Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Saturday, April 21, 2012
Monday, April 16, 2012
RISK OFF Trades hitting the Commodity Sector
Investors/traders are growing increasingly concerned about an overall global economic slowdown. This morning's Retail Sales number had temporarily cheered them with higher equities coming in on that news but then the fall of the NAHB housing market index (the first in seven months I might add) soured them rather quickly and led to increased selling pressure being seen in the broader equity markets as well as the commodity complex. Even gasoline has thus far not been immune to the pressure.
The result of this has seen the CCI moving back towards the critical low made late last year. You might recall that as the year 2011 wound down, many speculators were in a selling mood fearing European Sovereign debt woes contagion and slower growth in general.
That began to change towards the end of December as many then began anticipating a Central Bank response. Fund flows began reversing and moving back into RISK assets particularly at the start of the New Year as traders were certain that the Fed would not only be bringing back the punch bowl to the party, but also spiking it as well.
Now that we have heard nothing in the last few days from the monetary masters about such things, traders are growing increasingly despondent that a new round of QE is forthcoming and are reacting accordingly - they are generally selling risk assets and buying Treasuries.
Surprisingly, silver is holding relatively well today in spite of the general trend away from risk as it is attempting to hold chart support centered in the region near $31. Bulls need to dig in here or it will sink rather quickly to $30 for a test of their resolve at that level.
I am going to be extremely interested to see whether we get some comments soon from the various Fed Governors. While the S&P is holding much better than the broad commodity sector, it is still trading below its 50 day moving average, having fallen back through that critical level last Friday on the news of China's growth for Q1 slowing to 8.1%.
The least whiff of another round of QE will completely reverse the losses in the CCI - in the meantime the Bears are dominating.
Gold continues to struggle at $1680 - there currently does not seem to be enough speculative money flows to take this market through that level without some sort of spark.
The HUI is lower today and is sinking back towards a very important chart support level near 440.
The result of this has seen the CCI moving back towards the critical low made late last year. You might recall that as the year 2011 wound down, many speculators were in a selling mood fearing European Sovereign debt woes contagion and slower growth in general.
That began to change towards the end of December as many then began anticipating a Central Bank response. Fund flows began reversing and moving back into RISK assets particularly at the start of the New Year as traders were certain that the Fed would not only be bringing back the punch bowl to the party, but also spiking it as well.
Now that we have heard nothing in the last few days from the monetary masters about such things, traders are growing increasingly despondent that a new round of QE is forthcoming and are reacting accordingly - they are generally selling risk assets and buying Treasuries.
Surprisingly, silver is holding relatively well today in spite of the general trend away from risk as it is attempting to hold chart support centered in the region near $31. Bulls need to dig in here or it will sink rather quickly to $30 for a test of their resolve at that level.
I am going to be extremely interested to see whether we get some comments soon from the various Fed Governors. While the S&P is holding much better than the broad commodity sector, it is still trading below its 50 day moving average, having fallen back through that critical level last Friday on the news of China's growth for Q1 slowing to 8.1%.
The least whiff of another round of QE will completely reverse the losses in the CCI - in the meantime the Bears are dominating.
Gold continues to struggle at $1680 - there currently does not seem to be enough speculative money flows to take this market through that level without some sort of spark.
The HUI is lower today and is sinking back towards a very important chart support level near 440.
Saturday, April 14, 2012
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
Friday, April 13, 2012
Algorithms Gone Wild - AGAIN, and AGAIN, and AGAIN
What more is left to say at this point other than the fact that the hedge fund computers and their damnable algorithms have destroyed the integrity of the US futures markets. The sheer size, extent, ferocity and volatility of the moves that these pestilential computers are creating have rendered these markets basically useless for what they originally came into being for, namely, risk management for commercial entities.
Price swings of this magnitude are blowing up hedged positions put on by commercials and other end users/merchants/processors, etc. While margins are reduced for legitimate hedgers, they still must meet any and all margin calls on any hedged position, whether that is a long position or a short position. Some will say that all they need to do is to buy or sell the corresponding physical commodity and while simultaneously lifting the hedge. That might work fine on paper but in the real world it is a fabrication.
A cattle feedlot, a grain elevator owner/operator, a cocoa processor, a cotton mill, etc, may or may not have the actual product ready to sell as it is still maturing or growing in the field or may not be ready yet to actually buy the product but they might have hedges in place while they are waiting. So much for their hedges in this sort of idiotically insane trading environment. Their hedges are getting blasted to kingdom come but they must maintain the thing if it moves against them meaning that they need cash to meet any and all margin calls.
At some point, the cost of doing so, with hedge fund running prices all over the damn planet on a daily basis, is no longer feasible.
I am predicting here and now that unless something is done to corral these hedge funds, the futures market is going to become useless as a risk management tool for non-speculative entities.
Take a look at the following CCI chart (it might as well be copper or silver for that matter) and look at the extent of the daily price swings. Tuesday saw a big sell off across the sector as traders feared European debt woes and that brought about the RISK OFF trades. Commodities were dumped, the Dollar was bid higher and up went the bonds. The next day was relatively tame by comparison as traders were hesitant to do much of anything. Thursday saw the entire losses of the previous two days erased as Fed Governor Dudleys' comments were interpreted as making the case for another round of QE forthcoming sooner rather than later.
Today, news hit that Chinas' growth had slowed in the first quarter to a "pitiful" 8.1%. Yep, such a debacle ( if we could get half of that over here, a lot of our fiscal budget woes and our unemployment problem would actually get better). I am of course being sarcastic but once again the hedge funds and their mindless machines dumped everything in sight since we all know that no one needs to eat when growth is slowing down now do they? The result, YEP - all of the Dudley rally went down in flames with the market right back where it ended Tuesday.
Maybe we all should just go the hell to sleep and wake up in a year and see if the chart has actually gone anywhere besides up and down like a stinking yo-yo.
Price swings of this magnitude are blowing up hedged positions put on by commercials and other end users/merchants/processors, etc. While margins are reduced for legitimate hedgers, they still must meet any and all margin calls on any hedged position, whether that is a long position or a short position. Some will say that all they need to do is to buy or sell the corresponding physical commodity and while simultaneously lifting the hedge. That might work fine on paper but in the real world it is a fabrication.
A cattle feedlot, a grain elevator owner/operator, a cocoa processor, a cotton mill, etc, may or may not have the actual product ready to sell as it is still maturing or growing in the field or may not be ready yet to actually buy the product but they might have hedges in place while they are waiting. So much for their hedges in this sort of idiotically insane trading environment. Their hedges are getting blasted to kingdom come but they must maintain the thing if it moves against them meaning that they need cash to meet any and all margin calls.
At some point, the cost of doing so, with hedge fund running prices all over the damn planet on a daily basis, is no longer feasible.
I am predicting here and now that unless something is done to corral these hedge funds, the futures market is going to become useless as a risk management tool for non-speculative entities.
Take a look at the following CCI chart (it might as well be copper or silver for that matter) and look at the extent of the daily price swings. Tuesday saw a big sell off across the sector as traders feared European debt woes and that brought about the RISK OFF trades. Commodities were dumped, the Dollar was bid higher and up went the bonds. The next day was relatively tame by comparison as traders were hesitant to do much of anything. Thursday saw the entire losses of the previous two days erased as Fed Governor Dudleys' comments were interpreted as making the case for another round of QE forthcoming sooner rather than later.
Today, news hit that Chinas' growth had slowed in the first quarter to a "pitiful" 8.1%. Yep, such a debacle ( if we could get half of that over here, a lot of our fiscal budget woes and our unemployment problem would actually get better). I am of course being sarcastic but once again the hedge funds and their mindless machines dumped everything in sight since we all know that no one needs to eat when growth is slowing down now do they? The result, YEP - all of the Dudley rally went down in flames with the market right back where it ended Tuesday.
Maybe we all should just go the hell to sleep and wake up in a year and see if the chart has actually gone anywhere besides up and down like a stinking yo-yo.
Thursday, April 12, 2012
A Little Dab will Do Ya
Years ago there was a men's hair care product (okay - let's call it what it really was and do away with the euphemisms - GREASE) by the name of Brylcreem. Boys and men slathered this stuff between the palms of their hands and then rubbed it into their hair. The result was that you could make that hair so stiff it would stay there all day no matter rain, fog, or gloom of night. Problem hair? No problem! Grease it into obedience!
In watching the price action in the S&P 500 this morning I am reminded of that commercial (Yeah I know - my brain thinks in weird terms!). The index had the audacity to become like a problem hair - uncooperative, unruly and generally out of place in the minds of the monetary authorities idea of what is supposed to be a beautiful head of hair.
So what to do about this? Why send the boyz out to the microphone and "grease" this thing back into compliance.
Note the price chart and you will see what I am talking about. For the first time this year the S&P had fallen BELOW the techically significant 50 day moving average. That is a gigantic "NO-NO", as it signifies a market moving toward a bearish posture.
Why, miracle of miracles, out trots New York Fed President Dudley with his comments fanning the hopes of those wishing for more QE, and "Voila!", back goes the S&P 500 through the 50 day moving average! Problem solved; hair greased back into place; now let's go play Dodge Ball!
In watching the price action in the S&P 500 this morning I am reminded of that commercial (Yeah I know - my brain thinks in weird terms!). The index had the audacity to become like a problem hair - uncooperative, unruly and generally out of place in the minds of the monetary authorities idea of what is supposed to be a beautiful head of hair.
So what to do about this? Why send the boyz out to the microphone and "grease" this thing back into compliance.
Note the price chart and you will see what I am talking about. For the first time this year the S&P had fallen BELOW the techically significant 50 day moving average. That is a gigantic "NO-NO", as it signifies a market moving toward a bearish posture.
Why, miracle of miracles, out trots New York Fed President Dudley with his comments fanning the hopes of those wishing for more QE, and "Voila!", back goes the S&P 500 through the 50 day moving average! Problem solved; hair greased back into place; now let's go play Dodge Ball!
The "Dudley" Rally
New York Fed President William Dudley apparently supplied both the gasoline and the match to the "risk asset" fire this morning as his comments sparked a strong rally in both equities and in commodities. Interestingly enough, the markets were relatively flat after the gain in unemployment claims as traders began fearing that the pop in the payrolls numbers of late was about to become a thing of the past.
Dudley reversed all of that when he stated that it was too soon to say the US economy was out of the woods. That was all that traders needed as their brains are already preprogrammed into interpreting all such comments as: "HERE COMES THE NEXT ROUND OF QE".
It was fascinating to watch copper in particular go from treading water following its 5 day collapse in price to shooting sharply higher when the Dudley comments hit the wire. It is now over 2% higher on the day; as is silver which is nearly 3% higher.
Forgotten are the woes about Spain, Italy and the rest of the other "problem" nations of the Euro zone; woes which I might add had been responsible for knocking the stuffing out of both equities and commodities recently when the risk aversion trades came back on in full force.
The lesson from all this is simple - in the minds of today's modern trading community, especially the monolithic thinking hedge fund managers, Quantitative Easing will fix anything that gets in the way of rising markets.
Those of us who have a bit more sense understand that this is not true but like any drug addict, another fix does do away with the withdrawal symptoms for at least a little while. It never cures the patient but makes him or her feel better which is now the name of the game among the monetary authorities.
The problem is that the worse the addiction, the more resistant the patient becomes to getting high as his system begins to develop a type of resistance to the effects of the drug. What this means is that each successive dose of QE will have shorter and shorter lasting effects before it wears off once again.
For the time being however, the result has led to US Dollar selling which is fueling a rush of hot money flows back into the commodity sector today. That is leading gold higher and has put it back within striking distance of tough resistance at the $1680 level once again. This is the top of the recent tighter trading range that has contained the metal for some time now. Bulls must take the price up and through this level and KEEP IT ABOVE $1680 if this thing is going to have any additional legs to it.
Dudley reversed all of that when he stated that it was too soon to say the US economy was out of the woods. That was all that traders needed as their brains are already preprogrammed into interpreting all such comments as: "HERE COMES THE NEXT ROUND OF QE".
It was fascinating to watch copper in particular go from treading water following its 5 day collapse in price to shooting sharply higher when the Dudley comments hit the wire. It is now over 2% higher on the day; as is silver which is nearly 3% higher.
Forgotten are the woes about Spain, Italy and the rest of the other "problem" nations of the Euro zone; woes which I might add had been responsible for knocking the stuffing out of both equities and commodities recently when the risk aversion trades came back on in full force.
The lesson from all this is simple - in the minds of today's modern trading community, especially the monolithic thinking hedge fund managers, Quantitative Easing will fix anything that gets in the way of rising markets.
Those of us who have a bit more sense understand that this is not true but like any drug addict, another fix does do away with the withdrawal symptoms for at least a little while. It never cures the patient but makes him or her feel better which is now the name of the game among the monetary authorities.
The problem is that the worse the addiction, the more resistant the patient becomes to getting high as his system begins to develop a type of resistance to the effects of the drug. What this means is that each successive dose of QE will have shorter and shorter lasting effects before it wears off once again.
For the time being however, the result has led to US Dollar selling which is fueling a rush of hot money flows back into the commodity sector today. That is leading gold higher and has put it back within striking distance of tough resistance at the $1680 level once again. This is the top of the recent tighter trading range that has contained the metal for some time now. Bulls must take the price up and through this level and KEEP IT ABOVE $1680 if this thing is going to have any additional legs to it.
Saturday, April 7, 2012
Trader Dan on King World News Weekly Metals Wrap
Please click on the following link to listen in to my regular weekly radio interview with Eric King on the KWN Weekly Metals Wrap.
http://tinyurl.com/7764elv
http://tinyurl.com/7764elv
Friday, April 6, 2012
Pre-Easter Weekend Comments
Today's Payrolls number for the month of March came in at 120K, far less than the market was expecting. The response of those futures markets which were still open for trading was swift and immediate - Emini S&P 500 futures dropped sharply while the US long bond staged a nearly two point rally.
So much for notions that the economy is performing well enough that the QE3 option is off the table.
The markets will not interpret this abysmal number as the start of a new and lower trend in employment but it will serve to squelch some of the uncalled for and certainly undeserved euphoria about the state of the US economic recovery that we have been treated to of late by the spinmeisters and various talking heads.
Some might try talking up the insignificant drop in the unemployment rate to 8.2% but that is another cute statistical gimmick brought about by the fact that the participation rate fell once again. Fewer people in the overall work force tends to push the unemployment number down masking the true condition of the chronically out of work who have simply given up looking for work.
Some are going to wait for the next month's numbers to see if this one was a one-off but for the time being, it should at least serve to stop the mouths of those pooh-poohing the notion that another round of QE is not going to be considered at some point. The economy may be plodding along but it is certainly not setting any records as far as increasing growth goes.
One other thing to consider here - not only will job growth need to do better than 250,000 month to get people excited, it also has to be growing fast enough to provide jobs for new additions to the work force - namely college grads and high school seniors who will be graduating within the next two months. Exactly where are they supposed to find work? It is one thing to have an economy growing at a rate fast enough to bring back into it those who have been unemployed and looking for work for more months than they can remember - but what about these new graduates also?
In the meantime I thought I would post a couple of charts detailing the Custodial Accounts for Foreign Central BAnks at the US FEderal Reserve.
Take a look at these and you can get a bit of an idea about foreign central bank appetite for US government and government agency debt.
I am quite curious as to whether or not these Treasury holdings have reached a plateau. They have remained under the $2.75 Trillion level for some time now. Have we reached a point where they are saying "NO MAS!" ?
If so, then will the Fed step up its purchases of US TReasuries to make up for the fall off in demand? All very good questions that we need to monitor as they will serve to show us whether or not our foreign "bankers" are willing to finance further our profligage ways.
Happy Easter to all my Christian readers and a Blessed Passover to my Jewish ones.
So much for notions that the economy is performing well enough that the QE3 option is off the table.
The markets will not interpret this abysmal number as the start of a new and lower trend in employment but it will serve to squelch some of the uncalled for and certainly undeserved euphoria about the state of the US economic recovery that we have been treated to of late by the spinmeisters and various talking heads.
Some might try talking up the insignificant drop in the unemployment rate to 8.2% but that is another cute statistical gimmick brought about by the fact that the participation rate fell once again. Fewer people in the overall work force tends to push the unemployment number down masking the true condition of the chronically out of work who have simply given up looking for work.
Some are going to wait for the next month's numbers to see if this one was a one-off but for the time being, it should at least serve to stop the mouths of those pooh-poohing the notion that another round of QE is not going to be considered at some point. The economy may be plodding along but it is certainly not setting any records as far as increasing growth goes.
One other thing to consider here - not only will job growth need to do better than 250,000 month to get people excited, it also has to be growing fast enough to provide jobs for new additions to the work force - namely college grads and high school seniors who will be graduating within the next two months. Exactly where are they supposed to find work? It is one thing to have an economy growing at a rate fast enough to bring back into it those who have been unemployed and looking for work for more months than they can remember - but what about these new graduates also?
In the meantime I thought I would post a couple of charts detailing the Custodial Accounts for Foreign Central BAnks at the US FEderal Reserve.
Take a look at these and you can get a bit of an idea about foreign central bank appetite for US government and government agency debt.
I am quite curious as to whether or not these Treasury holdings have reached a plateau. They have remained under the $2.75 Trillion level for some time now. Have we reached a point where they are saying "NO MAS!" ?
If so, then will the Fed step up its purchases of US TReasuries to make up for the fall off in demand? All very good questions that we need to monitor as they will serve to show us whether or not our foreign "bankers" are willing to finance further our profligage ways.
Happy Easter to all my Christian readers and a Blessed Passover to my Jewish ones.
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