"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, August 26, 2014

They Fall Faster than they Rise

One of the interesting things about markets is the speed at which they can fall in price compared to the length of time it takes them to rise. That is the reason that you will sometimes hear certain traders speaking of having a preference for being on the short side of a market. Such is not always the case ( I remember vividly Minneapolis wheat hitting $25/bushel one year and October Cattle being locked limit up for days on a Canadian Mad Cow case some years ago) but it does seem to happen more often than the reverse.

Case in point is this September Bean contract which has now managed to lose in two days, what it took 7 to put on. The collapse in those spreads has been intensely dramatic.

Take a look at the chart below and you will see what I am referring to.

The Euro managed a bit of a pop higher early in the session but surrendered that as the session wore on. It appears to be lacking much in the way of chart support until one nears the 1.3100 level. The chart shows the RSI down in oversold territory so a bounce is possible at any time but the pattern is decidedly bearish. Oversold conditions can last for quite some time before a market corrects them. It should also be noted that oversold ( or overbought ) readings can often be corrected by a market meandering sideways for a period.

Not much to say about today's markets overall than to note that the S&P 500 hit and pushed through the 2000 level today. The strength of this bull market has been nothing short of astonishing. Who knows how long it will last but those who have not fought the tape and gone with the move have made some enormous profits.

One of the reasons that the market continues to perform so well is that inflation expectations are simply no where to be found at the moment.

Take a look at the TIPS spread chart ( updated through 8/25) and see for yourself. Can you can how the spread continues to fall. It is now at the lowest level it has been in for the last 4 months. That is telling us that the market expectation for rising inflationary pressures is declining.

Geopolitical events are continuing to keep the gold price from succumbing to the general deflationary bias in the markets right now although it should be noted that Western investment demand, as measured by the GLD, continues to be less than impressive. Total gold holdings are down 2.6 tons on the year. Asian demand seems to be firm at the moment, especially out of India, but as has been the case for so long now, Asian demand in and of itself cannot produce a bull market in the metal. That requires Western-based investment demand and even more importantly, the momentum based crowd. Quite frankly, the latter are not interested in gold at the moment as they are too busy making money in the equity markets.

Another chart of the US Dollar - it is hanging around the resistance zone noted on the chart. If it clears that, I do not see much in the way of overhead chart resistance above there until near 83.50 and up.

The strength in the Dollar, combined with the fundamentals from the various commodity markets that go into making this GSCI, has led to a sharp fall in the overall sector. It remains lower on the year after recently hitting a 16 month low.