"Some Time Soon".
Those words were uttered by Chairman Bernanke this morning in the second day of his bi-annual testimony before the Congress, this time speaking before the House of Representative Committee.
The phrase was in reference to The Fed's plan to review its exit strategy from the QE program. Note that the Chairman did not say anything about actually ending the program; he merely stated that the Fed would review its exit strategy sometime soon. This should not be news for it really is innocous on the surface; however, it just goes to show how incredibly sensitive gold is to anything related to this bond and mortgage-backed securities buying program.
What Bernanke stated was that the Fed will be discussing their exit strategy. They are already in discussions about that as was evidenced by the FOMC minutes that came out last week. So what? Any responsible Central Banker must of course be reviewing these things unless they are completely oblivious to the potential for severe fallout from the creation of what will end up being nearly $3.5 TRILLION by the end of this year when you combine QE1, QE2, QE3 and QE4.
Bernanke spoke to this topic yesterday when he addressed the weighting of the potential risks associated with this degree of QE against the costs of not doing QE. In his opinion, the risk of not doing the bond buying program outweighed the costs of the harm done to the economy ( in his opinion of course). He went on to speak about the aid the program gives to those buying cars, houses, etc, as opposed to the harm the Fed is inflicting on savers. He also spoke to the harm done to those who are unemployed by doing nothing.
In short, you can get a glimpse into the nature of the discussions taking place within the FOMC over all this but it does seem pretty clear that the doves are still in ascendancy in regards to QE and the current monetary policy.
Why this would derail gold is therefore unclear, especially if the reason it did rally yesterday was due to a widely expected continuation of the QE program. As far as I can read this, the Chairman did not offer any changes of note to his comments of yesterday.
Part of what we are seeing in gold (and nearly all of the other markets) is the confusion, uncertainty and lack of clarity as to where all this "boldly going where no man has gone before" adventure in monetary policy by the Central Banks of the West is leading. Is it "RISK ON" and full speed ahead with the hugely leveraged carry trades or is it time for the sidelines? Are interest rates going lower or will they move higher? No one really knows because of the speed at which sentiment can shift globally.
The problem for gold has been and continues to be, the mining sector as evidenced by the HUI. It did manage to fill the first downside gap on its daily chart yesterday but could not even manage a decent close INSIDE THAT GAP. Simply put, the mining sector is so weak, even though it is so oversold, that it is undercutting any strength in the bullion. As I type these comments this morning, the S&P 500 is up nearly 1.3 % while the HUI is down nearly 1.8%. It is that bad.
Yesterday I spoke about these spike lows and how dangerous that they are to trade because of the extent of the price swings that produce them. Here today we are seeing what happens to markets that plunge, reverse sharply higher only to plunge again. I want to repeat what I said yesterday" "TRADE SMALL OR NOT AT ALL". There are times to be aggressive and there are times to be cautious. This is a time to be cautious. Do not be foolish with your trading accounts. Please listen to this as I am trying to prevent some of you from taking foolish advice and getting harmed in the process.
So what if you do not manage to grab an exact bottom or exact top in the market. Guess what? the market will be there tomorrow and the next day and the day after that. You can always wade back into the water once the sharks stop stirring it all up. If on the other hand you like playing Russian Roulette with your trading account, please by all means, throw caution to the wind and go ahead and jump right into the market. All I can say is that you had better be fast on the buy or sell trigger and have a very large trading account that you can be content with as it becomes a very small trading account.
By the way, for the last time, gold is NOT IN BACKWARDATION. Those who keep pushing this nonsense are going to end up hurting many of you who blindly jump into the gold market to buy the futures only to have your rear ends handed to you as the market is doing today.
BAck to the HUI, I need to see this index trading through and above 390 to suggest a longer term bottom has been made in the shares. That will tell us that sponsorship has returned to this sector. Right now there is valued based buying but it cannot force the sector higher by itself. It needs momentum based buying and that is simply not here right now. maybe that will change soon. I do not know and truth to told, neither does anyone else. We are all just watching and trying to read the tea leaves in a very cloudy cup.
For example, if you would have told me two days ago, when the news of the Italian election outcome hit the wires, that stocks would be oblivious to the potential for real harm to occur across the Euro Zone, I would have said that you were blindly optimistic. Yes, stocks cratered on that news as the RISK TRADES were jettisoned with contempt yet here we are, two days later, and the S&P 500 has practically made it right back to the closing level of Friday's trade last week. In other words, the Italian election results, which struck a sharp stinging rebuke to the complete complacency that has enveloped the minds of traders/investors, never happened. We all just imagined that it did. Can you see what I mean by either trading small or not at all.
Closing words, be extremely careful right now. This is not a time to try being a hero lest you end up becoming a zero.
Wednesday, February 27, 2013
Tuesday, February 26, 2013
Bernanke Attempts to Soothe Markets; Euro Fears Rise
In his testimony before the Senate this morning, Chairman Bernanke did his level best to assure the markets that the Fed was not about to upset the apple cart anytime soon. Even before he actually began his testimony, the transcript of his speech had been released and that was enough to send market prices all over the place.
I have seen some volatile markets in my day, but the last two days worth of price swings have pretty much been as high or higher than anything I have ever witnessed, particulary in the foreign exchange markets. To see the swings in the Yen, one would think that a Central Bank intervention had taken place. Four point handles in one day -YIkes!
What is happening is that risk trades are being unwound and just as we have previously witnessed during any unwind period, markets that were one way bets, now are seeing huge swings in the opposite directions as hedge fund computer buying and selling is on full display.
I can tell you that the Yen, which nearly everyone on the planet had been short, no matter what cross was being used, has seen a massive, and I do mean MASSIVE short squeeze, much to the consternation of the Japanese monetary authorities i might add. Watching their currency once again become the destination of safe haven plays has got to be downright infuriating to policy makers over there, who have made no small secret that a lower yen plays a major role in their strategy of defeating the DEFLATION giant that has had its heavy hand on their economy for what seems like an aeon. If the Yen keeps rallying, look for them to make their displeasure known VERY VOCALLY. The new ABE government is not going to tolerate a strong yen, period!
If you are trying to trade some of these markets, either be content to snatch a few small profits if they come your way, or just get to the sidelines and let the dust settle from all this madness. "TRADE SMALL IF AT ALL", is my motto right now.
I want to add here that Italian CDS's are moving sharply higher today, surpassing even those of Spain for the first time since December 2011. Clearly, the market is becoming increasingly concerned about the developments in that nation since the election returns have become clarified. Trades/investors fear gridlock in the new government as a result of the lack of a clear majority and this is being viewed as negative to the Euro currency. As a result, the one way long bet on the Euro associated with the return of the risk trades, is now being unwound. This is causing some strange price movements in many of the crosses which are not supported fundamentally for the time being.
This brings us to gold. It is seeing some strong safe haven flows today along with the bonds and the yen. Bernanke's comments were pretty much anticipated to be gold friendly and he did not disappoint. It was interesting watching the initial reaction to those comments however. Gold at first seemed to be unimpressed as it moved down off its best levels ahead of his speech and actually went negative for a while. Then it seemed to catch a new wind and ran back up to the $1600 level from which it had initially been repelled earlier in the session. This time however it appeared that some big bids were able to take it through $1600 and off went the buy stops. The market hesitated again near and just below the $1610 level before finally blasting through it as well. This time the momentum from nervous shorts was enough to take the price towards $1620 before it finally ran out of steam and stabilized.
Near term, the ability to recover its "16" handle and hold on to that has got to make the bears disappointed. What needs to be seen however is whether or not the physical market will be willing to chase prices at these higher levels or whether that demand will drop off. It was certainly amazingly strong below $1580 as evidenced by the premiums quoted by John Brimelow's Gold jottings.
So much depends on the market's view toward risk once again. the Central Bankers had to have been quite pleased with their handiwork as they had managed to herd the entire global hedge fund community into leveraging up those RISK TRADES and making one way bets in favor of equities and pretty much out of favor of safe havens. The fact that the US bond market would not break down significantly in the face of this "All's Clear" mentality certainly has to be taken into account however. While one safe haven - gold - was being jettisoned, the bond market was tracking sideways. Yesterday and today that market moved higher with the result that interest rates dropped lower once more.
We will want to closely monitor this relationship between the US bond market and the US equity markets to see what kind of clues we can glean to as where market participants are positioning themselves as they look ahead.
The day is not yet over but while the S&P 500 is in positive territory, it is certainly down off its best levels of the day as I type these comments. If this index closes into negative territory at the end of today's session, LOOK OUT, is all that I can say. What major elixir will Ben have to provide it at this point seeing that he has already administered his potion this morning.
Let's see how things settle out today. Trying to draw too many conclusions before the day's trading is over is not the course of wisdom on a day like this one.
Lastly, to see how risk aversion is back in vogue as concerns the Eurozone, Gold priced in both Euro and British Pound terms is quite strong today and is moving smartly higher. It's biggest gains is in terms of the Euro which has suddenly seemed to have fallen out of favor with the leveraged crowd.
In US Dollar terms, gold has given a short term buy signal on the charts. There is heavy resistance lurking ahead of it beginning at today's high near $1620 and extending to $1630. If there is enough buying in the physical market overnight, there is a chance that another bunch of buy stops sitting just above $1625 could be vulnerable.
I am including a chart of the metal to show the dip in the ADX which indicates that the near term downtrend in the market has been broken. If gold can climb back above $1640, it will have pulled off quite a feat, especially seeing that Goldman Sachs just lowered their 2013 price estimate for the metal.
Quite frankly I do not like trading spike bottoms because the risk/reward on the trade can oftentimes be rather discomforting. I much prefer and will prefer in gold, were it to retest the $1600 level to at least see if it can hold that. Markets that show huge losses, followed by huge gains, can suddenly and abruptly turn right back around and show huge losses again. That is the nature of those beasts. More well behaved, or if you will, more orderly markets, are much more to my liking as a trader. My gunslinging days are over as the highs are too often followed by periods of excessive lows and depression. Give me a market that tips its hand a bit more clearly and allows one to at least leave the screen for a few minutes.
The HUI has managed to fill the first and lowest downside gap on its price chart. This index has dropped so sharply and is so oversold that it is well beyond due for a bounce. Let's see how high it can carry. Anything that stops short of 390 is going to be a disappointment. If it is going to give us any protracted strenght, that is the least it will need to clear.
I have seen some volatile markets in my day, but the last two days worth of price swings have pretty much been as high or higher than anything I have ever witnessed, particulary in the foreign exchange markets. To see the swings in the Yen, one would think that a Central Bank intervention had taken place. Four point handles in one day -YIkes!
What is happening is that risk trades are being unwound and just as we have previously witnessed during any unwind period, markets that were one way bets, now are seeing huge swings in the opposite directions as hedge fund computer buying and selling is on full display.
I can tell you that the Yen, which nearly everyone on the planet had been short, no matter what cross was being used, has seen a massive, and I do mean MASSIVE short squeeze, much to the consternation of the Japanese monetary authorities i might add. Watching their currency once again become the destination of safe haven plays has got to be downright infuriating to policy makers over there, who have made no small secret that a lower yen plays a major role in their strategy of defeating the DEFLATION giant that has had its heavy hand on their economy for what seems like an aeon. If the Yen keeps rallying, look for them to make their displeasure known VERY VOCALLY. The new ABE government is not going to tolerate a strong yen, period!
If you are trying to trade some of these markets, either be content to snatch a few small profits if they come your way, or just get to the sidelines and let the dust settle from all this madness. "TRADE SMALL IF AT ALL", is my motto right now.
I want to add here that Italian CDS's are moving sharply higher today, surpassing even those of Spain for the first time since December 2011. Clearly, the market is becoming increasingly concerned about the developments in that nation since the election returns have become clarified. Trades/investors fear gridlock in the new government as a result of the lack of a clear majority and this is being viewed as negative to the Euro currency. As a result, the one way long bet on the Euro associated with the return of the risk trades, is now being unwound. This is causing some strange price movements in many of the crosses which are not supported fundamentally for the time being.
This brings us to gold. It is seeing some strong safe haven flows today along with the bonds and the yen. Bernanke's comments were pretty much anticipated to be gold friendly and he did not disappoint. It was interesting watching the initial reaction to those comments however. Gold at first seemed to be unimpressed as it moved down off its best levels ahead of his speech and actually went negative for a while. Then it seemed to catch a new wind and ran back up to the $1600 level from which it had initially been repelled earlier in the session. This time however it appeared that some big bids were able to take it through $1600 and off went the buy stops. The market hesitated again near and just below the $1610 level before finally blasting through it as well. This time the momentum from nervous shorts was enough to take the price towards $1620 before it finally ran out of steam and stabilized.
Near term, the ability to recover its "16" handle and hold on to that has got to make the bears disappointed. What needs to be seen however is whether or not the physical market will be willing to chase prices at these higher levels or whether that demand will drop off. It was certainly amazingly strong below $1580 as evidenced by the premiums quoted by John Brimelow's Gold jottings.
So much depends on the market's view toward risk once again. the Central Bankers had to have been quite pleased with their handiwork as they had managed to herd the entire global hedge fund community into leveraging up those RISK TRADES and making one way bets in favor of equities and pretty much out of favor of safe havens. The fact that the US bond market would not break down significantly in the face of this "All's Clear" mentality certainly has to be taken into account however. While one safe haven - gold - was being jettisoned, the bond market was tracking sideways. Yesterday and today that market moved higher with the result that interest rates dropped lower once more.
We will want to closely monitor this relationship between the US bond market and the US equity markets to see what kind of clues we can glean to as where market participants are positioning themselves as they look ahead.
The day is not yet over but while the S&P 500 is in positive territory, it is certainly down off its best levels of the day as I type these comments. If this index closes into negative territory at the end of today's session, LOOK OUT, is all that I can say. What major elixir will Ben have to provide it at this point seeing that he has already administered his potion this morning.
Let's see how things settle out today. Trying to draw too many conclusions before the day's trading is over is not the course of wisdom on a day like this one.
Lastly, to see how risk aversion is back in vogue as concerns the Eurozone, Gold priced in both Euro and British Pound terms is quite strong today and is moving smartly higher. It's biggest gains is in terms of the Euro which has suddenly seemed to have fallen out of favor with the leveraged crowd.
In US Dollar terms, gold has given a short term buy signal on the charts. There is heavy resistance lurking ahead of it beginning at today's high near $1620 and extending to $1630. If there is enough buying in the physical market overnight, there is a chance that another bunch of buy stops sitting just above $1625 could be vulnerable.
I am including a chart of the metal to show the dip in the ADX which indicates that the near term downtrend in the market has been broken. If gold can climb back above $1640, it will have pulled off quite a feat, especially seeing that Goldman Sachs just lowered their 2013 price estimate for the metal.
Quite frankly I do not like trading spike bottoms because the risk/reward on the trade can oftentimes be rather discomforting. I much prefer and will prefer in gold, were it to retest the $1600 level to at least see if it can hold that. Markets that show huge losses, followed by huge gains, can suddenly and abruptly turn right back around and show huge losses again. That is the nature of those beasts. More well behaved, or if you will, more orderly markets, are much more to my liking as a trader. My gunslinging days are over as the highs are too often followed by periods of excessive lows and depression. Give me a market that tips its hand a bit more clearly and allows one to at least leave the screen for a few minutes.
The HUI has managed to fill the first and lowest downside gap on its price chart. This index has dropped so sharply and is so oversold that it is well beyond due for a bounce. Let's see how high it can carry. Anything that stops short of 390 is going to be a disappointment. If it is going to give us any protracted strenght, that is the least it will need to clear.
Monday, February 25, 2013
Oh Bennie Boy, the Pipes, the Pipes are Calling
WOW! a bit of news out of Italy and it's ABANDON SHIP for stock market bulls. This coming a mere two days later after I posted my little piece about stock traders ignoring a downside technical reversal signal on the charts. Talk about a rapid shift in sentiment since then!
That news from Italy was enough to put Euroland back on the radar screen of traders after it had been completely erased since the Europeans began their bond buyiong program. The fear is that Italy will be gridlocked due to the election results that have been coming in and render it unable to comply with requirements for these continued bond purchases. The of course brings the stability of the Euro back into question.
That currency was spanked quite rudely today as the Italian news hit the markets. What aggravated the move lower in the Euro was a huge short squeeze in the Yen, that hit the Euro_Yen cross further exaggerating the Yen's move higher and putting additional downside on the Euro-Dollar cross.
The Euro and Yen have both been a sort of proxy for the risk trade with the Euro moving higher and the Yen moving lower as traders felt comfortable assuming risk once again. With risk aversion today's mood, those two currencies reversed their recent trends.
A lot therefore depends on what Chairman Bernanke is going to say when he gets before the Congress tomorrow. Will he whisper sweet nothings to the ears of equity bulls or will he strike a more cautious note? I for one will be greatly suprised if he says anything more about an early cessation to QE. He must certainly know that his words will be parsed with a fine-toothed comb.
The S&P 500 dropped so sharply on such large volume, that it sent the VIX, the Volatility Index surging over 35% today. Talk about rattling the complacency cage.
The S&P will need a lot of help from the Chairman tomorrow in his testimony to prevent a further move towards the Target level I have indicated on the chart. The Directional Movement has not only indicated a halt in the strong uptrend but has generated its first sell signal since December of last year. The loss of upside momentum that had been noted finally caught up to this index today. Quite frankly, there was a very large wave of selling - quite different than what we have been accustomed to when we have seen dip buyers eager to jump right back in. They appear to have been rattled for a change and look to be waiting for a bit deeper correction before plowing back in. By the way, that Directional Index sell signal back near Mid-December of last year was quickly negated by subsequent action. I honestly have no idea what the index is going to do tomorrow - everything depends on how the market interprets Beranke's comments.
Gold showed some signs of life today as it moved up in terms of the British Pound, the Euro and of course the Dollar. I will not be too impressed with gold until I see a handle of "16" in front of this metal that remains there. That will tell us that the spike down towards support near $1550 was a temporary bottom. It is not unexpected to see the metal bounce from its first test of that critical support level; however, to convince me that this is anything more than a type of Dead Cat bounce, I want to see that "16" handle PLUS a clear upside break in the HUI. Gold has found a base of support here about $1550 but specs are still favoring trading it from the short side so we want to see how it handles tests of upside resistance.
The HUI was rather lifeless today given the nice pop higher in gold settling well off its best level of the day. That index has been a drag on the gold price for some time now so if we see it begin to lead to the upside for any reason, a great weight will have been lifted off of the actual metal.
There are several downside gaps that need to be at the very least filled, before this index will give an all clear signal. Aggressive traders can buy shares but please be sure to use sound money management strategies. Don't forget the trend is down so one buying must know that you are going against the trend. Just be careful. You can end up a HERO or you can end up a great big fat ZERO. That is not my style of trading but I realize that we have many wild-eyed specs out there who love taking reckless chances with their trading accounts.
That news from Italy was enough to put Euroland back on the radar screen of traders after it had been completely erased since the Europeans began their bond buyiong program. The fear is that Italy will be gridlocked due to the election results that have been coming in and render it unable to comply with requirements for these continued bond purchases. The of course brings the stability of the Euro back into question.
That currency was spanked quite rudely today as the Italian news hit the markets. What aggravated the move lower in the Euro was a huge short squeeze in the Yen, that hit the Euro_Yen cross further exaggerating the Yen's move higher and putting additional downside on the Euro-Dollar cross.
The Euro and Yen have both been a sort of proxy for the risk trade with the Euro moving higher and the Yen moving lower as traders felt comfortable assuming risk once again. With risk aversion today's mood, those two currencies reversed their recent trends.
A lot therefore depends on what Chairman Bernanke is going to say when he gets before the Congress tomorrow. Will he whisper sweet nothings to the ears of equity bulls or will he strike a more cautious note? I for one will be greatly suprised if he says anything more about an early cessation to QE. He must certainly know that his words will be parsed with a fine-toothed comb.
The S&P 500 dropped so sharply on such large volume, that it sent the VIX, the Volatility Index surging over 35% today. Talk about rattling the complacency cage.
The S&P will need a lot of help from the Chairman tomorrow in his testimony to prevent a further move towards the Target level I have indicated on the chart. The Directional Movement has not only indicated a halt in the strong uptrend but has generated its first sell signal since December of last year. The loss of upside momentum that had been noted finally caught up to this index today. Quite frankly, there was a very large wave of selling - quite different than what we have been accustomed to when we have seen dip buyers eager to jump right back in. They appear to have been rattled for a change and look to be waiting for a bit deeper correction before plowing back in. By the way, that Directional Index sell signal back near Mid-December of last year was quickly negated by subsequent action. I honestly have no idea what the index is going to do tomorrow - everything depends on how the market interprets Beranke's comments.
Gold showed some signs of life today as it moved up in terms of the British Pound, the Euro and of course the Dollar. I will not be too impressed with gold until I see a handle of "16" in front of this metal that remains there. That will tell us that the spike down towards support near $1550 was a temporary bottom. It is not unexpected to see the metal bounce from its first test of that critical support level; however, to convince me that this is anything more than a type of Dead Cat bounce, I want to see that "16" handle PLUS a clear upside break in the HUI. Gold has found a base of support here about $1550 but specs are still favoring trading it from the short side so we want to see how it handles tests of upside resistance.
The HUI was rather lifeless today given the nice pop higher in gold settling well off its best level of the day. That index has been a drag on the gold price for some time now so if we see it begin to lead to the upside for any reason, a great weight will have been lifted off of the actual metal.
There are several downside gaps that need to be at the very least filled, before this index will give an all clear signal. Aggressive traders can buy shares but please be sure to use sound money management strategies. Don't forget the trend is down so one buying must know that you are going against the trend. Just be careful. You can end up a HERO or you can end up a great big fat ZERO. That is not my style of trading but I realize that we have many wild-eyed specs out there who love taking reckless chances with their trading accounts.
Saturday, February 23, 2013
Stock Market Ignores Downside Reversal
Apparently the equity bulls are right back to work after "suffering" through a whopping two day correction in their permanently rising stock market. As you know by now, stocks took a beating on Wednesday when the FOMC minutes were hinting at some internal dissension among some of the various FOMC members in regards to the duration of the QE program. They then saw further selling on Thursday but come Friday, were right back up again completely erasing the losses of Thursday and cutting into the losses made on Wednesday.
It appears that traders have now come back to the view that the loudest voices in favor of cutting short the extent of QE were coming from the NON-VOTING members of the FOMC. The talk now has become that the VOTING MEMBERS are not going to cut anything short anytime soon.
I expect Bernanke to say as much in this coming week's appearance before the Congress on Tuesday and Wednesday.
If that is the case, and Ben issues soothing words to the crack addicts, then expect the equity bulls to go right back to doing their thing and driving stock prices relentlessly higher. If he even hints at some sort of agreement with the early cessation of QE, then Katie bar the door for stocks. We will certainly be watching very closely to see how the precious metals respond to this.
Notice the chart below - I have set up two indicators for you to observe. The first is the ADX or Directional Movement Indicator that it is more commonly known by. The black line is the ADX. IT rises in a trending market and falls when the market is not trending or in the process of consolidating (market tends to move sideways). Note that the BIG DOWNSIDE REVERSAL pattern in the S&P 500 that I noted earlier this past week caused that line to finally turn lower. That indicates a break in the uptrend. That being said, there is still no sell signal in this indicator. At this point it is indicating a pause, nothing more.
Normally, one of the most powerful technical indicators is one of these downside reversal patterns that come on huge volume. Typically they portend the end of an uptrend, especially one of such long duration and one which has experienced such few corrections over its course. To witness the eagerness of buying which we saw Friday is therefore no mean thing! You talk about "animal spirits" of investors. These guys are so juiced up that they could power light bulbs with their bare hands!
Note also the indicator below which I will leave nameless for the time being. It basically measures momentum. What I have been watching since the rally at the beginning of the year has commenced, has been the loss of upside momentum even as this market has made one new high after another. In other words, this market keeps grinding higher and higher and higher even as more and more momentum or upward energy is dissipating. I get the sense of a market that is at levels that are so ridiculous that more and more traders are getting increasingly nervous yet no one wants to aggressively sell the thing out of fear of the Fed's punch bowl.
We have seen what will happen to this "national security concern" if it believes that Uncle Ben is going to beginning preaching the virtues of monetary sobriety. Is there anyone out there who genuinely believes that the Fed is going to make sure that it crashes the stock market? Just who is in control here - the investing/trading class which just pitched a hissy fit over the FOMC minutes or the Fed which has now become captive to its own QE program.
Think about what we are witnessing here - The nation is addicted to cheap money as much as it is addicted to hedonism and vice and yet the Fed cannot pull the plug or more aptly, cut off the supply of the drug for fear of killing the patient. Our political leaders cannot cut a measely 2 pennies out of a dollar's worth of spending without telling us that Armageddon is about to occur; the madman running N. Korea is working on intermediate range nuclear missles and is even disturbing its only ally, China by so doing; Gasoline prices are topping $5.00 in some locales; Social security tax increases are hitting the entire working population and further scrimping already dwindling disposable income; health care costs are going UP not DOWN as we were assured that they would be once the grossly misnamed "Affordable Health Care" act was deceitfully rammed through Congress; we've got surveillance drones flying all over the damned country spying on us and yet everything is just peachy keen...
I have said it before and will say it again as much as it pains me to do so; America is going the way of ancient Rome as surely as the sun rises in the East. The Fed is doing the modern version of coin clipping. What is next, price controls under edict of death for merchants who hike them? No worries however - the stock market is rising so all is right with the world.
It appears that traders have now come back to the view that the loudest voices in favor of cutting short the extent of QE were coming from the NON-VOTING members of the FOMC. The talk now has become that the VOTING MEMBERS are not going to cut anything short anytime soon.
I expect Bernanke to say as much in this coming week's appearance before the Congress on Tuesday and Wednesday.
If that is the case, and Ben issues soothing words to the crack addicts, then expect the equity bulls to go right back to doing their thing and driving stock prices relentlessly higher. If he even hints at some sort of agreement with the early cessation of QE, then Katie bar the door for stocks. We will certainly be watching very closely to see how the precious metals respond to this.
Notice the chart below - I have set up two indicators for you to observe. The first is the ADX or Directional Movement Indicator that it is more commonly known by. The black line is the ADX. IT rises in a trending market and falls when the market is not trending or in the process of consolidating (market tends to move sideways). Note that the BIG DOWNSIDE REVERSAL pattern in the S&P 500 that I noted earlier this past week caused that line to finally turn lower. That indicates a break in the uptrend. That being said, there is still no sell signal in this indicator. At this point it is indicating a pause, nothing more.
Normally, one of the most powerful technical indicators is one of these downside reversal patterns that come on huge volume. Typically they portend the end of an uptrend, especially one of such long duration and one which has experienced such few corrections over its course. To witness the eagerness of buying which we saw Friday is therefore no mean thing! You talk about "animal spirits" of investors. These guys are so juiced up that they could power light bulbs with their bare hands!
Note also the indicator below which I will leave nameless for the time being. It basically measures momentum. What I have been watching since the rally at the beginning of the year has commenced, has been the loss of upside momentum even as this market has made one new high after another. In other words, this market keeps grinding higher and higher and higher even as more and more momentum or upward energy is dissipating. I get the sense of a market that is at levels that are so ridiculous that more and more traders are getting increasingly nervous yet no one wants to aggressively sell the thing out of fear of the Fed's punch bowl.
We have seen what will happen to this "national security concern" if it believes that Uncle Ben is going to beginning preaching the virtues of monetary sobriety. Is there anyone out there who genuinely believes that the Fed is going to make sure that it crashes the stock market? Just who is in control here - the investing/trading class which just pitched a hissy fit over the FOMC minutes or the Fed which has now become captive to its own QE program.
Think about what we are witnessing here - The nation is addicted to cheap money as much as it is addicted to hedonism and vice and yet the Fed cannot pull the plug or more aptly, cut off the supply of the drug for fear of killing the patient. Our political leaders cannot cut a measely 2 pennies out of a dollar's worth of spending without telling us that Armageddon is about to occur; the madman running N. Korea is working on intermediate range nuclear missles and is even disturbing its only ally, China by so doing; Gasoline prices are topping $5.00 in some locales; Social security tax increases are hitting the entire working population and further scrimping already dwindling disposable income; health care costs are going UP not DOWN as we were assured that they would be once the grossly misnamed "Affordable Health Care" act was deceitfully rammed through Congress; we've got surveillance drones flying all over the damned country spying on us and yet everything is just peachy keen...
I have said it before and will say it again as much as it pains me to do so; America is going the way of ancient Rome as surely as the sun rises in the East. The Fed is doing the modern version of coin clipping. What is next, price controls under edict of death for merchants who hike them? No worries however - the stock market is rising so all is right with the world.
Trader Dan Interview at KIng World News Metals Wrap
Please click on the following link to listen in to my regular weekly radio interview with Eric King at the KWN Markets and Metals Wrap.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/2/23_KWN_Weekly_Metals_Wrap.html
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/2/23_KWN_Weekly_Metals_Wrap.html
Friday, February 22, 2013
Silver Specs Reduce Long-side Exposure
This is by request....
The big hedge funds are also exiting from the Silver market as they have been doing in gold but not near to the same extent. The reason is because of silver's industrial use. As a monetary metal it is experiencing selling tied to money flows leaving other sectors and flowing into equites; however, those same money flows, with many looking at the so-called "improving growth" scenario, are finding some of their way into the metal on the way down.
We do need to keep a close eye on the copper market however for if hedgies begin to get bearish on copper, it will be a tough order to keep them bullish on Silver. As of this Friday's COT report, hedge funds remain net long in Copper although they have trimmed that exposure by nearly 12,000 contracts through the reporting period.
Silver bulls do not want to see downside support near $26.25 - $26.00 give way for ANY REASON. It has been a solid base for more than a year and a half and has always attracted very substantial buying near those levels. Value based buyers see the metal as cheap down there. If, and we do not know at this point, if the metal were to test this level and rebound, it would indicate their activity and should bottom the metal. Still, from a momentum based view, it needs to clear $30 to get any excitement going on the part of the bulls.
One last thing - since I caught a lot of flack over my article on Backwardation by some of the uninformed out there who are always ready to swallow the latest nonsense, so long as it confirms their perma-bullish views, I wish to merely state that I hope you have learned something by the experience.
Markets will bottom when they are ready to bottom and not because someone "insists" that they must bottom in order to generate more traffic at a web site and thus reap more money from the Google Ads people. There are way too many in the gold community who seem to have some sort of perverse narcissistic addiction to constantly calling for bottoms (and tops I might also add) no matter what the price action is indicating. It is one thing to have a long term bullish view of gold; it is quite another to dredge up one story after another predicting with each one that a bottom is now imminent in the gold market.
There is a time when markets go up and a time when they go down. It is really that simple. When the perceptions of market players change (and who among us knows precisely when that will occur?) then the price action will change.
Right now the perception among the majority is that gold's run is over. I am not saying that it is; I am merely telling you what the perception is. This is why gold is seeing so much heavy selling. This is what moves markets. When the conditions change so will the perception. Then those who were rushing to sell gold will be rushing to cover shorts and buy it all back or go long.
The key is in reading the price action on the chart for that is all technical analysis really is; a way to measure changes in perception towards markets.
To summarize - hedge funds are growing very bearish towards gold. They are doing so however now that gold has reached levels commensurate with former levels at which Asian Central Banks were very active as buyers. If the physical market buyers surface in size near current levels, there is fuel for an active short covering rally to squeeze some of them out. However, as long as the equity markets remain the place to be for hedge funds with money to invest, gold is going to struggle to find enough of these momentum based buyers to drive it sharply upwards. For that to occur, we need something in the status quo to change in order to shift perceptions back in favor of gold buying by speculators.
The big hedge funds are also exiting from the Silver market as they have been doing in gold but not near to the same extent. The reason is because of silver's industrial use. As a monetary metal it is experiencing selling tied to money flows leaving other sectors and flowing into equites; however, those same money flows, with many looking at the so-called "improving growth" scenario, are finding some of their way into the metal on the way down.
We do need to keep a close eye on the copper market however for if hedgies begin to get bearish on copper, it will be a tough order to keep them bullish on Silver. As of this Friday's COT report, hedge funds remain net long in Copper although they have trimmed that exposure by nearly 12,000 contracts through the reporting period.
Silver bulls do not want to see downside support near $26.25 - $26.00 give way for ANY REASON. It has been a solid base for more than a year and a half and has always attracted very substantial buying near those levels. Value based buyers see the metal as cheap down there. If, and we do not know at this point, if the metal were to test this level and rebound, it would indicate their activity and should bottom the metal. Still, from a momentum based view, it needs to clear $30 to get any excitement going on the part of the bulls.
One last thing - since I caught a lot of flack over my article on Backwardation by some of the uninformed out there who are always ready to swallow the latest nonsense, so long as it confirms their perma-bullish views, I wish to merely state that I hope you have learned something by the experience.
Markets will bottom when they are ready to bottom and not because someone "insists" that they must bottom in order to generate more traffic at a web site and thus reap more money from the Google Ads people. There are way too many in the gold community who seem to have some sort of perverse narcissistic addiction to constantly calling for bottoms (and tops I might also add) no matter what the price action is indicating. It is one thing to have a long term bullish view of gold; it is quite another to dredge up one story after another predicting with each one that a bottom is now imminent in the gold market.
There is a time when markets go up and a time when they go down. It is really that simple. When the perceptions of market players change (and who among us knows precisely when that will occur?) then the price action will change.
Right now the perception among the majority is that gold's run is over. I am not saying that it is; I am merely telling you what the perception is. This is why gold is seeing so much heavy selling. This is what moves markets. When the conditions change so will the perception. Then those who were rushing to sell gold will be rushing to cover shorts and buy it all back or go long.
The key is in reading the price action on the chart for that is all technical analysis really is; a way to measure changes in perception towards markets.
To summarize - hedge funds are growing very bearish towards gold. They are doing so however now that gold has reached levels commensurate with former levels at which Asian Central Banks were very active as buyers. If the physical market buyers surface in size near current levels, there is fuel for an active short covering rally to squeeze some of them out. However, as long as the equity markets remain the place to be for hedge funds with money to invest, gold is going to struggle to find enough of these momentum based buyers to drive it sharply upwards. For that to occur, we need something in the status quo to change in order to shift perceptions back in favor of gold buying by speculators.
Perhaps Ben Bernanke's testimony in front of Congress next Tuesday and Wednesday will prove to be the Midas touch for gold. We will have to wait and see what he says then. My guess is that he is not going to upset the apple cart as he knows full well what is going to happen to the US equity markets if he even hints at ending this program of QE sooner than the end of this year.
Again, I am not saying that gold cannot rally; it is certainly oversold and due for a bounce; however, rallies are going to be sold until we get some sort of technical chart confirmation that indicates a change in the near term trend has occured. Currently that trend is lower.
Incidentally, in the late afternoon here on Friday, news hit the wire that Moody's had stripped the UK of its AAA rating. That was enough to send the British Pound sharply lower in very thin trade but it also saw gold goosed up into positive territory. We will want to see how the market reacts Sunday evening and early MOnday morning after a weekend to digest the news. Gold priced in terms of British Pounds moved up rather strongly on the news.
here is the British Pound priced gold chart with some notes.
Speculators Exit from Gold Market Continues
This week's Commitment of Traders report indicates a continuation of the trend that has been in place for some time now when it comes to gold, namely, the mass exodus of speculators from the gold market. Not only that, more and more hedge funds are playing gold from the short side of the market expecting lower prices in the future.
The following chart pretty much says it all. Take a look at the sharp drop in the number of outright long positions hedge funds are holding. Do you see the plummeting line. Is it any wonder that gold is plummeting lower? And what makes it even more noteworthy, is that this report DID NOT PICK UP the plunge through $1600 on Wednesday and the subsequent further pressure down towards $1555 the remainder of the week.
The following chart pretty much says it all. Take a look at the sharp drop in the number of outright long positions hedge funds are holding. Do you see the plummeting line. Is it any wonder that gold is plummeting lower? And what makes it even more noteworthy, is that this report DID NOT PICK UP the plunge through $1600 on Wednesday and the subsequent further pressure down towards $1555 the remainder of the week.
Note also the sharp spike higher in the number of outright shorts among hedge funds. This week alone this group was responsible (through Tuesday) for a total of nearly 28,000 contracts sold when you take into effect both their long positions being liquidated in addition to fresh new short positions. My oh my has sentiment towards gold changed!
By the way, the outright short position in gold being held by hedge funds is the largest that I have in my records going back to the beginning of 2006. I do have further dated records but have not bothered checking them. Let's suffice to say, that it is the most bearish hedge funds have been on gold in SEVEN YEARS! When one considers that the Fed has pumped or will pump nearly $3.5 TRILLION into the economy by the end of this year, increasing the money supply exponentially, this is nothing short of an economic miracle to see gold so comatose. You have to hand it to these masters of the Universe at the Fed - They have suspended the laws of economics with supply and demand no longer meaningful.
Not only have they managed to kill the canary in the coal mine but they have simultaneously made it appear as if the canary, and everything else in the mine, is just fine and dandy. Welcome to the Brave New World of the Modern Day Alchemists. Apparently prosperity in a bottle can indeed be created. Pity the ancient Romans; if they had only had their version of the Federal Reserve. We all might be speaking Latin nowadays and Caesar might still be ruling from the eternal city.
Copper Woes
Copper began a strong rally into the end of last year, followed by a selloff with a resumption of the rally into a new high for this year in February. Since that time however it has been straight down for this important bellwether metal. Today's selloff in the red metal marks a brand new low for 2013 and the matching of a nearly 2 month low.
A couple of things are at work here. First, traders fear Chinese action to ramp down speculative fever in the housing sector over there. The concern is that any slowdown in Chinese building, no matter what the source, is not good news for Copper.
Secondly, there continues to be a general theme of selling commodities by hedge funds here in the US as evidenced not only by this chart, but by the CCI (Continuous Commodity Index) chart as well.
I believe we will want to keep a close eye on this market. With the US equity market once again moving higher today while copper moves lower, there is a divergence that needs to be monitored. I personally believe copper is a much better indicator of future expected economic activity than is the US stock market, which has become a bubble fueled by investors chasing "it is the only yield game in town". Ultra low interest rates, courtesy of the destroyers at the Fed, have sent high octane money flows into stocks. At some point that game is going to come to an ugly and ignominious end. I am just not sure when. Seeing these guys pouring back into equities in spite of the massive high volume reversal day posted this week is quite extraordinary.
The bullish fever refuses to die. What is particularly worrisome to me is seeing the huge outflows from money market mutual funds. Those funds, which are taking some rather reckless risks to try to obtain some sort of return in this insanely low interest rate environment (can you tell by now that I despise the Fed for what it has done to punish savers and retirees), are watching their investors leaving in droves to go and chase the stock market higher. This sort of herd mentality is precisely what the Fed has wanted but it is also precisely the same sort of foolishness that sets up those latecomers to the stock market for serious losses.
Forget all that claptrap being spewed out of the mouths of the various Federal reserve officials when it comes to their "mandate". The Fed has become nothing more than a serial bubble blower and a manager of the mess inherent in such things.
A couple of things are at work here. First, traders fear Chinese action to ramp down speculative fever in the housing sector over there. The concern is that any slowdown in Chinese building, no matter what the source, is not good news for Copper.
Secondly, there continues to be a general theme of selling commodities by hedge funds here in the US as evidenced not only by this chart, but by the CCI (Continuous Commodity Index) chart as well.
I believe we will want to keep a close eye on this market. With the US equity market once again moving higher today while copper moves lower, there is a divergence that needs to be monitored. I personally believe copper is a much better indicator of future expected economic activity than is the US stock market, which has become a bubble fueled by investors chasing "it is the only yield game in town". Ultra low interest rates, courtesy of the destroyers at the Fed, have sent high octane money flows into stocks. At some point that game is going to come to an ugly and ignominious end. I am just not sure when. Seeing these guys pouring back into equities in spite of the massive high volume reversal day posted this week is quite extraordinary.
The bullish fever refuses to die. What is particularly worrisome to me is seeing the huge outflows from money market mutual funds. Those funds, which are taking some rather reckless risks to try to obtain some sort of return in this insanely low interest rate environment (can you tell by now that I despise the Fed for what it has done to punish savers and retirees), are watching their investors leaving in droves to go and chase the stock market higher. This sort of herd mentality is precisely what the Fed has wanted but it is also precisely the same sort of foolishness that sets up those latecomers to the stock market for serious losses.
Forget all that claptrap being spewed out of the mouths of the various Federal reserve officials when it comes to their "mandate". The Fed has become nothing more than a serial bubble blower and a manager of the mess inherent in such things.
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