Please click on the following link to listen in to my regular weekly radio interview with Eric King over at KWN on the Weekly Markets and Metals Wrap.
http://kingworldnews.com/kingworldnews/Broadcast/Entries/2013/3/2_KWN_Weekly_Metals_Wrap.html
Saturday, March 2, 2013
Friday, March 1, 2013
Strong Weekly Close for the US Dollar
The USDX has been unable to clear the 81.50 level for some time now, though it did close right on it last week. This week however was a different story as the Dollar powered through this resistance breaking out of a 5 month long sideways pattern. It should be able to make a run to at least 83. If it can push past there it stands a good chance of heading to 84. That should be a big test of the currency. If it clears that, it will begin a trending move to the upside.
Hard to believe isn't it considering the fact that next to Japan, the Fed has been the biggest debaucher of the currency in terms of the sheer size of money creation it has embarked upon. It just goes to show how rotten the Yen, the British Pound have become and possibly the Euro might be. In other words, the US Dollar is the lesser of the evils.
Let's see, the US is running a $16 Trillion+ deficit with its leaders unable to agree on slowing the rate of spending (note that i did not say CUT SPENDING) by less than TWO CENTS on the Dollar and yet the Dollar is the currency of choice. Absolutely amazing is it not?
Note the ADX below (the dark line) is turning up from a very low level indicating the possibility of the beginning of a trending move. This line will need to to climb above 20 to indicate that this is anything more than a grinding move higher. Momentum however is positive.
Hard to believe isn't it considering the fact that next to Japan, the Fed has been the biggest debaucher of the currency in terms of the sheer size of money creation it has embarked upon. It just goes to show how rotten the Yen, the British Pound have become and possibly the Euro might be. In other words, the US Dollar is the lesser of the evils.
Let's see, the US is running a $16 Trillion+ deficit with its leaders unable to agree on slowing the rate of spending (note that i did not say CUT SPENDING) by less than TWO CENTS on the Dollar and yet the Dollar is the currency of choice. Absolutely amazing is it not?
Note the ADX below (the dark line) is turning up from a very low level indicating the possibility of the beginning of a trending move. This line will need to to climb above 20 to indicate that this is anything more than a grinding move higher. Momentum however is positive.
A Tale of Two Cities
No, it is not the classic by Charles Dickens set against the backdrop of the French Revolution; rather, it is the price charts detailing the nature of the economy as told by two camps.
The first is the S&P 500 as it powers higher and shrugs off Italian election results, sequestration fears and moribond employment choosing instead to focus on the data detailing growth, albeit however minute that might be.
The second is the copper market, afffectionately referred to as "Dr. Copper" for its uncanny ability to project investor sentiment towards overall economic growth.
These two apparent lookalikes, Darnay and Carton, have recently taken to going their own separate ways unlike that of the novel wherein they find their paths increasingly intertwined.
Take a close look at the following two different colored lines. The blue line is the closing price of the S&P 500 (emini) while the red one is the red metal, Dr. Copper.
Don't worry about the actual price level of either one; look only at the DIRECTION of price movement for both lines. I have only gone back to June of last year with this for analysis purposes but wish to point out how the two lines are basically in sync until February of this year. Notice that they tend to both rise and fall together. Spikes in the S&P were matched by spikes in Copper with dips in the S&P coinciding with dips in the price of Copper.
Along about the beginning of this year, the two markets began to diverge a bit in the sense that while the general trend in copper was up, it began moving lower during periods in which the S&P continued to move higher. Copper would recover from the dip and move higher again, seemingly catching up with the S&P but right around the beginning of the second week of February, these two companions apparently parted company and did so rather glaringly.
Can you see how sharp the fall in copper has been over the last month? Can you also see that while the S&P has briefly dipped following copper lower since the middle of February, it then rebounded higher as copper continued to sink? The divergence is especially pronounced over the last week or so.
Here is the issue - both of these markets should not be both true. In other words, if Copper is a predictor, and a generally reliable one, of expected economic activity in the future, then one has to question why the equity markets are seemingly no longer paying attention to its fall. We are constantly being told by the pundits that the global economy is recovering and growth is expected to continue, even if it is at a rather lackluster rate. Yet, here we have copper falling lower giving us a clear signal that growth is expected to slacken.
Which one of these forward looking indicators is true?
I should also note here that the large macro funds ( the hedge funds ) are now playing copper from the short side. Talk about more fuel for further uncertainty. Watching to see how this will further unfold is certainly going to be interesting to say the least.
The first is the S&P 500 as it powers higher and shrugs off Italian election results, sequestration fears and moribond employment choosing instead to focus on the data detailing growth, albeit however minute that might be.
The second is the copper market, afffectionately referred to as "Dr. Copper" for its uncanny ability to project investor sentiment towards overall economic growth.
These two apparent lookalikes, Darnay and Carton, have recently taken to going their own separate ways unlike that of the novel wherein they find their paths increasingly intertwined.
Take a close look at the following two different colored lines. The blue line is the closing price of the S&P 500 (emini) while the red one is the red metal, Dr. Copper.
Don't worry about the actual price level of either one; look only at the DIRECTION of price movement for both lines. I have only gone back to June of last year with this for analysis purposes but wish to point out how the two lines are basically in sync until February of this year. Notice that they tend to both rise and fall together. Spikes in the S&P were matched by spikes in Copper with dips in the S&P coinciding with dips in the price of Copper.
Along about the beginning of this year, the two markets began to diverge a bit in the sense that while the general trend in copper was up, it began moving lower during periods in which the S&P continued to move higher. Copper would recover from the dip and move higher again, seemingly catching up with the S&P but right around the beginning of the second week of February, these two companions apparently parted company and did so rather glaringly.
Can you see how sharp the fall in copper has been over the last month? Can you also see that while the S&P has briefly dipped following copper lower since the middle of February, it then rebounded higher as copper continued to sink? The divergence is especially pronounced over the last week or so.
Here is the issue - both of these markets should not be both true. In other words, if Copper is a predictor, and a generally reliable one, of expected economic activity in the future, then one has to question why the equity markets are seemingly no longer paying attention to its fall. We are constantly being told by the pundits that the global economy is recovering and growth is expected to continue, even if it is at a rather lackluster rate. Yet, here we have copper falling lower giving us a clear signal that growth is expected to slacken.
Which one of these forward looking indicators is true?
I should also note here that the large macro funds ( the hedge funds ) are now playing copper from the short side. Talk about more fuel for further uncertainty. Watching to see how this will further unfold is certainly going to be interesting to say the least.
Thursday, February 28, 2013
Monthly HUI and Gold Analysis
Here we are at the end of yet another month during which the mining shares have lost ground. This makes five months in a row of lower prices.
Given the continued weakness in the sector, I thought it helpful to try to take a look at the monthly chart to see how things now stand from a technical analysis standpoint.
Comparing this downleg that began back in September 2011 to the previous downleg that came on the heels of the inception of the credit crisis of 2008, we can see some similarities. I am using standard Fibonacci retracement levels for comparison's sake.
If we look first at the 2008 selloff, we can see that it occurred over an 8 month period in which prices peaked in March of 2008 and then bottomed in October of that same year. The retracement in prices broke all of the important Fibonacci levels including the 50% retracement level AND the 61.8% level. It was not until prices hit the last remaining retracement level at 75% that the bottom was formed.
Looking at this decline, which began in Sep. 2011 and has been ongoing for 17 months now (with only 6 months that prices closed higher) we can see that while the 50% retracement level has been violated (it was taken out this month after having served as support ), the 61.8% level has not. That level currently comes in near 337. At this point, given the monthly close near the monthly low, odds favor a move towards this level.
This must hold the decline or price will more than likely move to the 75% retracement level down near 272. I know that is difficult to fathom, but that is what the pure technicals would indicate if 336 or so cannot hold this thing.
Looking at a technical indicator that has generated fairly reliable signals, the thing that stands out to me is that the 2008 sell off produced the lowest oversold reading to date. What is a bit disturbing is that the recent selloff has not moved the indicator down towards the same level that produced the 2008 bottom. In other words, it has more downside possible in a straight up head to head comparison.
I should note here that the 2008 low in the HUI corresponded to 680-700 gold. Gold is obviously no where near that level today but it is the ratio that we are interested in, not the outright price.
The HUI/Gold Ratio Chart indicates a continuation of what has now become a 23 month long trend of the mining shares underperforming or losing ground against the price of the actual metal. During the height or should I say "depth" of the credit crisis in 2008, this ratio hit a low near .2040 before it actually rebounded closing that month of October 2008 at .2699. The following month it moved as low as .2174 before closing higher at .3031.
Let's assume for the sake of argument that the ratio, which at the present time stands at .2242, does hit the same low level made back in October 2008 of .2040. Let's also assume that the HUI stops falling and remains for some time at the closing price of today which is 354. That means that the gold price would have to move back up to $1735 to have this ratio hit the same low that it made back in 2008.
Another assumption could be that the gold price stabilizes here at, let's call it $1580 but the HUI continues selling off. The index would then have to fall as low as 322 to yield us the same ratio low made in 2008. I will refer you back to the first two charts in this post and you can see, that a move towards at least 336 is possible in this index. If gold did not move at all from $1580 and the index dropped to 336, the HUI to Gold ratio would then be .2121. That is actually lower than the second worst reading in 2008 which came in November where it did hit .2174 before the rebound.
Another possibility is that the HUI would have to fall further down with the gold price falling along with it. Obviously there are several different scenarios but let's just say for now that none of them look particularly encouraging.
The big question, which none of us really know, is whether or not this ratio is going to have to move back towards the lows made in 2008 before these shares can put in a lasting bottom.
Note that I included some Fibonacci retracement levels on the ratio chart to show you that while the ratio did violate the last Fibonacci retracement level possible, the 75% level, that is did close both the month of October 2008 and November 2008 above that level.
Lastly here are some price charts for the actual metal. I cannot emphasize enough how critical it is that gold does not violate the support levels shown on this chart.
A WEEKLY CLOSE below the last level of support near $1525 - $1520 would do very serious damage to even the long term trend in gold and would suggest a deeper retracement. Note that the 38.2% Fibonacci retracement level on this weekly chart comes in precisely at the horizontal support level I have lined out on the chart. That is near $1534 - $1535. That is the first level of support. Just below that is $1520. There is nothing, and I mean nothing that I can see on this chart with the exception of a bit of a blip near $1480 that could stop the price from testing the 50% retracement level near $1415 should the red support lines give way.
My suspicions are that if the S&P 500 takes out its overhead support resistance near 1520-1530 on a weekly basis, gold will take out that $1535- $1520 support level on the downside. I hope not, but we have to be objective and try to see this thing for what it is at the current time. Do you not find it ironic that in both cases, the S&P with 1520-1530 on the top as resistance and gold with 1530-1520 on the bottom as support that the resistancer and support numbers that mark both markets are identical except in reverse?
Markets can change very rapidly, especially in this age of the infernal computer algorithm, but gold needs something to bring back its sponsorship among the big players. Let's see what the month of March will bring us. Perhaps it will come in like a lamb and go out like a lion for gold. We shall see...
Given the continued weakness in the sector, I thought it helpful to try to take a look at the monthly chart to see how things now stand from a technical analysis standpoint.
Comparing this downleg that began back in September 2011 to the previous downleg that came on the heels of the inception of the credit crisis of 2008, we can see some similarities. I am using standard Fibonacci retracement levels for comparison's sake.
If we look first at the 2008 selloff, we can see that it occurred over an 8 month period in which prices peaked in March of 2008 and then bottomed in October of that same year. The retracement in prices broke all of the important Fibonacci levels including the 50% retracement level AND the 61.8% level. It was not until prices hit the last remaining retracement level at 75% that the bottom was formed.
Looking at this decline, which began in Sep. 2011 and has been ongoing for 17 months now (with only 6 months that prices closed higher) we can see that while the 50% retracement level has been violated (it was taken out this month after having served as support ), the 61.8% level has not. That level currently comes in near 337. At this point, given the monthly close near the monthly low, odds favor a move towards this level.
This must hold the decline or price will more than likely move to the 75% retracement level down near 272. I know that is difficult to fathom, but that is what the pure technicals would indicate if 336 or so cannot hold this thing.
Looking at a technical indicator that has generated fairly reliable signals, the thing that stands out to me is that the 2008 sell off produced the lowest oversold reading to date. What is a bit disturbing is that the recent selloff has not moved the indicator down towards the same level that produced the 2008 bottom. In other words, it has more downside possible in a straight up head to head comparison.
I should note here that the 2008 low in the HUI corresponded to 680-700 gold. Gold is obviously no where near that level today but it is the ratio that we are interested in, not the outright price.
The HUI/Gold Ratio Chart indicates a continuation of what has now become a 23 month long trend of the mining shares underperforming or losing ground against the price of the actual metal. During the height or should I say "depth" of the credit crisis in 2008, this ratio hit a low near .2040 before it actually rebounded closing that month of October 2008 at .2699. The following month it moved as low as .2174 before closing higher at .3031.
Let's assume for the sake of argument that the ratio, which at the present time stands at .2242, does hit the same low level made back in October 2008 of .2040. Let's also assume that the HUI stops falling and remains for some time at the closing price of today which is 354. That means that the gold price would have to move back up to $1735 to have this ratio hit the same low that it made back in 2008.
Another assumption could be that the gold price stabilizes here at, let's call it $1580 but the HUI continues selling off. The index would then have to fall as low as 322 to yield us the same ratio low made in 2008. I will refer you back to the first two charts in this post and you can see, that a move towards at least 336 is possible in this index. If gold did not move at all from $1580 and the index dropped to 336, the HUI to Gold ratio would then be .2121. That is actually lower than the second worst reading in 2008 which came in November where it did hit .2174 before the rebound.
Another possibility is that the HUI would have to fall further down with the gold price falling along with it. Obviously there are several different scenarios but let's just say for now that none of them look particularly encouraging.
The big question, which none of us really know, is whether or not this ratio is going to have to move back towards the lows made in 2008 before these shares can put in a lasting bottom.
Note that I included some Fibonacci retracement levels on the ratio chart to show you that while the ratio did violate the last Fibonacci retracement level possible, the 75% level, that is did close both the month of October 2008 and November 2008 above that level.
Lastly here are some price charts for the actual metal. I cannot emphasize enough how critical it is that gold does not violate the support levels shown on this chart.
A WEEKLY CLOSE below the last level of support near $1525 - $1520 would do very serious damage to even the long term trend in gold and would suggest a deeper retracement. Note that the 38.2% Fibonacci retracement level on this weekly chart comes in precisely at the horizontal support level I have lined out on the chart. That is near $1534 - $1535. That is the first level of support. Just below that is $1520. There is nothing, and I mean nothing that I can see on this chart with the exception of a bit of a blip near $1480 that could stop the price from testing the 50% retracement level near $1415 should the red support lines give way.
My suspicions are that if the S&P 500 takes out its overhead support resistance near 1520-1530 on a weekly basis, gold will take out that $1535- $1520 support level on the downside. I hope not, but we have to be objective and try to see this thing for what it is at the current time. Do you not find it ironic that in both cases, the S&P with 1520-1530 on the top as resistance and gold with 1530-1520 on the bottom as support that the resistancer and support numbers that mark both markets are identical except in reverse?
Markets can change very rapidly, especially in this age of the infernal computer algorithm, but gold needs something to bring back its sponsorship among the big players. Let's see what the month of March will bring us. Perhaps it will come in like a lamb and go out like a lion for gold. We shall see...
U S Dollar Strength Undercutting Gold
We have seen several headwinds blowing against gold over the last couple of months. These have been noted here and include the rush into equities, the general abandonment of the commodity sector by some large players, the notion that the worst for the global economy is behind us, etc.... At to this list the strength in the US Dollar.
It should be noted here that a great deal of this strength has been at the expense of the Japanese Yen, which has seen a strong move lower although it has temporarily stabilized. It has also been due to general weakness in the British Pound, which as you know by now, is in association with conditions that led to last Friday's downgrade of the UK credit rating.
Since Monday of this week however, the Dollar has gained at the expense of the Euro, which has been on the whipping end of the unwind of large one way carry-trade related bets. As the Euro sinks over fears of the growth potential in Euroland and a rise in concern over the austerity programs that were devised so as to alleviate bond market fears over there, the Dollar has now managed to break out to the upside from a 5 month long consolidation pattern.
The USDX has had trouble clearing the 81.50 level. It did manage to do that last week but only barely. This week however, especially when the results of the Italian election were made known, it added some decent followthrough to the upside and looks as if wants to go higher.
There is the potential for a wild swing however depending on what shape or form this upcoming sequestration thing takes tomorrow. If however, the USDX closes out the week above 82, odds favor a run higher towards 82.70-82.75.
The currency markets are incredibly volatile right now as risk trades are unwound and then reinstated. It is quite difficult attempting to read some of these markets due to the big price swings and somewhat erratic behavior of late. REgardless, a higher Dollar will keep some pressure on the gold price. Should the Dollar exhibit a negative response to the sequestration, look for gold to bounce again as it has entered a support region on its price chart.
It should be noted here that a great deal of this strength has been at the expense of the Japanese Yen, which has seen a strong move lower although it has temporarily stabilized. It has also been due to general weakness in the British Pound, which as you know by now, is in association with conditions that led to last Friday's downgrade of the UK credit rating.
Since Monday of this week however, the Dollar has gained at the expense of the Euro, which has been on the whipping end of the unwind of large one way carry-trade related bets. As the Euro sinks over fears of the growth potential in Euroland and a rise in concern over the austerity programs that were devised so as to alleviate bond market fears over there, the Dollar has now managed to break out to the upside from a 5 month long consolidation pattern.
The USDX has had trouble clearing the 81.50 level. It did manage to do that last week but only barely. This week however, especially when the results of the Italian election were made known, it added some decent followthrough to the upside and looks as if wants to go higher.
There is the potential for a wild swing however depending on what shape or form this upcoming sequestration thing takes tomorrow. If however, the USDX closes out the week above 82, odds favor a run higher towards 82.70-82.75.
The currency markets are incredibly volatile right now as risk trades are unwound and then reinstated. It is quite difficult attempting to read some of these markets due to the big price swings and somewhat erratic behavior of late. REgardless, a higher Dollar will keep some pressure on the gold price. Should the Dollar exhibit a negative response to the sequestration, look for gold to bounce again as it has entered a support region on its price chart.
Wednesday, February 27, 2013
Three Little Words
"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.
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.
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.
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