"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


Thursday, November 7, 2013

Signs of Internal Weakness Showing up in the S&P 500

Attempting to short this market has been proving very difficult for all but the most fleeting of trades as the mania in US equities continues unabated. There are some signs however that this market is losing some upside momentum. Not that this has tended to matter all that much these days since the bullish traders have been well rewarded for buying every single dip in the market. It takes some very sharp moves lower to dissuade a winning strategy.

This is a 4 hour chart of the emini S&P 500. Notice that the market ran up to the all time high above 1770 and failed to extend. This is leading to selling in the session as this is a short term sell signal for technically oriented traders.

Also notice that the volume has been drying up as the market makes all time highs once after another. It does seem as there are beginning to be some skeptics as to how much longer this can keep up and how much higher stocks can move.

Note also the negative divergence, another technical signal that upside momentum is waning.

I would expect that this index could see a dip down into the support zone I have marked on the chart. If the trend of buying dips continues, the bulls will show up again to feed on some more stocks as they position for yet another move into a new all time high once again. If this support level fails, we may have something a bit more serious at work here, although call me a doubter at this point.

Believe it or not, the VIX actually moved a bit higher today, for a change. A bit of nervousness or just another round of profit taking? We'll see.

Strange Day

I am not sure what is going on in many of the markets that I trade/monitor today but whatever it is, it is certainly very odd. There have been some incredible price swings today in so many markets that I cannot name them all here. Suffice it to say, the computers are once again wreaking havoc, all with the blessing of the exchanges, I might add, who love the fees that they generate from this meaningless churning.

As mentioned in today's earlier post, gold has been all over the place. If you look at the 12 hour chart posted below, you can see one big candle with a large upper shadow and a large lower shadow. Would you like me to translate what this means in trader lingo? Here we go:" What in the hell is going on in this market?"

I could say the exact same thing when it comes to the soybean market, the yen, the S&P 500 and the bonds. Hell, even the coffee market is strange today. The US Dollar soared earlier only to set back as the Yen moved higher on that stupid "safe haven" trade that more and more infects the brains of traders who should know better that to stash money into a nation with a DEBT TO GDP ratio of over 200%, which is banana republic territory.

Gold found support beneath the psychological level of $1300 and at the technical level of the 25% Fibonacci level of the recent retracement from the low below $1260.

Where it goes from here is anyone's guess. All that I can say about it is that if it were to now breach today's low, it is going to $1280 for starters. If it can climb above today's high, it should be able to push to near $1340.

One would think that with interest rates near zero over in Euroland as a result of today's surprise rate cut, that the Euro would be struggling to hold water. Not so! The damned thing has managed to move up nearly a full point and a half off its session low. Go figure! Then again, don't go figure because that is an enormous waste of brainpower and effort.

It does seem however that as the US equity markets move lower, the Euro and the Yen are strengthening and the Dollar is weakening. How long this lasts is also anyone's guess.

In Summary - who knows what, why or when things are doing what they are doing.

One thing I do know however is that we have a biggie of a USDA grains report tomorrow AM. That should be fun if today is any taste of what we are likely to get coming off of those numbers. Remember, the USDA missed last month's report due to the government closure. This adds another element of volatility as it makes it about 2 months since we have had some "official" data to work off of. Lots of private firms are coming out with their numbers but those will get trumped by whatever the pencil pushers over at USDA give us.

Golden See-Saw

She's up - nope - wait a minute - She's down - hold on - She's back up a bit...

No, I am not referring to a horse running a race but rather to gold. Talk about some wild price action. So many cross currents and so much volatility... trying to trade gold on a day like this is an exercise in futility except for the most short term of traders, namely the scalpers.

The first mover this AM was an "out of nowhere", surprise rate cut over in the Euro Zone. The initial reaction to gold was "Yippee". Up it went on ideas of ultra loose monetary policy in that region of the globe. Shortly after that sent gold higher, US GDP data came in much better than expected and that pulled the rug completely out from beneath the metal as the Dollar surged higher on notions that the "TAPERING" was back on once again.

Traders were whipsawed severely this AM as both sides found something that they could trade off of but neither side got a clear advantage, YET, although it appears that the bears are attempting to seize a bit more ground as I type this up.

Bulls looked like they had seized the short term advantage when they powered gold up through $1325 on the rate cut surprise and European easy money policy. When the GDP number came out in the US it further bolstered the US Dollar and that sent the new longs scurrying and the bears began growling. That combined selling dropped the price below the important "13" handle level with gold sinking to as low as $1296. However, bulls came back in and regained that $1300 level.

Although the metal remains lower, it is still holding that 13 handle. It is IMPERATIVE that it do so. If it does not, look for a new push to begin soon that will test the resolve of the bulls as the bears try to take it down towards $1280 and perhaps even $1270.

As stated here frequently over the last couple of weeks - the key driver for gold right now remains the US Dollar. When the Euro is sinking over 1% against the Greenback and the USDX itself is up nearly 0.9% on the day, gold will face formidable selling pressure.

Also, crude oil is sinking yet again today having given up yesterday's short-covering rally induced gains.

Let's see what we get as the session wears on today before drawing any further conclusions at this point.

Have you noticed that today the "good news" ( I say this with all manner of sarcasm) about the US GDP number which has started the early TAPER TALK once again, seemingly has no impact on the S&P 500 for now?

Gee - I wonder if it can reach 1800 before Thanksgiving? Yep - there isn't a worry in the world about the state of the US economy. The VIX, Volatility Index, remains mired down near multi-year lows. Complacency rules supreme here in the US.