Grain Prices Continuing to See Selling Pressure

Continued weakness in the grain complex is helping to keep pressure on the Continuous Commodity Index or CCI. There looks to be a change of ownership occuring in this complex with hedge funds bailing out of a sizeable long position and commercial interests obtaining long side hedge coverage.

We have this selling occurring not only in the grains, but also in the metals and the energy sector and some of the softs. This is providing some headwinds to the precious metals complex even with the equity market bulls trying their best to jam prices higher and prevent a further technically related sell off from deepening.

US Dollar on the Receiving End of Safe Haven Flows

As much as it pains me to write the words, US Dollar and Safe Haven, in the same sentence, the rush into the Dollar is evident as the fallout from the US election, combined with fresh fears surrounding Greece and other parts of the EuroZone continues unabated at this point.

This is perhaps one of the main reasons that the big shorts over at the Comex have been able to thus far stymie the yellow metal near the $1740 level.

Note on the chart below that the US Dollar is working steadily higher after having managed a strong push through a heavy resistance level near the 80.50 region. It has now pushed to the 100 day moving average, a level at which we would expect it to encounter some profit taking by speculative longs in the market. However, the above mentioned combination seems to be preventing any serious long liquidation at the moment as traders are more interested in owning the Dollar, warts and all, than they are the Euro at the moment.

Note also that the 20 day moving average has now crossed firmly above the 50 day moving average which is also flattening out and now looks as if it too wants to turn higher. There is an additional bit of chart resistance coming in near the 81.75 level that might stem its advance should the bulls keep pushing it higher.

The point I wish to make here is that the broader US equity market is continuing to head lower as the election results have guaranteed a decidedly unfriendly business climate for the foreseeable future. I am writing this during the Asian session but the S&P 500 is trading lower and once again looks as if it wants to test that critical 50% Fibonacci retracement level of the rally beginning earlier this past summer. If the bulls cannot force a quick rebound as they did last Thursday, the index will more than likely drop to at least the 1343 level.

With some of the risk trades being removed, the US bond market is also moving higher shoving interest rates lower in the process. The long bond is back up in nosebleed territory as it is once again testing the all time highs. Clearly, the SLOWING GLOBAL GROWTH THEME is back into play, again, for the umpteenth time. It seems as if we are never to be rid of this damned incessant tug of war between the deflationists and the inflationists. Now that the US public has voted for 4 more years of the same crap, it is difficult to see any of this changing meaning we are going to have another 4 years of incessant volatility and more market madness as the Fed fights the forces of deflation.

Look at what has happened to the yield on the Ten Year Treasury Note once again. If you want to know which side is prevailing in this battle between the deflationists and the inflationists, just keep an eye on this chart as it will tell you all that you need to know.

One last chart, it is a gold to S&P 500 ratio chart. It is evident which of the two has been the better long term investment. A rising line means that gold is outperforming the broader US stock market. The S&P 500 has outperformed gold during some brief intervals through a good portion of 2009 and especially in the second half of last year but since the middle of this year, gold has been holding up much better than the stock market.

Gold Stymied Once Again at $1740

Gold continues to attract more sellers than buyers near the $1740 level once again reinforcing that zone as the next important chart resistance level that needs to be taken out if the market is to have a legitimate chance of making yet another run to $1800.

At the present time, it continues to retreat with dip buyers planning their next point of entry. Keep in mind that a lot of guys were leery about chasing this market higher after it first collapsed in price about 10 days ago and then came roaring back after the US election. That sort of extreme volatility is enough to chase away even the most battle-hardened of traders.

There should be a pretty good floor of support as the market descends lower towards the $1700 level.

Talk of an Amicable Divorce Picking up Supporters

Last week I penned a commentary noting what I believe to be an irreconciliable division growing within these DisUnited States of America. That division, in my opinion, cannot be bridged because it includes TWO MUTUALLY EXCLUSIVE political ideologies.

One consists of a vision of limited, Constitutional government, as bequeathed to us by our Founding Fathers, and which gave rise to the most free, most prosperous and most generous nation that this planet has ever seen or will likely ever see again.

This philosophy has at its core the ideas espoused by John Locke, namely, natural law and that which flows from it. I might add here that under this system, men are free to PURSUE HAPPINESS, not necessarily achieve it.

The other consists of a vision of an increasingly powerful and intrusive centralized government, patterned after the current European statist model, in which the idea of God-given, unalienable rights is a foreign and outdated concept. Under this model, the rights of the individual take a back seat to some current notion as to what is in the best interests of the majority of the people, which notion is of course to be decided by the current holders of political power.

The latter vision has as its roots the rallying cry of the 18th century French Revolution; "Liberty, Equality, Fraternity". Under this vision, government or the state exists to be the "GREAT LEVELER", removing inequities in wealth and producing EQUALITY amongst all the citizenry. Inherent in this theory is the concept that those who are wealthy have achieved their wealth and success at the expense of the wealth and happiness of others who are not wealthy. This is where the rise of class warfare and the pernicious theories of Marx have their origin.

While I understand how startling and how shocking it must be to some to hear talk of the dissolution of the Union, I am only stating the obvious - the two sides in this nation are in a state of near perpetual hostility towards each other because the ideas that they espouse are repugnant to the other side.

Instead of the melting pot, "E Pluribus Unum", (out of many, one), America is being Balkanized along lines of ethnicity, class, gender and a host of special interest groups. Public sector unions are now clearly pitted against those whose taxes pay for their salaries and benefits causing further resentment and further fueling the flames of resentment against their feeding at the public trough.

Time constraints prevent me from further detailing the growing divisions in this nation but suffice it for now to say that more and more there is talk of an amicable divorce between the various states in this union. This is not something to be taken lightly. Can anyone imagine this sort of thing a mere 20 years ago? Talk of separation is a last resort, an idea born out of complete frustration. Even at that, amazingly, there are now TWENTY separate petitions from the citizens of TWENTY SEPARATE states to the White House requesting a peaceful separation from the Union. Interestingly enough, by the White House's own rules, any petition reaching a required 25,000 signatures is required to be considered by a committee.

In the time that it has taken me to pen these comments, the petition from the state of Texas has already garnered another 400 signatures ( I am not that fast of a typist). The petition from Louisianna, which seems to have been the first of these petitions, is well on its way to reaching the necessary 25,000.

I think it can be safely said that these petitions will be given about 15 seconds of consideration by the current administration before being rejected but the mere fact that this sort of thing is becoming more acceptable to a growing number of citizens, is evidence that this nation is going down the same path that led to the breakup back in 1861.


https://petitions.whitehouse.gov/petition/peacefully-grant-state-texas-withdraw-united-states-america-and-create-its-own-new-government/BmdWCP8B

So Where's the QE3??? (Updated)

As you all know by now, the Federal Reserve boldly announced plans "to boldly go where no man has gone before" and purchase each and every month, the tidy sum of $40 BILLION in US Mortgage Backed Securities (MBS ) to "aid the recovery". This was supposed to begin in September of this year and continue on out as far as the eye can see, into infinity, as my friend Jim Sinclair has stated, or until economic conditions warrant a cessation of the program.

Here is the problem however. I have been closely monitoring the balance sheet of the Fed each and every week and I simply do not see it! Take a look at the following chart I have constructed of the overall balance sheet but detailing also the sum of mortgage backed securities contained therein.

Can you see how both lines have basically flatlined since the cessation of QE2 last year? Does anyone out there see a climbing MBS line on this chart especially to the tune of $40 billion higher each month? I sure don't!

Here's a closer look at just the Mortgage Backed Securities listed on their Balance Sheet. Does anyone looking at this see any sort of SUSTAINED move upward on this graph as of yet?

By now we should have seen at the very least a jump of $40 billion for the month of October. We did get some buying seeing a jump from 835,000 to 868,069 ( a rise of $33.1 billion - less than $40 billion) but then we fell right back again. Obviously the Fed is selling some of these assets as they have been doing for some time now but in my mind, this defeats the entire reason behind an addtional stimulus effort involving $40 billion in new purchases each and every month. It may be that if this is the trend (purchase new MBS's and add to the balance sheet while selling some existing MBS's and remove those from the balance sheet) that the actual QE3 effort is going to fall short of an increase of $40 billion each and every month.

Here are the big questions which I hope someone out there who is more versed in these things than I am can answer - Where's the QE3 going? What is the Fed buying or are they even buying anything? If they are not buying, why not? If they are buying, why is the size of their balance sheet not increasing by at least the tune of $40 billion each month? How many existing MBS's already on their balance sheet prior to the onset of QE3 are they planning on selling?

Gold Chart and Comments

I am posting a weekly gold chart to provide a longer term perspective on the metal's prospects so as to eliminate some of wild swings in price associated with both pre-election sentiment as well as post election sentiment.

First notice that the range trade is still solidly in place with $1800 capping the top and $1530-$1550 supporting the bottom.

Note that while gold broke the downtrend pattern in late summer this year when it pushed through 1680, it still remains within that broad sideways pattern.

This week produced what is known in technical analysis jargon as a "bullish outside reversal pattern". It occurs whenever a market makes a new LOWER low price and then reverses higher to make a high ABOVE THE HIGH OF THE PREVIOUS BAR and then closes above that previous high. That is normally a sign that the selling has exhausted itself, being overdone, and that valued based buyers believed prices were too low and thus, rushed in to scoop up a bargain.

This particular pattern has more validity to it when it occurs after a period of prolonged selling. It also is reinforced when the low price reaches into a region on the price chart that has in the past, formed a technical support level.

Take a look at the first reversal pattern that formed on the chart back in late May of this year. Notice that it reached down into a previous support level near $1535 and then shot sharply higher moving some $100 points off the low. That was a sign that the sellers had exhausted their ammunition and that the bulls had now seized control of the market. The market rested a bit before it then powered on to test the $1800 level. A very impressive rally indeed!

This week's pattern comes after a 4 week interval in which the market ground steadily lower after having failed to once again best the critical $1800 level. With the low on this pattern coming in very near to the exact center of the broad sideways range, the pattern needs to be respected because it would seem to indicate that the "VALUE REGION" for gold has now been set at a much higher level than the previous value level down near $1535-$1550. In other words, the big physical market buyers apparently believe or have at least grown accustomed or acclimated to a gold price just below $1700 as cheap.

If this is indeed the case, and we will certainly know this if price were to subsequently retreat for any reason and uncover enough solid buying above the $1700 so that the price were to not dip below that level and hold firm, then gold looks set to make yet another run to try that stubborn $1800 level.

The onus is on the bears to overwhelm the buyers down near $1700 if they are to invalidate this pattern. The bulls on the other hand will need to attract sufficient momentum based buying (hedge funds) to this time take prices up to and then through $1800. If they fail once again to better $1800, back down the market will go although my guess is that based on this new chart pattern, it will not dip below $1700 should that occur but will much more likely attract new buying closer to the HIGH of this week's reversal pattern near $1740.

Stay tuned - the one impediment to a march higher in gold right now seems to be the mediocre performance of the mining shares as evidenced by the HUI. It is always much more constructive to the upward progress of the yellow metal to see the bullish engine firing on all cylinders and that means that we need to see the HUI back above 500 but particularly ABOVE the high of that most recent BIG DOWN WEEK.

A lot depends on what the broader stock market is going to do as far as the mining sector goes. Take a look at the last chart of the S&P 500. It has collapsed as a result of the Obama election as business knows full well what is coming their way. The interesting thing to note is that the THREE DAY POST ELECTION collapse has taken the index back exactly to the halfway retracement point of its rally since June of this year. It did temporarily run out of sellers on Friday and mananged to bounce off of that level as shorts booked profits. If the market can stabilize above this level early next week and move back above 1400, the bulls will have managed to avoid a major rout. If however, this week;s low gives way, look for the index to drop all the way down towards 1350-1344 before finding any buyers of size.

Trader Dan interviewed on the King World News Markets and Metals Wrap

Please click on the following link to my regular weekly radio interview with Eric King on the KWN Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2012/11/10_KWN_Weekly_Metals_Wrap.html

A Fond Farewell to a Patriot

Congressman Ron Paul retires from Congress this year choosing not to run for re-election. He will be stepping down from Congress after serving faithfully for many long years. He was one of the few leaders who dared to speak the truth and while you may or may not have agreed with him, no one can deny that he loves the precious Constitution and has tried to be faithful to that founding document in spite of pressure from his own political party.

Read these words of his exercpted from his TV interview on Bloomberg today.

One final word - Governor Romney opposed the bailout of GM and wrote an op-ed piece in the Wall Street Journal defending his view that the company should be allowed to go into the bankruptcy process to restructure. For his honesty in this area, he was mericlessly demagogued by the Demagogue in Chief Obama and his fellow Comrade Vice President Biden. The result - he lost Michigan and Ohio and could not put a dent into the mid-Western vote. GM has been handed over to Obama's union buddies while the bondholders were stiffed.

This just goes to prove Ron Paul's point, as well as mine, this nation is too far gone to salvage any form of limited Constitutional government. The majority have now chosen to vote themselves the largess of the national treasury and to live off the labors of the now minority productive portion of the nation.

Santa Claus will now win re-election every time. It is just a matter of who gets to wear his suit every four years. It's over.

Ron Paul: Election shows U.S. 'far gone'

Rep. Ron Paul, whose maverick presidential bids shook the GOP, said in the wake of this week's elections that the country has already veered over the fiscal cliff and he sees no chance of righting ship in a country where too many people are dependent on government.


Read more: Ron Paul: Election shows U.S. 'far gone' - Washington Times http://www.washingtontimes.com/blog/inside-politics/2012/nov/8/ron-paul-election-shows-us-far-gone/#ixzz2BfYKyguR
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