"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, May 22, 2014

Euro Weakness Remains

I have been keeping a close eye on the Euro ever since ECB President Draghi began talking it down a couple of weeks ago. The reason for this, besides monitoring various currencies for trading opportunities, is to see whether or not it has indeed peaked out and is starting a trending move lower. If it does, it is my view that this is going to especially benefit the US Dollar, as the Euro comprises over 50% of the weightings in the USDX. Consequently, a falling Euro will tend to push the Dollar higher which in turn will tend to push gold lower.

I wish to repeat for the newer readers here, I view gold as the Anti-Dollar. As a general rule, it tends to fall when the Dollar moves higher and conversely, tends to rise when the Dollar falls. The linkage is by no means an exact one - but it is a fairly good judge of whether one can expect rising or falling gold prices as one monitors currency movements.

Looking at this daily chart of the Euro therefore, it continues to flirt with the bottom of an area labeled "Support Zone" on the price chart. If it fails to hold here, odds favor a move down to the next rectangular zone noted. The ADX is rising and while it remains below 30 for now ( a reading above that level indicates the presence of a strong trending move ) it continues to push higher towards that level as the Euro pushes lower. Bears are currently in control of this market but the bulls are trying to stave them off at the present price level as can be seen from both the chart action and the action of the indicator.

The Weekly Chart of the Euro paints a somewhat different picture, one decidedly less bearish. Strong upside resistance remains intact starting as one approaches the 1.40 level and which extends to 1.41. That has held firm. Downside support is closer to the 1.35 level ( the red rectangle ). The ADX is slowing dipping lower but had been in a very gradual move higher reflecting the grinding, upward progress of the currency over the last 10 months or so.

Based on what I can see from this intermediate term chart, the Euro would need to fall firmly through the 1.35 level to make me say with more conviction that a longer term top is potentially in for the currency. That of course would have some serious consequences for gold. It would not necessarily mean that gold is going to enter a new leg lower, but it would provide yet another headwind that should serve to cap any rallies in the yellow metal. If however we did see a sharp collapse in the Euro for some reason ( perhaps their version of QE ) one would have to keep a very nervous eye on gold for if the US Dollar embarks on a sharp move higher, gold is going to suffer.

Please note that I am not predicting any of this - I am merely stating the potential for what might happen if the chart pattern changes for the Euro and by consequence, the US Dollar. Successful traders do not "predict" - they respond. Newsletter writers, website bloggers and other assorted interests who make their livings "OFF" of the market, instead of "IN" the market have that luxury; we do not. Not, if we want to survive in this profession.

Along this line, let me say it one more time in the hopes of reaching some who continue to maintain a wildly bullish sentiment towards gold no matter what comes their way. They may pride themselves and encourage their followers to, "Stay the course". That is great if you are a sailor on the ocean and are being buffeted by some high waves and gusty winds but at some point the winds and the waves will force even the most stalwart of mariners to take a detour out of their way if they wish to avoid getting slammed into the rocks or going down. It is called "prudence".

Those who "stay the course" and keep pushing ahead out of sheer stubbornness often pay the price with their lives. Same goes for trading or investing - at some point one has to "take a detour" to skirt the danger so as to arrive safely at the final destination.

Spitting into the eye of a hurricane just gets your face wet and does nothing to force the hurricane to change directions. It is going to go wherever the hell it wants to go and it could care less what you want. This is how markets are - they go where they want, when they want. If you are smart, you learn to either go with them or get out of the way.

I read that which passes for market analysis and have to shake my head in sadness for those poor "victims" which follow it to their own financial hurt. Mark my words, whenever you find "analysis" ( and you see this all the time in the gold community and among the 'bugs' ) that dredges up one theory after another, whether that be negative GOFO rates, backwardation talk, Belgium buying of Treasuries, or whatever, to justify "staying the course", all the while the market continues to sink lower, understand that you are not getting objective analysis but someone talking their "book" or someone who has become so EMOTIONALLY ATTACHED to an investment and has staked so much of their credibility upon that asset performing as they have predicted, that they simply can no longer cut it loose, no matter what the market price action might be saying.

They have committed a fatal trading/investing error - they are emotionally attached to a trade or an investment. One must learn, and it is a very hard lesson to learn, to treat each trade, each investment, as objectively as possible. If it performs, you keep it. If it does not, you get rid of it and find something that does. You might be familiar with the old trading/investing adage:

"keep your losses small and let profits run".

Sounds simple enough doesn't it? Guess what - over the course of my career in this profession, I have found VERY FEW who actually practice it. Most failed traders/investors all have one thing in common - they cannot admit that they might be wrong on a trade or an investment. As a result, they sit there while the trade moves against them instead of cutting the loss quickly. Instead, the loss grows larger and larger and larger. At that point something happens to them - Now they will not sell under any circumstances because to do so would be to have to actually realize what has now grown into a massive paper loss. Each new days comes with them searching their computers to see what the last trading price is of their investment or trade. They will scour the internet for any bullish story, any bullish theory, anything that might confirm that they have bought something that is going to go up in value. If the market does go in their direction, a bit of optimism comes over them as they begin to hope that it will finally stop going down in price. Then, the price reacts negatively for them again and back comes the despair, the anger at the markets, the blame game, all manner of despair, etc.

Can you see what has happened here? Their lives are now revolving around a failed trade/investment. Instead of cutting the loss while it was small, and moving on with their life or into another opportunity, they are shipwrecked on the island of despair because they refused to "keep their losses small".

Reader - do not let this happen to you. There will always be opportunities in the market to profit from. But not if you have depleted your trading or investing account because you were going to "stay the course" come hell or high water. That is why that I am trying to show folks how to read the market and pay attention to it and NO ONE else, including ME! I serve as an interpreter of the market - that is all - I have no more secret insight into the market than the next guy. I have said it before and will say it again:

"opinions are like armpits - everyone has them and no one believes that theirs stinks".

Guess what - if your or my opinion is not confirmed by the market price action - IT STINKS. Get over it and move on. We are all just mere human beings, mere mortals who know not what the future might bring. Do not waste your life away concocting or subscribing to useless theories about why your stinking armpit smells so wonderful. If some nitwit, inexperienced blogger out there wants to call you 'ignorant' because you will not drink his Kool-Aid and go down with the ship and him, so what? What the hell do you care what some clown with a computer terminal and a blog has to say about you? You will run out of money before he does because he is busy bilking others out of their precious capital to pay for his useless counsel. Do you really think your guru is going to take money out of his pocket and reimburse you for all the losses you have incurred by swallowing his swill?

These people are like the plague of locusts described in the book of Joel and in the book of Revelation. They descend on the green land, devouring everything in sight leaving a barren, desolate wilderness in their wake. Ignore them, save your money and think for yourself by following the market and learning to read what it is saying.

I will get some more up later on the markets. Suffice it to say for now, when it comes to gold - the news out of India and this weekend's election in the Ukraine are supporting the metal at the moment. As I mentioned yesterday, I would be surprised to see gold actually break down through chart support ahead of this weekend's vote.

One final thing for this post - any of you hog producers out there who read this site, I strongly encourage you to use the weakness in corn and the strength in 4th quarter hogs, to get some hedge coverage. Do not let these once in a lifetime profits get away from you.