"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput
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It appears as if the globe is convinced that any economic recovery is going to begin here in the US first. It certainly is not going to be Europe that is leading the way. Data from China continues mixed while Japan is gaining traction at the expense of their currency. That leaves many investors from abroad looking to put their risk capital to work in the US equity markets. That is creating strong demand for Dollars with which to buy boatloads of US equities.
You can see the effects of this in the dollar chart. Note this is a weekly chart I am using. As it now stands, the Dollar is on track to make its SECOND and a CONSECUTIVE WEEKLY CLOSE above key resistance at last year's high just above 84.40 or so.
It has already cleared the important 61.8% Fibonacci retracement level of the entire sell off from the double top back in 2010. The last barrier from a Fibonacci retracement theory level it has to face is just above 85 at 85.05. That ties in rather nicely with the upper tine of the pitchfork. If that does not stop the upward march of the Dollar, odds will favor it completely retracing the entire downmove from 2010 and eventually reaching all the way to 89.
With weakness across the Yen, the Euro and the Aussie and Canadian Dollars, not to mention the Swiss Franc and the British Pound, it is difficult to see why the US Dollar will not make it through the 85 level.
If this does occur, it is going to more than likely bring about additional selling pressure across the commodity sector in general and that means we could very well see more hedge fund shorting activity into silver and gold. It will be up to the physical markets to therefore absorb the paper selling to prevent those recent lows from being retested yet again.
One of the other reasons that the US Dollar is rising in my view is the fact that interest rates are rising here in the US. In an environment starved for yield, you are going to get some of that money that wants to hold bonds moving to where it can obtain the highest yield or at least where it can invest where the interest rate trajectory is higher and not lower as is the case in the Eurozone.
Keep an eye on the yield on the Ten Year Treasury Note. It is back above the key 2% level once again. The rate peaked for this year about 2 months ago in mid March before moving lower. At that time it was a tad above 2.05%. Rates have moved 40 basis points higher in a month's time. That is quite rapid.
I find today's movement a bit peculiar to be honest because it came against the backdrop of an equity market that had first made a new all-time high before reversing lower later in the session. One becomes accustomed to seeing money flows out of bonds and into stocks and therefore, when stocks are being sold off and bonds also are being sold off simultaneously, it is a bit out of the norm.
Let's see where this thing goes tomorrow and the remainder of the week.
Incidentally, I wrote up some comments on today's price action for Eric King over at King World News. Check in there to find them a bit later this evening.
While one day does not a trend reversal make (and it is very important to keep this is mind), the HUI has found some buying support (finally!) near the confluence of several important technical support levels on the price chart.
I am using a weekly chart to show both the Fibonacci retracement levels and some horizontal support zones plus the pitchfork lines.
The first thing to note is that the index did close below the last Fibonacci retracement level noted which is the 75% retracement of the entire rally off the 2008 low and the 2011 high. That level is near 272. Strict adherence to Fibonacci theory teaches us that if this level gives way, odds favor a complete retracement of the entire upside move meaning we could see the HUI move all the way back down to near 160. However, we have had only one week in which the index CLOSED for the week below this level. Usually we would want to see TWO CONSECUTIVE WEEKLY CLOSES below this level to increase the likelihood that the index will move back to its starting point of the rally. That has not occurred yet.
Also, as you can see, there is a band of horizontal chart support shown by the red rectangle that comes in near the 240 level. This level of support dates back to early 2009 and still has some validity to it.
Lastly, just outside the median line of the pitchfork lies an area of support coming in right at 240. It seems to me that if this index is going to hold, it is going to hold here and now at this level. If not, it will more than likely track the lower dotted line over the next few weeks.
To feel that the worst is over in this sector, I would like to see the index move back above last week's high near 275 or so to close out this week. If it can do that, I believe we will have seen a final bottom in the mining shares. The jury is out until Friday.
Here is a look at Goldcorp (GG). Notice the Outside Day Bullish Reversal Pattern coming after a very prolonged move lower in price. That tends to give the pattern more credibility. I would prefer to see a higher volume reading, much like the one seen back in April, to go along with today's nice showing but if the bulls can build on this the remainder of this week, they might spark some more serious short covering in this particular share by Friday. We'll see.
Dear friends and readers;
Eric King over at King World News has asked me to put together some commentary on today's wild ride in the precious metals markets. Please check in over at www.kingworldnews.com to read those along with the charts detailing the price action.
I need some time to go and find my stomach!
Trader Dan
I will get more info posted on this as it becomes available from the CME Group. As mentioned in the brief piece I posted last evening, volume on the collapse in price was extremely light. There was an air pocket underneath the market but once price fell towards that major support zone near the $20 level, it rebounded quite ferociously. Further aiding the buying off the lows is the fact that Copper is proving to be quite resilient.
News out of Asia is roiling both the gold and silver markets this evening. Apparently Economy Minister Amari spooked the Forex markets Sunday when he stated that further weakness in the Yen could actually end up damaging the nation's economy.
Obviously this is the FIRST sign we have seen out of official Japan that the level of Yen is now low enough for the powers that be there. Again, it is just one minister and there is no official change in policy but he is voicing concerns that the currency might have fallen a bit too far, too fast.
His comments are being used as a reason by some Yen bears to partially cover existing yen shorts and realize some gains. The downside to this as far as the precious metals go, is that Yen Gold and Yen Silver are taking a vicious beating as a result. Take a look at the following chart of Silver in Yen terms and you will see exactly what has happened to that market. It plunged over 8% at one point!
This is resulting in Japanese traders further selling gold and silver to minimize losses or to actually cover losses in their short currency positions, which caught some of them leaning a bit too heavily onto the short side of the Yen.
Silver in US Dollar terms, has fallen to within 25 cents of MAJOR Chart support near the $20 level where it uncovered ferocious buying so far. Reports out of Asia are emphasizing the surge in demand this is uncovering. We'll see if that holds as we move into Western trading hours.
I want to note here that the volume on the collapse in price towards $20 is pitifully low. The selling appears to have occurred into a void which is the reason that the price fall was so exaggerated. The bulk of the selling is actually occurring in Japan, but there does not appear, thus far, to be the same appetite to sell silver in Dollar terms down at current levels.
Yen gold has confirmed the double top pattern shown on the daily chart with the significant breach of its former support zone. In classic textbook fashion, price rebounded to retest broken support, now turned resistance, and promptly failed. This evening's losses are pushing price back towards the spike low shown on the chart.
It really is quite uncanny; no matter how much money Central Banks continue to create, and Japan is certainly no laggard when it comes to running the printing presses, gold continues to fall completely off the planet, almost as if it is being sucked into an enormous black hole. No matter what it is, gold or silver, investors in general seem to want no part of the metals unless it is to SHORT them.
One would have to judge that the modern Central Bankers have completely redefined the very concept of money itself. It would seem that prosperity can be created at will, with no consequences whatsoever. Have we discovered the Holy Grail of human prosperity? My guess is that it is only a matter of a few more years of this and poverty itself will be resigned to the dust bin of history, a relic of an ancient unenlightened age. What's next - the elimination of death and disease??
As the regular readers of this site are now fully aware, I am on record as stating that the current rally in the US equity markets is a gigantic Federal-Reserve-induced bubble that has eclipsed all previous equity market bubbles in modern history.
The disconnect between what is going on in this market against what is going on in Main Street, is growing exponentially larger with the passing of each week. You will have the equity perma bulls crying up one reason after another to justify this aberration but the simple fact is that this is what PAPER ASSET INFLATION looks like. In a deliberately created, ZERO INTEREST RATE ENVIRONMENT, investors looking to obtain a return on investment are forced to put capital into stocks. As stated yesterday, the only RISK is the RISK OF NOT BEING IN THE STOCK MARKET.
I cannot state it any more forcefully than that.
Just for the purpose of illustration, I put together a chart of the S&P 500 detailing in graphic form the extent of the growing bubble. The index is shown on the bottom chart. In that chart is a dark blue line which is the 100 Week Moving Average.
In the upper window is the DIFFERENCE between the weekly closing price of the S&P 500 and that same 100 week moving average. There is nothing particularly exotic about this indicator - it is merely a way to measure OVERBOUGHT or OVERSOLD readings.
I think you will find this rather startling. Go back to the year 2000, the year in which the huge speculative bubble in equities popped and which was the catalyst for the now decades+ intervention by the Federal Reserve to create one bubble after another in attempting to deal with the fallout from the enormous bursting that occurred that year. You remember, first we had the equity bubble, then the real estate bubble, then the commodity markets bubble, then the bond bubble and now once again we have the equity bubble, courtesy of these master meddlers known as Central Bankers.
I drew in a horizontal line showing the peak in this indicator which first came in 2000. As you can see, it extends all the way to the current period. At no time prior to this year, did this indicator reach the peak that occurred in the year 2000. Yes, it came close, particularly in early 2011 after QE1 and QE2 had been implemented and run their course, but it failed to reach that prior peak.
Cast your attention upon this week - since QE3 and QE4, a combined $85 BILLION of fresh money creation each and every month by the Fed, the indicator has not only MATCHED the 2000 peak, it has EXCEEDED IT! In other words, this is now an historic bubble even when measured against what many correctly believed then and still do now, was a bubble of epic proportions all the way back in 2000.
Quite frankly, I already believed the current stock market rally was an historical mania. After seeing this graph, nothing can dissuade me from that view. How high this thing can go is anyone's guess because they will always be fools saying, "this time it is different". When this bubble explodes however, and it most certainly will, heaven help us all, as there will not be a single soul to buy it on the way down.
You will want to tune in to this week's KWN Markets and Metals Wrap with Eric King as this is a wide ranging interview detailing the psychology behind the poor price performance of the Western paper gold markets.
Please click on the following link as it will take you to that audio file....
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/5/18_KWN_Weekly_Metals_Wrap.html
