"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Tuesday, June 28, 2011

Yesterday it was Global Slowdown fears and deflation - today it is Inflation fears

Yesterday the hedge funds were busy jettisoning commodities across the board ( We don't need no stinkin' commodities); today they are back in love with them (Alas, we love thee, we surely do).

The difference is that most are expecting the Greek bailout to go through and make everything well with the world once again. That is why I keep stating not to read too much into one day's price action. Tomorrow? Draw a straw or throw a dart - you are just as likely to come up with the prevailing sentiment for that trading day as a chimpanzee. In psychological terms they call this manic depression but it now passes for hedge fund trading "strategy".

Take a look at the Daily CCI chart. Note the hedge fund selling orgy that occured last Friday and continued into yesterday's session. Risk was out and so were commodities. Today, risk is back in and so are commodities.

If you note however, the CCI is negative for the year as it is trading below last year's closing price. In other words, backing away a bit from the very short-sighted near term price action, commodities as a whole have fallen out of favor for the time being as traders fear a slowdown in the overall global economy. The Fed's refusal thus far to hand out more goodies in terms of another round of Quantitative Easing has ruined the commodity party as rallies are getting sold. The hedgies are off looking elsewhere for greener pastures. They are having huge trouble finding one however. As soon as they think there might be the faintest hope of discovering one, all of them go plowing everything that they have into that asset class or sector as they make fools of themselves by their undisciplined trading patterns.

As mentioned in my radio interview on KWN this past weekend, I am looking to see what level it is on this chart at which buying will surface that indicates a solid bottom has emerged in the sector overall. This has not yet occurred especially with the weekly trend moving lower at present.

My own view at the current time is that the bottom in the CCI will coincide with a confirmed top in the long bond market. That has not yet occurred as it will take a solid close below the double bottom near 123^23 to confirm such an event.

Given the state of flux and the uncertainty reigning over the markets, the bonds are totally capable of reversing to the upside and negating any downside signals should the papering over of Greece's problems fail to stem the bleeding or should any of this spread to Spain, Portugal, Italy or Ireland. I have said this about the bonds previously - they can reverse to the upside on a moment's notice with all the cross currents and headwinds facing the global economy.

One has to keep in mind that in spite of today's "euphoria" and schizophrenic move higher in the equities, the Consumer Confidence level just hit a 7 month low here in the US. Perhaps some are looking at the price of gasoline which has come down off its peak levels helped by an obvious politically motivated release of crude oil from the SPR and thinking that consumers are going to run right out now that they can fill up their cars a bit cheaper and start stocking up on LED TV's, cool 4 wheelers, new jet skis and boats or even some nice new SUV's or crossovers.

Whatever the thinking, the bloom is off of the bond rose for today as the safe haven flow into that asset class is being reversed with traders loading the boats back up with equities and commodities. It does appear to me however that without some sort of fundamental sea change, rallies in the commodities and equities are going to be sold without a definitive announcement of some sort of further monetary accomodation forthcoming from the Fed. There simply is little hiring take place and the housing market is not yet showing any signs that it is ready to work higher and reverse the current trend that is entrenched. QE has not given any evidence that it has worked to generate job creation and that is the Achilles heel preventing any significant economic improvement. It is one thing to muddle along the bottom and not get worse; it is quite another thing to see actual solid economic growth. That takes a change in policy and is not something that we can expect to see from the anti-business Obama administration.

Gold is reacting higher today and has been able to climb back above psychologically important $1,500. It is fading off its best levels of the session however as we near the end of pit session trading. It needs to recapture $1520 to give the chart a bit better looking perspective however. Right now it looks weak. Given the fragile nature of things economically, the market has buying beneath it but any market trading below its 50 day moving average, as gold currently is, cannot be said to be in a bullish posture. That is why it needs to climb above $1520 to turn its chart picture a bit more friendly in the short term. Remember that this level was also the bottom of its recent trading range and had been serving as a floor of buying support before it gave way last week. It is now serving as selling resistance and the bulls are going to have to absorb any offers there if they hope to take it back towards $1550 once again.


  1. "Draw a straw or throw a dart - you are just as likely to come up with the prevailing sentiment for that trading day as a chimpanzee. In psychological terms they call this manic depression but it now passes for hedge fund trading "strategy"."

    Absolutely hilarious. I laughed out loud reading that. Thank you Dan for another excellent article.

  2. Hmm....nothing mentioned about silver. Not getting noticed much anymore.

  3. Great post, Dan. Please keep them coming.

    Crazy world out there now; I do, however, still like to shoot darts.

  4. This comment has been removed by the author.

  5. Dan I/we can't tell you how much you are missed albeit a few days...understand the daily stress and strain you must be under these days, but it is always good to have a word or two from you...

  6. Good commentary ....gold "looks" like it wants down in that 1426 level awfully bad.....should touch its lower channel and 200 near there

  7. If you don't appreciate the blog, don't read it. I don't see you creating a free blog for the public. There is any number of other things Dan could be doing with his time.

    Thanks Dan.

  8. Does anyone really know where the markets are going short term? No not really. Stand back and look at this picture. What a farce the markets have become.
    Long term there will be no prophesised recovery. The bridges have been burnt. Go grab some gold and a beer and watch the forthcoming spectacle. The only faith I have is in the long term gold bull and the wealth protection it will provide either nominally or absolutely.

  9. Dan - don't pay attention to the trolls. There are THOUSANDS that appreciate all you do for your blog and JSmineset!

  10. Dan,
    The thing I love about your commentary is that I never feel like you are trying to sell me anything. You tell it like it is, even though it might be short term negative for those of us who are PM bulls. I really appreciate that.
    In a world full of scam artists....you seem to be an honest man. What an appreciated rarity.
    Wear that with pride!

    Many thanks as always.

  11. Thanks for another great post Dan! I really appreciate the great information you post! I check you commentary every day at break time, to make sure I didn't miss anything! One again Dan, YOU ARE THE MAN!

  12. Dan, even if you only post a comment once a week, it's worth the wait. Thank you very much for sharing your views with us. May God bless you and yours.

  13. Trader Dan,

    Mid day today (Thursday 30th) the long bond is at 122.56. Let's see which side of the 123.23 line it closes on today as it would make me happy if the sell off in bonds foretold of a bottom in the CCI.

    I'm a lover not a fighter


Note: Only a member of this blog may post a comment.