"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


Friday, June 21, 2013

Gold Bounces off Overnight Lows, but no Conviction

Gold is putting in a "dead cat bounce" in today's session after setting a fresh low of $1268 in early Asian trading last evening. For those of you new to our trader's lexicon  - even a dead cat will bounce if it is dropped to the ground from a high enough point.

Look at the volume on the bounce higher however - it is miniscule. There is simply no conviction among the bulls to come wading in feet first and buying with both fists. A market that plunges $100+ in a single day is not normally going to see an abrupt "bout face" unless there are some unusual fundamental occurrences that negate the horrendous technical damage done to the gold chart.

I do not know how to say it other than this - the gold chart stinks to high heaven right now. We are getting some short covering due to shorts booking some profits before the weekend after a nice week's work but other than a few bottom fishers, there is no strong interest in owning gold right now among the institutional crowd and certainly not among most of the large hedge funds. They are short and getting shorter.

Same goes for silver although it did manage to claw its way back above the $20 level; barely, if only for a brief period.

We will have to see if any of this short covering and bottom fishing can take the price of either metal high enough to reach some important technical chart resistance levels above the market to trigger some further buying. Frankly I would be surprised if it does.

I do think that the selling we have seen hit the entirety of the financial markets is a bit overdone as I am not expecting the Fed to pull the plug on their QE program as some seem to have read into the FOMC statement and Bernanke's comments.  When markets are this highly leveraged, lopsidedly so, the carnage being inflicting on trading accounts and the subsequent margin calls always result in an amplification of price movement.  The bulk of the crowd is all on one side of equities and that can be seen in the extent of the downside movement in the S&P for example.

It looks however as if we are getting some two-sided trade in the Emini S&P futures in today's session so maybe the worst of the reaction in stocks is over. Once the bleeding stems, traders will then have some time to actually think about and reflect more on the comments of the FOMC instead of just reacting to every price tick.

The close today in the S&P will be critical but perhaps the response of traders come Monday will be more telling. If we see the S&P moving higher again and getting back above Thursday's high early in the week, that will be a sign that the "buy the dip" crowd is back. If however the index falters, especially if it violates this week's low, that would portend a deeper retracement. Every bit of this depends on just exactly how the majority interpret the latest round of Fed-speak when it comes to their QE.

Sad isn't it that the once proud US financial market system, which actually traded fundamentals has been reduced to a quivering hulk of jelly begging sustenance from its masters as the Fed.

The US Dollar seems to be the King of the World again although from a technical chart perspective it is stuck in a broad trading range of some 4 full points on the USDX; 84.50 on the top and 80.50 on the bottom.