and no, I am not talking about the baseball playoffs but rather the triple whammy that completely obliterated both the US equity markets and the US Dollar this morning.
The New York Fed released its business conditions index and it was scary; spooky scary. The index fell to - hold onto your hat - from 27.54 in September to 6.17 in October. Most analysts had been expecting a decline but a more modest one to near 20. This index is a reading of manufacturing activity. If the reading comes in above zero, it indicates expansion but come on already, a plunge of that magnitude is hardly reassuring if one is trying to find a healthy economy!
That was strike one...
Strike two - falling retail sales. They dropped 0.3% in September. Retail sales have been rising since January - albeit not at a breakneck speed but this is the first drop since then. Again, analysts had been expecting a fall but only a meager 0.1%.
Strike three - a fall in the PPI or producer price index. It fell 0.1% in September. That was the first fall in a year!
STocks plunged and so did the Dollar but what is breathtaking is the action in the long bond. The thing SOARED and was up over 4 points in early action. It has subsequently settled down to being up a mere 2 points ( note - this is sarcasm). Yields on the Ten Year just now fell BELOW 2% hitting a low, thus far, of 1.868%.
Can anyone say DEFLATION!
If that were not enough bad news for one day, yet another hospital worker has sadly contracted the Ebola virus. People are getting scared as they know full well that Mr. Happy Face, the current propaganda in chief from the CDC, has been lying to them about the mode of transmission.
Let's see - we have a deadly disease in Africa that is threatening to become a world-wide epidemic, a group of grotesquely barbaric terrorists on the rampage through Mesopotamia and an economy that is looking more and more like it is running out of juice to sustain it - and NO, I am not talking about the bubonic plague, the Ottoman empire Turks and the mess in Europe during the Middle Ages but rather the 21th century. The more things change, the more they become the same.
"That which has been is that which will be so that there is nothing new under the sun, " echoed the wisest man of a former age, one named Solomon in the book of Ecclesiastes.
I will try to get some charts up a bit later. The long bond chart is breathtaking.
By the way, the sinking Dollar is having a profound impact on gold as it moved strongly higher. However, there are two schools of thought out there right now impacting the yellow metal. The first is gold is a safe haven. The second is that it is liquid and can be sold to cover losses in equities ( margin related) and could very well sink along with the crude oil and rest of the commodity complex.
IT looks as if the former is winning at the moment.
Soybeans are still being squeezed by whomever it is that has decided to go after the shorts. The excuse this time around is the falling Dollar will make US beans more competitive on the global export markets. I am very concerned however about almost all of the commodities because if indeed this market selloff is the start of something more serious on the economic front, it is hardly going to be conducive to higher grain and bean prices.
Even cattle, that stalwart of the commodity sector is succumbing. That has me sitting up and taking serious notice. Can beans be far behind? We'll see.
Traders - be so very careful in these markets right now. They can run you over in mere seconds.
Wednesday, October 15, 2014
Tuesday, October 14, 2014
Harvest Running Behind the Average Pace
This is not news for any grain trader who has been paying attention for the last few weeks however. Wet weather has prevented farmers from getting into the fields as quickly as they would like as has the lagging maturity of the crops in general but today's report just confirms that a very big crop is still out there.
Corn ratings held steady at 74% rated Good/Excellent with Beans rating 72% Good/Excellent so the crops remain in outstanding condition in general. These conditions numbers however are soon, if not already, going to lose the interest of traders as it will be harvest completion % that will be the focus and that means weather. Also, attention will shift to weather down in S. America as it is planting season in the S. Hemisphere.
There are some reports that the Argentinian government is getting ticked off at grain farmers down there, many whom are not selling their harvest from last year because of the depreciating peso. They would rather hold the "hard asset" than sell it and that has the government riled because it wants to see the sales so that it can tax them and generate some revenue.
On the maturity front, corn is now at 87% mature compared to the 5 year average of 89%. Illinois and Indiana are actually ahead of the 5 year average now on maturity while Iowa, Minnesota, Wisconsin and the Dakotas are behind.
Corn harvest is lagging but that was expected with the trade coming in a bit on the low side of actual harvest numbers when it came to pre-report estimates. Currently 24% of the crop is harvested compared to the 5 year average of 43%. That is why the recent storm was a good excuse for those gunning for stops to run the stops.
Someone ran a huge buy stop order after $3.50 and that got the ball rolling big time in the corn. I saw the violent price spike higher and figured someone's stop got picked. That is how the sharks operate.
Apparently an awful lot of call option writers got obliterated and were forced to buy futures to try to stem their bleeding.
On the soybeans - the national crop average has caught up with the 5-year average of 91% when it comes to dropping leaves.
Harvest is at 40% nationally compared to the 5-year average of 53%. That is a bit better than the pre-report averages. The best I saw was a 32% complete so those bidding up the beans for harvest lagging reasons may have lost a bit of ammunition based on this. We'll see however as there is now a huge "money game" taking place because of forced liquidation of short positions over margin calls that has been induced.
We have quite a few "bottom callers" in the grains right now on account of the technical price action of the last two days. It will be interesting to see how the competing technicals fare against the bearish fundamentals. Technicals win in the short term and thus MUST be respected but fundamentals always assert themselves but one does not know exactly when!
I can only say that I cannot remember seeing corns or beans bottoming with this low percentage of the harvest complete. If the forecasts hold, harvest progress should begin gathering some real momentum later this week. Northwest areas probably are already seeing a lot of combines running. I expect that to continue to the East as the soils dry out from West to East this week. low lying areas will have some issues due to the large amounts of rain where the impact from the recent weather system was felt.
That should lead to some strong farmer pricing of grain that is being harvested as some farmers have been fervently hoping for some sort of rally in prices that they could use to price grain. Well, thanks to the antics of some big specs, they now have that opportunity. whether they take advantage of it remains to be seen however. Many farmers tend to get bulled up quite quickly whenever some of these violent shortcovering rallies take place. The problem with short squeezes is that they can end just as quickly as they started.
Quick comment on the livestock - cattle got hit hard once again with feeders locking limit down. Those who were squeezing corn prices higher managed to obliterate the "math" for those paying these recent sky-high prices for replacement calves.
Hogs are hanging in there better right now due to the very deep discount of the now front-month December contract to the current lean hog index. The October contract expired today at 109.525 with the index at 109.70. The December closed today at 94.925 although it was smacked very hard later in the afternoon session as the pork collapsed in price today.
Falling crude oil prices are flashing quite a warning signal that the global and domestic economy continues to slow. Stocks rebounded a bit today but after being beaten down so hard the last few sessions, I guess that should not come as a surprise. Still the bounce looks tepid. In an environment such as this, with the GSCI making once more a brand new 49 month low, it does make one wonder why some entities are intent on chasing grain prices so steeply higher.
Lastly, unleaded gasoline has just plumbed more new lows today. One begins to suspect that ethanol distillers are going to have some trouble!
Incidentally, interest rates on the long end of the curve continue to plummet indicating the building deflationary pressures. Yield closed at 2.206%, the lowest in 16 months!
The Dollar remains stuck right smack dab in the middle of support near 85 and resistance near 87, basis USDX.
Corn ratings held steady at 74% rated Good/Excellent with Beans rating 72% Good/Excellent so the crops remain in outstanding condition in general. These conditions numbers however are soon, if not already, going to lose the interest of traders as it will be harvest completion % that will be the focus and that means weather. Also, attention will shift to weather down in S. America as it is planting season in the S. Hemisphere.
There are some reports that the Argentinian government is getting ticked off at grain farmers down there, many whom are not selling their harvest from last year because of the depreciating peso. They would rather hold the "hard asset" than sell it and that has the government riled because it wants to see the sales so that it can tax them and generate some revenue.
On the maturity front, corn is now at 87% mature compared to the 5 year average of 89%. Illinois and Indiana are actually ahead of the 5 year average now on maturity while Iowa, Minnesota, Wisconsin and the Dakotas are behind.
Corn harvest is lagging but that was expected with the trade coming in a bit on the low side of actual harvest numbers when it came to pre-report estimates. Currently 24% of the crop is harvested compared to the 5 year average of 43%. That is why the recent storm was a good excuse for those gunning for stops to run the stops.
Someone ran a huge buy stop order after $3.50 and that got the ball rolling big time in the corn. I saw the violent price spike higher and figured someone's stop got picked. That is how the sharks operate.
Apparently an awful lot of call option writers got obliterated and were forced to buy futures to try to stem their bleeding.
On the soybeans - the national crop average has caught up with the 5-year average of 91% when it comes to dropping leaves.
Harvest is at 40% nationally compared to the 5-year average of 53%. That is a bit better than the pre-report averages. The best I saw was a 32% complete so those bidding up the beans for harvest lagging reasons may have lost a bit of ammunition based on this. We'll see however as there is now a huge "money game" taking place because of forced liquidation of short positions over margin calls that has been induced.
We have quite a few "bottom callers" in the grains right now on account of the technical price action of the last two days. It will be interesting to see how the competing technicals fare against the bearish fundamentals. Technicals win in the short term and thus MUST be respected but fundamentals always assert themselves but one does not know exactly when!
I can only say that I cannot remember seeing corns or beans bottoming with this low percentage of the harvest complete. If the forecasts hold, harvest progress should begin gathering some real momentum later this week. Northwest areas probably are already seeing a lot of combines running. I expect that to continue to the East as the soils dry out from West to East this week. low lying areas will have some issues due to the large amounts of rain where the impact from the recent weather system was felt.
That should lead to some strong farmer pricing of grain that is being harvested as some farmers have been fervently hoping for some sort of rally in prices that they could use to price grain. Well, thanks to the antics of some big specs, they now have that opportunity. whether they take advantage of it remains to be seen however. Many farmers tend to get bulled up quite quickly whenever some of these violent shortcovering rallies take place. The problem with short squeezes is that they can end just as quickly as they started.
Quick comment on the livestock - cattle got hit hard once again with feeders locking limit down. Those who were squeezing corn prices higher managed to obliterate the "math" for those paying these recent sky-high prices for replacement calves.
Hogs are hanging in there better right now due to the very deep discount of the now front-month December contract to the current lean hog index. The October contract expired today at 109.525 with the index at 109.70. The December closed today at 94.925 although it was smacked very hard later in the afternoon session as the pork collapsed in price today.
Falling crude oil prices are flashing quite a warning signal that the global and domestic economy continues to slow. Stocks rebounded a bit today but after being beaten down so hard the last few sessions, I guess that should not come as a surprise. Still the bounce looks tepid. In an environment such as this, with the GSCI making once more a brand new 49 month low, it does make one wonder why some entities are intent on chasing grain prices so steeply higher.
Lastly, unleaded gasoline has just plumbed more new lows today. One begins to suspect that ethanol distillers are going to have some trouble!
Incidentally, interest rates on the long end of the curve continue to plummet indicating the building deflationary pressures. Yield closed at 2.206%, the lowest in 16 months!
The Dollar remains stuck right smack dab in the middle of support near 85 and resistance near 87, basis USDX.
USDA Crop Condition/Progess reports
Those of you who trade grains will already be well aware of how busy I am right now but I will get some comments up on the grain reports this afternoon when I get some time. Needless to say, there has been a bloodbath among the shorts as some big specs went after the short interest.
Both corn and beans are showing a larger percentage of the crops have been harvested than the pre-report estimates which may lead to some selling this evening/afternoon on the open.
If you ask me why these things are rallying like they are, I have no explanation. All I can say at this point is that some very big specs went after the short interest and used the recent low pressure weather system that went through the Corn belt yesterday and Tuesday as an excuse.
I have not seen any reports of any major crop damage thus the entire rally looks to me to have been a series of upside buy stops that cascaded and set off the computers buying.
This is why I constantly make mention of the nature of today's markets when dealing with those in the gold bug community who blame every single move lower in gold as part of some orchestrated plot on the part of the "evil bullion banks - backed by the feds" to take it down. Those who advocate such foolishness have never seen what some of these big specs can to do a market.
more later...
Both corn and beans are showing a larger percentage of the crops have been harvested than the pre-report estimates which may lead to some selling this evening/afternoon on the open.
If you ask me why these things are rallying like they are, I have no explanation. All I can say at this point is that some very big specs went after the short interest and used the recent low pressure weather system that went through the Corn belt yesterday and Tuesday as an excuse.
I have not seen any reports of any major crop damage thus the entire rally looks to me to have been a series of upside buy stops that cascaded and set off the computers buying.
This is why I constantly make mention of the nature of today's markets when dealing with those in the gold bug community who blame every single move lower in gold as part of some orchestrated plot on the part of the "evil bullion banks - backed by the feds" to take it down. Those who advocate such foolishness have never seen what some of these big specs can to do a market.
more later...
Saturday, October 11, 2014
Deflation Fears Gaining Ground in Europe
The following article in the London Telegraph is definitely worth a read. It confirms what I have been thinking for a while now that the primary fear facing the markets and thus the Central Banks as far as the Western economies go, is NOT inflation, but rather deflation. Try as they can, the ECB and the BOJ in particular, cannot seem to get the kind of growth they are hoping for, and more particularly, an inflation rate of 2% annually.
http://www.telegraph.co.uk/finance/economics/11154553/Dam-breaks-in-Europe-as-deflation-fears-wash-over-ECB-rhetoric.html
We have been following the Euro here in detail ever since ECB head Draghi first began attempts to talk the currency down when it reached the 1.400 level in May of this year. Quite frankly, with the problems that the Eurozone was having economically, the last thing desired in those quarters was a strong currency.
This was accomplished primarily by first raising the specter of additional monetary easing by lowering rates. Secondly it was then further reinforced by successive steps taken by the ECB which were seen as stimulative in nature by investors. I will not go into detail here as those have been covered previously here on this site.
Let me make one additional point here to refute the idea that the Euro fell primarily as a result of the sanctions imposed by the West on Russia. There is no doubt that those sanctions might have shaved some potential growth off of the Eurozone but frankly, the Eurozone has been in trouble long before those sanctions were announced or implemented.
There seem to be some who are so intent on preaching the demise of the US Dollar that they are blinded to the severe economic problems affecting the other major Western industrialized nations. The Dollar certainly has its own set of woes to contend with, but let's face it, right now the US is certainly more attractive of foreign capital flows than is the Eurozone or Japan for that matter.
Also, consider the fact that with global economic growth slowing and not rising, those nations whose currencies we have dubbed, "Commodity currencies", are having their own difficulties as well.
The Canadian Dollar, for example has fallen from 1.06 to its current .89 over the last three years. That is a decline of some 15.5%.
The Australian Dollar has declined nearly 22% in value against the US Dollar over that same three period with the currency being especially hit hard over the last month as it has plummeted some 8.5% alone!
I view the Aussie as a "Growth Currency" meaning that I look at it to try to get a sense of how the world at large sees the potential for commodity usage and thus, as a byproduct, overall world growth. Australia's close proximity to China, and its large trade in raw materials that are used in industrialized nations, infers that it is particularly vulnerable to any slowdown in growth from that corner of Asia.
Here is the currency chart:
That does not look like a currency chart showing a strong, vibrant, commodity-based economy now does it? It reflects what I and many others have been saying for a while now, that growth is slowing and deflationary headwinds are building. Those who keep with their incessant, inflation this and inflation that, are simply barking up the wrong tree.
Could we experience a currency crisis here in the US at some point? Sure we could. One never knows when the sentiment shifts in a market and suddenly something that was of seemingly little to no concern erupts into a full blown panic. Take the European Sovereign Debt crisis as an example.
It was no NEW news to the market that Greece or Spain or Portugal or even Italy had huge amounts of debt for the size of their overall GDP. The market knew that for a long time. Yet, something triggered a sudden shift in sentiment towards those nations' debt one day and on came the crisis.
What I am trying to say here is that one must deal with the present realities in the market to be successful as a trader or even an investor. Those who are handling real money and placing real trades or making real investments do not have the LUXURY of postulating theory after theory, many or even most of which will not turn out to be true. Instead they must understand the thinking or sentiment of the market. If it worries the market; it worries the trader. If the market could care less; the trader could care less. That sounds blasé but it is axiomatic due to the nature of money flows.
Standing in front of a tidal wave of money moving against you is a surefire method to be financially destroyed and left as "road pizza" ( one of my favorite analogies ) on the floor of the trading pits.
Let me shift gears here slightly and note the chart of gold priced in terms of the Euro. Eurogold has been holding much better than US Dollar priced gold on the chart, which is of course due to the sharp fall in the Euro.
Some have asked me what the repercussions to the Euro might be were the ECB to actually engage in their own version of QE to try reversing the deflationary pressures that are relentless in the Eurozone. I honestly do not know. I can make a case for a move higher and make one for a move lower.
The case for the lower Euro would be simple - the ECB creates more supply of the currency which tends to undercut the unit and thus knocks its lower. I am sure that is what they would hope the currency would do as they would thus bank on the weaker currency stimulating exports and serving to help generate some inflationary pressures.
The reverse could happen however. What if the market views the QE as sufficiently large enough in size to actually make a big impact on the economy and thus decides that the Eurozone will actually begin to grow? Could they decide that the Euro is now low enough and will move higher as the economy improves?
I don't know. The truth is I am not sure if anyone really knows. The reasons is because of something I have said many times here - we are in an era in which a monetary experiment of this size and of this nature has never been previously attempted. No one has thus ever lived through or been familiar with its eventual outcome. We are all trying to use our experience and wisdom gained over the years in deciphering the enigma presently before us. That is why I caution my readers against those who confidently ( hubristically in my opinion) proclaim with absolute certainty that "this market has bottomed" or "this market has topped" or "this event will now follow as sure as the sun rises in the East"., etc.
Let me draw some on my Texan roots and say that is pure "Bullsh*t!". They no more know the outcome or path of events that is going to transpire that the proverbial man in the moon. My advice is to ignore the wild screamers and theorist over at websites that are constantly regaling us with one sensational, dogmatic prediction after another and try to maintain a sort of quiet calm while you study developments and price action as you try to get a sense of how the markets are going to respond.
Lastly - Compare the Eurogold chart above to the weekly chart pattern of gold priced in US Dollar terms.
As you can see, that is quite a difference! This one looks abysmal compared to Eurogold. I am noting however that this week's wild swings in price have produced a Bullish Engulfing pattern on the weekly chart. That pattern has appeared at the previous double bottom level near $1180. My view on triple bottoms is well known by now - they rarely hold. But "rarely" is the key word. This one just might hold. Again, I honestly do not know. A technical chart pattern like this tends to be fairly reliable but all it could mean this time around is a halt in the ongoing downtrend, a sort of pause while the market consolidates before beginning a new leg lower. The reason for the uncertainty in my mind is that I did not see anything similar in the gold mining shares as evidenced by the HUI or GDXJ, both of which produced lousy weekly closes this week.
With the GLD disgorging the metal and with the TIPS spread continuing to fall, and with the commodity indices all dropping lower, will gold be able to withstand the headwinds coming from those negative fundamentals? Will those holding the metal ( big speculative interests ) decide to sell their gold to meet margin calls in equity markets exactly as happened back in 2008 when the crash began across nearly all asset classes except bonds? Again, I do not know. I am watching and observing however so let's do that together and see what comes next.
Dam breaks in Europe as deflation fears wash over ECB rhetoric
'We are reaching the end game in Europe. If they don’t launch real QE soon, the consequences are too awful to contemplate,' warns RBS
http://www.telegraph.co.uk/finance/economics/11154553/Dam-breaks-in-Europe-as-deflation-fears-wash-over-ECB-rhetoric.html
We have been following the Euro here in detail ever since ECB head Draghi first began attempts to talk the currency down when it reached the 1.400 level in May of this year. Quite frankly, with the problems that the Eurozone was having economically, the last thing desired in those quarters was a strong currency.
This was accomplished primarily by first raising the specter of additional monetary easing by lowering rates. Secondly it was then further reinforced by successive steps taken by the ECB which were seen as stimulative in nature by investors. I will not go into detail here as those have been covered previously here on this site.
Let me make one additional point here to refute the idea that the Euro fell primarily as a result of the sanctions imposed by the West on Russia. There is no doubt that those sanctions might have shaved some potential growth off of the Eurozone but frankly, the Eurozone has been in trouble long before those sanctions were announced or implemented.
There seem to be some who are so intent on preaching the demise of the US Dollar that they are blinded to the severe economic problems affecting the other major Western industrialized nations. The Dollar certainly has its own set of woes to contend with, but let's face it, right now the US is certainly more attractive of foreign capital flows than is the Eurozone or Japan for that matter.
Also, consider the fact that with global economic growth slowing and not rising, those nations whose currencies we have dubbed, "Commodity currencies", are having their own difficulties as well.
The Canadian Dollar, for example has fallen from 1.06 to its current .89 over the last three years. That is a decline of some 15.5%.
The Australian Dollar has declined nearly 22% in value against the US Dollar over that same three period with the currency being especially hit hard over the last month as it has plummeted some 8.5% alone!
I view the Aussie as a "Growth Currency" meaning that I look at it to try to get a sense of how the world at large sees the potential for commodity usage and thus, as a byproduct, overall world growth. Australia's close proximity to China, and its large trade in raw materials that are used in industrialized nations, infers that it is particularly vulnerable to any slowdown in growth from that corner of Asia.
Here is the currency chart:
That does not look like a currency chart showing a strong, vibrant, commodity-based economy now does it? It reflects what I and many others have been saying for a while now, that growth is slowing and deflationary headwinds are building. Those who keep with their incessant, inflation this and inflation that, are simply barking up the wrong tree.
Could we experience a currency crisis here in the US at some point? Sure we could. One never knows when the sentiment shifts in a market and suddenly something that was of seemingly little to no concern erupts into a full blown panic. Take the European Sovereign Debt crisis as an example.
It was no NEW news to the market that Greece or Spain or Portugal or even Italy had huge amounts of debt for the size of their overall GDP. The market knew that for a long time. Yet, something triggered a sudden shift in sentiment towards those nations' debt one day and on came the crisis.
What I am trying to say here is that one must deal with the present realities in the market to be successful as a trader or even an investor. Those who are handling real money and placing real trades or making real investments do not have the LUXURY of postulating theory after theory, many or even most of which will not turn out to be true. Instead they must understand the thinking or sentiment of the market. If it worries the market; it worries the trader. If the market could care less; the trader could care less. That sounds blasé but it is axiomatic due to the nature of money flows.
Standing in front of a tidal wave of money moving against you is a surefire method to be financially destroyed and left as "road pizza" ( one of my favorite analogies ) on the floor of the trading pits.
Let me shift gears here slightly and note the chart of gold priced in terms of the Euro. Eurogold has been holding much better than US Dollar priced gold on the chart, which is of course due to the sharp fall in the Euro.
Some have asked me what the repercussions to the Euro might be were the ECB to actually engage in their own version of QE to try reversing the deflationary pressures that are relentless in the Eurozone. I honestly do not know. I can make a case for a move higher and make one for a move lower.
The case for the lower Euro would be simple - the ECB creates more supply of the currency which tends to undercut the unit and thus knocks its lower. I am sure that is what they would hope the currency would do as they would thus bank on the weaker currency stimulating exports and serving to help generate some inflationary pressures.
The reverse could happen however. What if the market views the QE as sufficiently large enough in size to actually make a big impact on the economy and thus decides that the Eurozone will actually begin to grow? Could they decide that the Euro is now low enough and will move higher as the economy improves?
I don't know. The truth is I am not sure if anyone really knows. The reasons is because of something I have said many times here - we are in an era in which a monetary experiment of this size and of this nature has never been previously attempted. No one has thus ever lived through or been familiar with its eventual outcome. We are all trying to use our experience and wisdom gained over the years in deciphering the enigma presently before us. That is why I caution my readers against those who confidently ( hubristically in my opinion) proclaim with absolute certainty that "this market has bottomed" or "this market has topped" or "this event will now follow as sure as the sun rises in the East"., etc.
Let me draw some on my Texan roots and say that is pure "Bullsh*t!". They no more know the outcome or path of events that is going to transpire that the proverbial man in the moon. My advice is to ignore the wild screamers and theorist over at websites that are constantly regaling us with one sensational, dogmatic prediction after another and try to maintain a sort of quiet calm while you study developments and price action as you try to get a sense of how the markets are going to respond.
Lastly - Compare the Eurogold chart above to the weekly chart pattern of gold priced in US Dollar terms.
As you can see, that is quite a difference! This one looks abysmal compared to Eurogold. I am noting however that this week's wild swings in price have produced a Bullish Engulfing pattern on the weekly chart. That pattern has appeared at the previous double bottom level near $1180. My view on triple bottoms is well known by now - they rarely hold. But "rarely" is the key word. This one just might hold. Again, I honestly do not know. A technical chart pattern like this tends to be fairly reliable but all it could mean this time around is a halt in the ongoing downtrend, a sort of pause while the market consolidates before beginning a new leg lower. The reason for the uncertainty in my mind is that I did not see anything similar in the gold mining shares as evidenced by the HUI or GDXJ, both of which produced lousy weekly closes this week.
With the GLD disgorging the metal and with the TIPS spread continuing to fall, and with the commodity indices all dropping lower, will gold be able to withstand the headwinds coming from those negative fundamentals? Will those holding the metal ( big speculative interests ) decide to sell their gold to meet margin calls in equity markets exactly as happened back in 2008 when the crash began across nearly all asset classes except bonds? Again, I do not know. I am watching and observing however so let's do that together and see what comes next.
Friday, October 10, 2014
Fear?
So much for stock market complacency.. the VIX - Volatility Index - or as I prefer to call it, the Complacency Index, hit a 10 month high today. The bulls have pretty much had a one way market for as long as we can seemingly remember. Looks like that has changed some! We have gone from confidence to uncertainty to concern. We have not reached fear however.
By the way, further confirmation that those who have been preaching hyperinflation and currency induced cost push and whatever for so many years have been utterly confounded. The yield on the Ten Year Treasury hit a 16 MONTH LOW today!
The US Dollar managed to bounce right off of chart support near 85 and ended the week just below 86. It is essentially halfway between resistance at 87 on the top and support at 85 on the bottom. A push through 87 sets it up for a run to near 89. Should it fall below 85, there is a band of support near 84 and with better support near the Fibonacci retracement level just below 83.
I have some further bad news for gold bulls unfortunately - GLD, that big gold ETF has been disgorging gold all week long even as the price has moved up from below the $1200 level. Simply put - investors/traders are moving money out of GLD and out of equities and putting that into bonds during this risk aversion period. Rallies in GLD are thus being viewed as selling opportunities. This is NOT what gold bulls want to see.
For this year, 2014, reported gold holdings are down over 38 tons from the start of the year ( 38.78 to be exact ) to 759.44 tons. This is the lowest level in GLD since December 2008! That is NEARLY SIX YEARS AGO. Western-origin gold investment demand continues to disappoint.
By the way, further confirmation that those who have been preaching hyperinflation and currency induced cost push and whatever for so many years have been utterly confounded. The yield on the Ten Year Treasury hit a 16 MONTH LOW today!
The US Dollar managed to bounce right off of chart support near 85 and ended the week just below 86. It is essentially halfway between resistance at 87 on the top and support at 85 on the bottom. A push through 87 sets it up for a run to near 89. Should it fall below 85, there is a band of support near 84 and with better support near the Fibonacci retracement level just below 83.
I have some further bad news for gold bulls unfortunately - GLD, that big gold ETF has been disgorging gold all week long even as the price has moved up from below the $1200 level. Simply put - investors/traders are moving money out of GLD and out of equities and putting that into bonds during this risk aversion period. Rallies in GLD are thus being viewed as selling opportunities. This is NOT what gold bulls want to see.
For this year, 2014, reported gold holdings are down over 38 tons from the start of the year ( 38.78 to be exact ) to 759.44 tons. This is the lowest level in GLD since December 2008! That is NEARLY SIX YEARS AGO. Western-origin gold investment demand continues to disappoint.
USDA Supply and Demand Reports
As promised - though admittedly quite late - here are some observations on today's (Friday) USDA grain reports, which resulted in some very big moves across the complex.
Let's start with the corn first -
The trade was expecting a reduction in the ACREAGE PLANTED and that is what it received. Specifically, the number was lowered to 90.9 million acres from last month's 91.6 million. Harvested acreage was also reduced slightly to 83.1 million from last month's 83.8 million.
What the trade seemed focused on however was the increase in yield from 171.7 bushels to 174.2. They also boosted beginning stocks to 1.236 billion bushels from last month's 1.181 billion. Total production for this year came in at 14.475 billion bushels up from the September estimate at 14.395 billion.
USDA found another 50 million bushels for feed usage from the September estimate mainly because the WASDE report showed an increase in beef, pork, and poultry production next year from the previous month. Those critters need to be fed.
By the time they did the numbers, they gave us a carryover of 2.081 billion bushels compared to what they estimated last month would be a 2.002 billion bushel carryover.
To provide a bit of perspective, the 2013-2014 marketing year carryover ended at 1.236 billion. We are essentially going to end up with nearly 70% more corn left over next year.
It is interesting to see how the trade responded to the number when it first hit. Expectations were that USDA would kick the yield number higher than they did and some came in to buy on that, but most of us who have followed these reports for many years know that USDA tends to be very conservative preferring to err on the low side and then come in the following month with an upward revision during big crop years.
With private analytical firms generally reaching a yield consensus higher than today's number, traders used the short rally to sell as expectations are that USDA will give us that higher number next month. Besides, with a carryover of this size and with a record, bin-busting crop, buying a market to take it higher on data like this was rather ill-advised to say the least.
One thing I also noticed was the extent to which those corn/wheat spreads were battered today. Yesterday, the wheat market sharp drop lower on rotten export numbers fueled some big selling in wheat. Harvest delays in corn were used to bull up the market ( strangely I might add ahead of a major USDA report ). The spread shot up in favor of corn by some 16 cents or so. Today, with the lowered than expected wheat number, that entire gain was wiped out in a single day with the spread dropping 16 cents. Talk about whipsawing! And to think that spread trading is supposed to be less risky and less volatile. HA! You have got to be kidding me. When one leg of a spread goes one way and other goes the other way, and both of them are going the wrong way as far as someone in the spread is concerned, you end up LOSING EVEN MORE MONEY than a plain old outright position would have cost you. That HURTS, BIG TIME!
What I am going to be very interested in seeing now is how this spread performs as we move forward. The reason is simple - the large specs have been and remain net longs in the corn market even though the primary trend has been down for many weeks. They have been able to do this because they have been in those spreads mentioned and short wheat while maintaining a long corn leg.
My concern has been what happens if those big specs decide to unwind those spreads or even reverse them? Corn could get clobbered as they exit the long side of that trade.
I am saying that this is going to happen and I certainly cannot advise anyone who does not know what they are doing in the grains to become a spread trader ( remember if you are a novice you could end up losing money on both sides and get hurt even more badly than an outright futures position ) but I will say that the potential exists for wheat to gain on corn.
Then again, from what I can see, there is not exactly a shortage of wheat out there either. Exports completely shut off last week when wheat was above $5.00 and here we see the trade push the price right back up over $5.00 today on the USDA numbers although it did settle below that level by the time the closing bell rang.
With the Dollar bouncing back off of support near 85, US origin commodities become less competitive on the global market meaning a rally in wheat, along with a rallying Dollar is not going to make it any cheaper for our export customers and they have LOTS of options to choose from out there as the US is not the only wheat game in town.
Briefly on the beans ( it has been a very long day ) - USDA cut the planted acreage to 84.2 million from last month's 84.8. They also dropped harvested acreage to 83.4 million from 84.1. Apparently there were some additional acres that were washed out earlier this year and not planted plus some that were planted and then washed out and not replanted.
They did however raise the yield to 47.1 bushels from 46.6. I and others believe that they are too low on this number and that it will be revised higher next month and in December as well.
They did cut the old carryover number even further to 92 million bushels from last month's 130 million reflecting the rather strong demand from end users as they waited for new crop supplies to hit the pipeline.
Total production for this year was bumped up to 3.927 billion bushels from last month's 3.913. The resultant carryover for the new crop came in at 450 million bushels, down from last month's estimate of 475 million but obviously nearly 5X the amount of the 2103-2014 crop year.
Traders looking at the numbers were inclined to view that reduction in the carryover as a reason to buy and that is what happened initially. My view is that there were some big guns itching to flush the small spec stops on the upside. However, they could not reach them as these mysterious buyers had already run prices up on Monday this week and proceeded to gun them even higher ahead of the report day. Simply put, there was no reason to chase beans at those levels because in spite of the slight reduction in carryover, we are still looking at a record crop.
Traders also felt that USDA yield numbers were too conservative ( so do I based on what I am seeing from the private firms ) and used the rally, just like they did with corn, to sell.
The result is that both corn and beans go into Sunday night with some potential to see additional selling take hold, especially if the weather window next week for harvesting looks favorable.
I will try to get some charts up tomorrow.
I should also note that the Goldman Sachs Commodity Index closed at a 49 month low today!
Let's start with the corn first -
The trade was expecting a reduction in the ACREAGE PLANTED and that is what it received. Specifically, the number was lowered to 90.9 million acres from last month's 91.6 million. Harvested acreage was also reduced slightly to 83.1 million from last month's 83.8 million.
What the trade seemed focused on however was the increase in yield from 171.7 bushels to 174.2. They also boosted beginning stocks to 1.236 billion bushels from last month's 1.181 billion. Total production for this year came in at 14.475 billion bushels up from the September estimate at 14.395 billion.
USDA found another 50 million bushels for feed usage from the September estimate mainly because the WASDE report showed an increase in beef, pork, and poultry production next year from the previous month. Those critters need to be fed.
By the time they did the numbers, they gave us a carryover of 2.081 billion bushels compared to what they estimated last month would be a 2.002 billion bushel carryover.
To provide a bit of perspective, the 2013-2014 marketing year carryover ended at 1.236 billion. We are essentially going to end up with nearly 70% more corn left over next year.
It is interesting to see how the trade responded to the number when it first hit. Expectations were that USDA would kick the yield number higher than they did and some came in to buy on that, but most of us who have followed these reports for many years know that USDA tends to be very conservative preferring to err on the low side and then come in the following month with an upward revision during big crop years.
With private analytical firms generally reaching a yield consensus higher than today's number, traders used the short rally to sell as expectations are that USDA will give us that higher number next month. Besides, with a carryover of this size and with a record, bin-busting crop, buying a market to take it higher on data like this was rather ill-advised to say the least.
One thing I also noticed was the extent to which those corn/wheat spreads were battered today. Yesterday, the wheat market sharp drop lower on rotten export numbers fueled some big selling in wheat. Harvest delays in corn were used to bull up the market ( strangely I might add ahead of a major USDA report ). The spread shot up in favor of corn by some 16 cents or so. Today, with the lowered than expected wheat number, that entire gain was wiped out in a single day with the spread dropping 16 cents. Talk about whipsawing! And to think that spread trading is supposed to be less risky and less volatile. HA! You have got to be kidding me. When one leg of a spread goes one way and other goes the other way, and both of them are going the wrong way as far as someone in the spread is concerned, you end up LOSING EVEN MORE MONEY than a plain old outright position would have cost you. That HURTS, BIG TIME!
What I am going to be very interested in seeing now is how this spread performs as we move forward. The reason is simple - the large specs have been and remain net longs in the corn market even though the primary trend has been down for many weeks. They have been able to do this because they have been in those spreads mentioned and short wheat while maintaining a long corn leg.
My concern has been what happens if those big specs decide to unwind those spreads or even reverse them? Corn could get clobbered as they exit the long side of that trade.
I am saying that this is going to happen and I certainly cannot advise anyone who does not know what they are doing in the grains to become a spread trader ( remember if you are a novice you could end up losing money on both sides and get hurt even more badly than an outright futures position ) but I will say that the potential exists for wheat to gain on corn.
Then again, from what I can see, there is not exactly a shortage of wheat out there either. Exports completely shut off last week when wheat was above $5.00 and here we see the trade push the price right back up over $5.00 today on the USDA numbers although it did settle below that level by the time the closing bell rang.
With the Dollar bouncing back off of support near 85, US origin commodities become less competitive on the global market meaning a rally in wheat, along with a rallying Dollar is not going to make it any cheaper for our export customers and they have LOTS of options to choose from out there as the US is not the only wheat game in town.
Briefly on the beans ( it has been a very long day ) - USDA cut the planted acreage to 84.2 million from last month's 84.8. They also dropped harvested acreage to 83.4 million from 84.1. Apparently there were some additional acres that were washed out earlier this year and not planted plus some that were planted and then washed out and not replanted.
They did however raise the yield to 47.1 bushels from 46.6. I and others believe that they are too low on this number and that it will be revised higher next month and in December as well.
They did cut the old carryover number even further to 92 million bushels from last month's 130 million reflecting the rather strong demand from end users as they waited for new crop supplies to hit the pipeline.
Total production for this year was bumped up to 3.927 billion bushels from last month's 3.913. The resultant carryover for the new crop came in at 450 million bushels, down from last month's estimate of 475 million but obviously nearly 5X the amount of the 2103-2014 crop year.
Traders looking at the numbers were inclined to view that reduction in the carryover as a reason to buy and that is what happened initially. My view is that there were some big guns itching to flush the small spec stops on the upside. However, they could not reach them as these mysterious buyers had already run prices up on Monday this week and proceeded to gun them even higher ahead of the report day. Simply put, there was no reason to chase beans at those levels because in spite of the slight reduction in carryover, we are still looking at a record crop.
Traders also felt that USDA yield numbers were too conservative ( so do I based on what I am seeing from the private firms ) and used the rally, just like they did with corn, to sell.
The result is that both corn and beans go into Sunday night with some potential to see additional selling take hold, especially if the weather window next week for harvesting looks favorable.
I will try to get some charts up tomorrow.
I should also note that the Goldman Sachs Commodity Index closed at a 49 month low today!
Russell 2000 a Harbinger to come?
Yesterday I was able to post a chart of the Russell 2000 noting that today's close was going to be a big deal in regards to its overall technical condition. Would the index be able to find enough willing and able buyers near the support zone that has served to hold it for over a year now or would the bears finally be able to break the back of the bulls.
I guess that questioned was answered today.
Take a look at the extremely poor WEEKLY close on the chart. Note that it fell well below the support zone and in the process confirmed a DOUBLE TOP on the chart.
The question is now what? Here is my read on this. The bulls must immediately, before the end of trading next Friday recapture the broken support zone near and just above 1080 or the bears will have them.
Downside - there is some light support near 1040 that might spark some short covering but stronger support does not show up on this chart until closer to the 1000 mark, which I might add is a big psychological number. It also happens to correspond to the 25% Fibonacci retracement level of the entire move off the 2009 low and a band of horizontal support that comes in closer to 1012-1008.
Suffice it to say that the close today does not bode well for early next week. The mantra of buying the dip in equities looks like it is going to be tested.
One quick thing and I am done for just now as this has been one of the busiest days I have experienced in some time what with a MAJOR USDA Supply and Demand report for the Grains, ( and the livestock markets I might add), as well as some wild swings in wheat, etc. I will get some stuff up about these later on as my schedule permits.
For now, I am also noting that once again, gold was saved by its safe haven status as the metal began recovering from its worst levels by the swooning equity markets and the bonds which once again SOARED higher as money went rushing into US Treasuries. Also, right on time, as if clockwork, the Yen scooted higher as more of the risk trades were taken off and that particular carry trade was unwound.
The Euro however did not fare so well as once again it was "let's beat the snot out of the Euro" trade resumed. As said yesterday, FOMC (Central Banks) can only talk up currencies so much or talk them down before fundamentals take over. All the Fed did was give those who were looking for a lower level at which to buy the Dollar or a higher level at which to sell the Euro a huge gift to do just that.
Sadly for the bullish cause for gold however, the HUI and the GDXJ continue to go "Kerplunk!" along with the rest of the equity markets. The latter actually held up a bit better than the HUI did as it was down only 1.22% today compared to a loss of 2.44% in the HUI. Both charts are not especially promising; however, at least they remain above the lows made on the FOMC day this week ( Wednesday). Bulls might take some consolation in that but a mere 5 points off a multi-year low is not exactly a lot to crow about right now. That level is going to take on a lot of significance as we move forward. If it fails, another leg lower is coming. Let's hope for the long-suffering bulls that is not the case but with deflationary concerns rapidly rising, it is certainly possible that those lows will not hold.
Also, while crude oil was able to bounce somewhat off its overnight lows, near 83.50, it still looks iffy. Gasoline was trounced and beaten with an ugly stick today as it made yet another fresh 4 year low in price. I am quite happy with that to be honest.
Cattle rebounded when news of firm cash hit the market which saved the complex from the beating it took earlier but USDA also showed an increase in red meat production for next year and for poultry, something which I have been saying for some time now.
What that tells me is that red meat prices are coming down for sure. I had expected beef prices to start coming down by the 4th quarter as well as pork. Beef is holding better than I expected thus far but pork looks like it is beginning to weaken. There is going to be too much competition from pork and poultry in 2015 for it to stay up here in the stratosphere.
With the combination of cheaper gasoline and falling red meat prices, it looks like more Bar-b-Q is on the menu at my household once more. Then again, the way things are looking with this cursed Ebola virus, maybe all of us will be scared to death to even venture out of the door so cheap gasoline will not matter much!
I will get the grain stuff up later as there is a lot to cover....\
I guess that questioned was answered today.
Take a look at the extremely poor WEEKLY close on the chart. Note that it fell well below the support zone and in the process confirmed a DOUBLE TOP on the chart.
The question is now what? Here is my read on this. The bulls must immediately, before the end of trading next Friday recapture the broken support zone near and just above 1080 or the bears will have them.
Downside - there is some light support near 1040 that might spark some short covering but stronger support does not show up on this chart until closer to the 1000 mark, which I might add is a big psychological number. It also happens to correspond to the 25% Fibonacci retracement level of the entire move off the 2009 low and a band of horizontal support that comes in closer to 1012-1008.
Suffice it to say that the close today does not bode well for early next week. The mantra of buying the dip in equities looks like it is going to be tested.
One quick thing and I am done for just now as this has been one of the busiest days I have experienced in some time what with a MAJOR USDA Supply and Demand report for the Grains, ( and the livestock markets I might add), as well as some wild swings in wheat, etc. I will get some stuff up about these later on as my schedule permits.
For now, I am also noting that once again, gold was saved by its safe haven status as the metal began recovering from its worst levels by the swooning equity markets and the bonds which once again SOARED higher as money went rushing into US Treasuries. Also, right on time, as if clockwork, the Yen scooted higher as more of the risk trades were taken off and that particular carry trade was unwound.
The Euro however did not fare so well as once again it was "let's beat the snot out of the Euro" trade resumed. As said yesterday, FOMC (Central Banks) can only talk up currencies so much or talk them down before fundamentals take over. All the Fed did was give those who were looking for a lower level at which to buy the Dollar or a higher level at which to sell the Euro a huge gift to do just that.
Sadly for the bullish cause for gold however, the HUI and the GDXJ continue to go "Kerplunk!" along with the rest of the equity markets. The latter actually held up a bit better than the HUI did as it was down only 1.22% today compared to a loss of 2.44% in the HUI. Both charts are not especially promising; however, at least they remain above the lows made on the FOMC day this week ( Wednesday). Bulls might take some consolation in that but a mere 5 points off a multi-year low is not exactly a lot to crow about right now. That level is going to take on a lot of significance as we move forward. If it fails, another leg lower is coming. Let's hope for the long-suffering bulls that is not the case but with deflationary concerns rapidly rising, it is certainly possible that those lows will not hold.
Also, while crude oil was able to bounce somewhat off its overnight lows, near 83.50, it still looks iffy. Gasoline was trounced and beaten with an ugly stick today as it made yet another fresh 4 year low in price. I am quite happy with that to be honest.
Cattle rebounded when news of firm cash hit the market which saved the complex from the beating it took earlier but USDA also showed an increase in red meat production for next year and for poultry, something which I have been saying for some time now.
What that tells me is that red meat prices are coming down for sure. I had expected beef prices to start coming down by the 4th quarter as well as pork. Beef is holding better than I expected thus far but pork looks like it is beginning to weaken. There is going to be too much competition from pork and poultry in 2015 for it to stay up here in the stratosphere.
With the combination of cheaper gasoline and falling red meat prices, it looks like more Bar-b-Q is on the menu at my household once more. Then again, the way things are looking with this cursed Ebola virus, maybe all of us will be scared to death to even venture out of the door so cheap gasoline will not matter much!
I will get the grain stuff up later as there is a lot to cover....\
A Little Fun
You gotta love this hawk - a true lover of liberty! Score 1 for the Raptor!
http://fox5sandiego.com/2014/10/08/angry-bird-hawk-knocks-drone-out-of-the-sky/
http://fox5sandiego.com/2014/10/08/angry-bird-hawk-knocks-drone-out-of-the-sky/
Subscribe to:
Posts (Atom)