
The battle for $1680 is increasing in intensity as bears dig in to prevent what they know will be a defeat if they allow the metal to move convincingly through this level.
The factor allowing them to push a bit harder against the bulls today (and unnerving the bulls somewhat) was increasing doubts concerning the European bank recapitalization plan.
Get used to this - One might as well pick a Flowering Daisy and pull the petals one at a time: "She loves me; she loves me not".
That is what "investing" has been degraded to nowadays.
Tomorrow brings the end of the trading week. If gold can go out over $1680 into the weekend, it will be "GAME ON" for the bulls. If not, we remain trapped in the range trade that has been the model for the last few weeks.
Silver was whacked for a 3% loss today as the Risk Aversion trades came back on the heels of the concern over the European bank plan deal. If the trading contingent feels differently about that plan tomorrow, it will just as likely take back all of today's losses and then some. Again, get your Daisy flower and start picking off the petals. Some business isn't it???
Either way, it too reinforces $32.50 as the resistance barrier that must be taken out and held to get something going to the upside in the Silver market.
The HUI is no help whatsoever to the metals and will not be until it clears the 50% Fibonacci retracement level near 560 and holds it. Until it does, it is checkmated and in a range trade.
The factor allowing them to push a bit harder against the bulls today (and unnerving the bulls somewhat) was increasing doubts concerning the European bank recapitalization plan.
Get used to this - One might as well pick a Flowering Daisy and pull the petals one at a time: "She loves me; she loves me not".
That is what "investing" has been degraded to nowadays.
Tomorrow brings the end of the trading week. If gold can go out over $1680 into the weekend, it will be "GAME ON" for the bulls. If not, we remain trapped in the range trade that has been the model for the last few weeks.
Silver was whacked for a 3% loss today as the Risk Aversion trades came back on the heels of the concern over the European bank plan deal. If the trading contingent feels differently about that plan tomorrow, it will just as likely take back all of today's losses and then some. Again, get your Daisy flower and start picking off the petals. Some business isn't it???
Either way, it too reinforces $32.50 as the resistance barrier that must be taken out and held to get something going to the upside in the Silver market.
The HUI is no help whatsoever to the metals and will not be until it clears the 50% Fibonacci retracement level near 560 and holds it. Until it does, it is checkmated and in a range trade.
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