"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


Wednesday, October 23, 2013

China back in the News

China, China and more China... that pretty much sums up what the big mover was in today's session. Talk out of that region was that the Chinese officials were moving to drain liquidity from their system in order to combat what they view as rising inflation concerns. Then again, perhaps a better way of phrasing this is that the Chinese officials would not be acting to add liquidity and maybe adopting some modest measures to deal with monetary aggregates.

The big deal is evidently about housing prices which continue to soar.

Traders interpreted this as bearish for commodities in general, especially copper as well as silver. They also seemed to be in a mood to further sell down crude oil but that tied more to the release of the crude stocks data.

What is interesting is to see the equity markets actually finally finding something to use as a reason to sell. It just goes to further prove the theory that what is lifting equity markets globally is not fundamentals but rather liquidity pools being created by the world's Central Banks. Take that away or even dare to breathe the words that it might be slowed or withdrawn and today's move lower in equities is what we get.

This is why I believe those analysts and pundits who continue to pound the table on buying equities based on their quaint notion that "the economy continues to improve" are full of it. Take away this giant tidal wave of Central Bank supplied liquidity and the world equity markets will fall so low that they could play handball with a snake!

Either way, it got gold. Traders who had been long decided to book profits after the nice pop higher while some of the macro traders moved back in on the short side. Further aiding the bearish mood today was the sharp drop lower in the gold shares once again. I am looking at the screen as I type this and the HUI is down over 3%. It certainly makes one think twice about staying long the metal when they see this as it usually presages a drop lower in the gold price the following day. We'll see if that is the case this time once again.

Silver is actually not doing too bad considering the big move lower in copper (down over 2%) but once again if failed to extend past $23. It is managing thus far to hold above a chart resistance level near $22.50 but just barely. It needs to clear $23 with some gusto to get the momentum crowd interested in buying it. If traders start coming around to the view that China is deliberately attempting to slow things down over there, it is going to add another headwind to silver and copper which will make it tough for gold to extend higher as well, especially as crude oil continues on the weak side.

The standout exception to the general wave of commodity selling today was in the grains which are trading in their own little world right now as hedge funds and other large traders jerk those markets all over the place due to the enormity of the spread trades they are currently employing.

I will get a chart up later on today as I am dealing with a lot of time constraints right now... thanks for your patience.


  1. nice post Dan...i noticed a late violent drop in gold shares compared to gold price being down not even 10 dollars and GDX/HUI giving up most of the gains from yday despite gold going up 3 times that amount yday...

  2. Been watching this same story now and I believe the pundits are losing their breath trying to hold up the ghost rally. When is the GOLD market finally going to offer itself as an alternative currency? Seems like soon to me. There is zero chance this stock market could survive without this massive liquidity intervention worldwide. I just want reality no matter how harsh it would be better than lies.

    1. Hey Wolf
      The brave sole who buys when we are all blubbering, whimpering and grovelling at the feet of the Bears.
      Kudos to you Wolf !
      I hope you make a million..or more, you certainly deserve it.
      Cheers :)

    2. Dean,
      Started at another site in 2009 late. One thing for sure, Dan has a lot of years in his brain and he has seen and forgot more than I will ever learn. This site has kept my ADHD interest for almost 4+ years even when I was getting my brains beat in the last couple of years. Nothing is as easy as it seemed in a long term bull market that ended in 2011. After a few good ones in 2010-2011 I am beginning to have a hunch the market is turning, but others here are either solid bulls (me previously due to fundamentals) or guys like Mark who believe that the Stock Market can go up endlessly. It appears that the HUI is attempting to break above the 50DMA, and if it does it could run with a lot of overhead at just under the 200DMA. Maybe Dan will enlighten and help us all with an update on the ADX action again. I hate hanging around in this long term bear market very long so, I may just take the 10% and run, till the clear hurdle over the 50 is made for sure. I am a long term bull with a strong sense of FEAR since the destruction of capital last couple of years. However, the tide seems to be turning on the trumpets at the MSM and the Fed which if they do and the dollar loses it "lustre" and it turns to Gold, we might be back in antoher run uphill. Somehting I have been waiting for awhile. Peace to all.

  3. thanks for our patience? Dan, thanks for the consistently thoughtful & informative posts...as always.

  4. Hey Dan – thanks for your active blog. I agree that central bank liquidity is supporting the world’s markets but what do you think about international capital flows? Equity buying in the US (focusing on blue chips) could conceivably come from investors moving capital out of Europe/troubled regions and from pension funds looking to diversify their portfolios (ie, out of bonds). While US fundamentals are poor (l think that you are in the middle of a depression), relatively speaking, you are in good stead. As a European investor, where could l park my capital? Cash – not likely given possible one-off haircuts on deposits. Bonds – overpriced. Gold – terrible return and in a downtrend. Equities – there you go (in a strong up-channel, dividend payments). From an international perspective, US equities are a good investment and on sale (thanks to the recent dollar weakening).

    In summary – I believe that central banks are providing short-term support for the equity markets, but longer term support comes from international sources and pension funds. Do you concur?

    1. John Kitcher;

      I do believe that many global investors, especially those in Europe, would be interested in owning shares of US companies and thus would be generating capital flows into the US. That is probably one of things that is keeping the Dollar from dropping even more sharply even as it weakens. Your points are excellent and sum it up as good as anything I have seen.

      I would add however that it is the active bond buying programs of the Central Banks which is supplying the funding for these international capital flows in the first place.

      Besides, an ultra low interest rate environment makes for the creation of the "carry trades" in which money is borrowed by large hedge funds at ridiculously cheap rates and then leveraged up into investments in the attempt to garner high rates of return. The system is precariously unstable as a result of this rampant speculation which has been deliberately nurtured, nay, encouraged by these monetary officials to influence consumer sentiment and thus borrowing by pushing stocks higher and higher so as to give the illusion that all is well.

    2. Thanks for taking the time to respond - really appreciate it.

      l had forgotten about the carry trade aspect. When that rug is finally pulled (ie, tapering), foreign equity markets (non US - especially those in emerging nations) will plunge (I live in Korea - there is a lot of commentary about this hot money). But again, where will that carry trade capital go when it returns to the US? Bonds or stocks? Bonds could rally (but l doubt it as US funds would be selling on expectations of reduced bond buying) which leaves equities. So therefore, would the US equity markets and dollar soar in unison (drawing in more capital in the process as foreign investors try to benefit from the double hit of dollar strengthening and equity appreciation)? My guess is yes, but we'll have to see....

    3. John, I'm not speaking under his control, but I think I remember the feeling of Sinclair about that was :
      1) short term appreciation of the dollar due to what you mentioned (yes, tapering, stop QE is dollar positive, investments leaking out back into dollar)
      2) collapse of the dollar soon after : rise of interest rates, unsustainable interest rates on the debt level, Fed forced to restart QE on an emergency mode (bearish dollar bull gold) or if not, failures and bankruptcies of major TBTF banks (again bearish dollar bull gold).

      This whole crisis always reminded me about the Titanic story as a whole. Careless passengers still listening to the concert in the dining hall, untill it's too late.

      Remember the last minutes of "Titanic" ? (the last version of the movie with Leonardo anyway lol).

      The boat is split in two pieces and for a moment, our poor couple is propelled up far above the ocean...and then they sink like a stone.

      I would see the dollar act exactly that way, actually. Dollar holders might be the last in the water, but the end result would be the same.
      Physical gold is one of the rare salvation boats.
      In this I do agree 100% with Sinclair, and I respect his attempt to try and warn a sleepy population of lemmings, uneducated, and able to understand only rather simplistic messages.
      How do you address and "save" as many of these fellows as you can, sometines against their own will?
      Keep it stupid simple.
      No time for sophisticated messages, I guess.
      His big mistake imho was to start forecasting a bottom, both in terms of timing (his birthday,etc...) and then in terms of price (1530...1320...and today, even if he may be proven right this time), because it had the opposite effect on some followers, which were more like "brainless believers" who thought that he was always 100% right. When doubts set in, your godly image is hard to restore. He warned about being leveraged, but maybe he understimated the psychological pressure and capacity of usual followers, even if unleveraged, even if invested only 35% of their assets, to endure a 30% drop in the value of their "safe haven" asset.

    4. Hello,

      Technically, here is why I think the battle is taking place in the 1340 $ area now.
      Please if the chart is too technical, let me know and I'll simplify.


      1) Weekly time unit.
      We are flirting with the mlh sup of the first downwards pitchfork near 1340. If we break above it, the Bol sup of this time unit and the mlh sup (red) of the next pitchfork are both above 1400 $.

      The MACD just DIDN'T cross its signal (bullish!!) and is flirting with its propagation axis (resistance). If it manages to cross this propagation axis, it would confirm the non crossing signal, and would confirm bullish potential as well.
      The CDur doesn't need much to turn bullish.
      There are 2 lines for the CDUR. The bold one is the CDUR of the longer time unit (here monthly). The normal line is the CDUR of this time unit (here weekly). When BOTH Cdur goes the same way, it usually is a strong indicator about price trends as well.
      So let's see where we are on the daily :

      2) daily time unit.
      Prices are about to break above a downwards channel here too, near 1340.
      The MACD already crossed its signal higher (bullish)
      BOTH Cdur are now going up.
      The Bol 100 is in a Range, and the Bol sup could be a nice target, above 1400 $.

      Conclusion : we could see a strong and sudden acceleration of prices if we breach the 1340-1350 area, heading rapidly towards 1420 $ area. It has to be confirmed, because as long as we stay below 1340 area, well...the resistance holds and not much hope for bulls.
      I am positioned accordingly.

    5. P.S : what could be useful now ( I don't have it) is a chart of the On Balance Volume Differential (OBVD) on a 2 hours or 1 hour candle chart monitoring last days price action just around 1345 $.
      Do we see a divergence of some sort? That may also indicate if some are accumulating as bears or not (distribution) under that resistance. Can someone provide us with it?

  5. Here is a view on the 2h timeframe.
    Unfortunately, as I'm using CFD, OBVD wouldn't mean anything, I'd need OBVD from a futures platform.
    But even without, you can see an interesting signal from the MACD.
    Look the 2 vertical lines and where we were just before MACD crossed its signal, and what happened to prices just after that...
    Look where MACD is right now...
    Of course as usual, it doesn't mean it will explode upwards, but well, better be ready rather than buy once prices will already be at 1400 :)


    Most important is the risk reward and of course, logically, entry point and stop loss. Usually if I get a ratio risk/reward of at least 3/1 for my first target (which is the target where I usually make a profit of 1/3 to 1/2 of my line), I go for it if several indicators point to the same direction.

  6. hey Huburt, love all that technical writing....i think if 1342 is breaching with gold flirting again around 1340 level, then we go test 1345..if that breaches (probably could do from the same bar going up...then we go to 1350 and eventually 1375 area...dont know how long to go to 1420 area but i dont think in the same day....but today looks good, and the longer we stay in the 1300 zone then the less likely we (will ever again) see the 1200's..dollar looks weak...gold looks strong....NUGT has alot to make up for, it should test the 55 area today .....

    1. This comment has been removed by the author.

    2. yes the last and most important barrier is just below 1350 and the early october top. If bears can't protect that level, all the stuff written since 1st october about bears being strongly in control short term can be put to garbage : they had a chance to krach prices under 1290 when the head and shoulders failed and the bollinger bands were opening.
      I guess this could mark a change of psychology since the end of the "shutdown" crisis and the ridiculous deal that emerged from it :

      - the whole world is aware that US has serious problems (read GEAB / LEAP...even if they forget about european own problems!)
      - and they have been given 3 months before the same crisis is back!

      What would you do during those 3 months to make sure you are not as exposed as you were before 1st of october?

      So, I don't know if it's purely technical or if psychology has changed, but I'm getting ready.
      Yet, careful about the scissors as long as real latest highs of early october are not behind. I think a stop loss is necessary somewhere under 1330... :( to avoid bad surprises

    3. stand by everyone for the unemployment hose job; swb in sparks

    4. yeah i agree...looks like we could go test 1350 again (we just did going to about 1348)...and if it coincides with the home sals, could blast up to 1370 zone and 1350 could convert from resistence to support.

  7. 5 minute commentary on gold. Its bullish, no its bearish, no its bullish, no its bearish, no its bullish, no its bearish. What it is is nauseating, as Dan would say.

  8. ok guys, so I'm in and we will see if I survive this one or if I get crushed live, lol.
    In since 1340, stop loss under the today's lows just under 1328.
    Now the question is : can we have a saloon door with a wash of stop losses under 1330 then a big rallye again above 1350...bah imho yes as usual...so the way I deal with it is I keep my stop loss but if it works, then I have to put back a buy stop order once more above there...hard for the nerves, huh?
    I hope I won't see that, of course...
    anyhow, see you later, will tell you how this whole thing ended up :)
    Good trades...or good anything you are doing now.

    1. wishing you a successful trade, Hubert Du Haut!

  9. My prediction is if we don't get out of the 1340 range by high noon today the shorts will move in for the kill. The clue will be miners will start pulling back their gains and some inching into the red. Keep a close eye on the miners.

  10. Hey Mark; Good news for you today is your boy Easy Al Greenspan, the Moronic Maestro, is in your bull camp for stocks. You may want to read the book Panderer to Power about this donkey , which gives you a good idea about his pathetic firm Townsend-Greenspan and their sorry investment performance, which led the Maestro to conclude that buying a pair of knee pads and shuffling up and down D.C. was more his "calling". Got your stops in ? swb in sparks

    1. @Steve, I also just saw this headline on Yahoo Finance:
      "The Next 10% Correction Could Be 5 Years Away"
      @White Wolf, Congratulations on gutsy buy!

    2. LMAO, with a statement like that TPTB must be getting ready to short.

    3. Long and strong since 1260. Prophet. If your LYAO your wallet its not where your mouth was the last couple weeks.

      Mark never shows up on updays. Weak morals.

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