Please click on the following link to listen in to my regular weekly radio interview with Eric King over at the KWN Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/4/6_KWN_Weekly_Metals_Wrap.html
Saturday, April 6, 2013
Silver Notes via Chart
I am going to try this one more time in the hope that it helps some of you silver guys out there to understand why the metal is moribund and is having trouble going north. I have been writing about the connection between Silver and the broader commodity complex for more years now than I care to remember and yet it seems as if I am sometimes spitting into the wind in attempting to help some of you understand what it is that moves the metal.
I do not view silver as a pure monetary metal in the same manner in which I view Gold. Yes, it is and has been in the past, a metal used as money. It will continue to do so in the future. But one does not read about Central Banks acquiring silver for their reserves as one does about Gold. When people are concerned about the health of a domestic currency, they generally resort first to the price of Gold in that currency, not silver. These are just simple facts and are in no way meant to disparage silver. It is simply the way things are. Traders/investors, if they are to be successful (and is this not what we all aspire to be?) must come to terms with how the broader world of investors see their particular holdings.
I will give you an example - suppose you find what you believe is a good stock at a good price and just know, I mean really know, that the stock is going to trade considerably higher in the future. So you take your hard earned money and invest it into that particular stock waiting for it to go higher, as you are just absolutely certain it is going to do. However, it just sits there and goes nowhere, day after day, week after week, generating more and more frustration and might I say, anger in your heart that other people can possibly be so stupid not to see what you see. Sound familiar?
The problem is, for any stock, or any commodity, to continue moving higher, more and more people must come around to seeing your choice in the same manner as you do. In other words, the CROWD must come around to your way of thinking. Now, you may mutter and grumble and cuss and swear because the stock is just sitting there and not moving higher, but no amount of that is going to change the opinion of others UNTIL.... get ready for this.... that OPINION changes. Wow, is that profound or what?
Seriously, what it takes for a stock or commodity to move higher is a change in sentiment towards it where a consensus forms among the crowd that the price is too cheap. When that occurs, and who can say with any certainty when opinions of others will change, then the price will move higher as the perception of VALUE will then change.
I said all that to say this.... Silver is currently trading as more of an industrial metal in an environment in which the MAJORITY are convinced that inflation is non-existent. NOTE WELL - I did not say that I believe this. I am simply telling you what the CROWD believes right now, at this moment. This is also not to say that the CROWD is right. It is to say however that this is all that currently matters when it comes to the metal.
Take a look at the following chart I put together to help you understand this. Note that there are two lines; one in red which is the Continuous Commodity Index or CCI; the other in Black, which is Silver. Can you not clearly seen that these two lines exhibit a near perfect symmetry? I have pointed this out in the past but feel the need to do so again. What is this chart saying?
The answer to that is simple - Silver is tracking the rest of the broader commodity complex and that commodity complex is moving in a sideways to down pattern. Remember when I stated some time back that we more experienced traders used to buy silver when soybeans were going up? I know at that time some of you who read that were perplexed but quite honestly, it is a very simple connection. Rising soybean prices tended to move up alongside of corn and wheat meaning food input costs in general could be expected to rise. This fed into the INFLATIONARY EXPECTATIONS of higher food costs percolating through the broader economy. Yes, the connection was not perfect nor was it meant to be but it did indicate how silver thrived in an inflationary environment.
Now, can any of you out there looking at this chart honestly tell me that you expect silver to shoot sharply higher while the CCI is tracking lower? I repeat - SILVER thrives in an inflationary environment. It will not perform in a deflationary environment. Now, for whatever reason, and frankly who cares, the hedge funds are pressing many of the individual commodity markets from the short side. The grains, some of the softs, and the base metals are notable examples of this.
I mentioned copper and will continue to do so to illustrate that as a perfect example of the disconnect between Dr. Copper and the US equity markets. I have said that I believe that Dr. Copper is a better indicator of growth than the equity markets. The latter are being goosed higher by artificial stimulus, much like a drug addict is kept from experiencing withdrawal by having regular doses of the drug injected into his system.
Let me digress here a bit to answer a critic - I made the statement that I do not expect silver to move higher until we get some solid evidence that there is real growth in the US economy, the nature of which will drive stocks higher. The critic said that stocks were going higher while silver was going lower thereby invalidating that claim. What he misses however is the FACT that US economic growth is comatose; what is goosing stocks higher is $85 BILLION a month of QE that is ending up in the Wall Street casino. In other words, it is not solid growth driving stocks to record highs, it is artificial money that is doing that. That is not sustainable.
This is the reason that hedge funds are pounding Dr. Copper lower - their models are telling them that global economic growth is no where near it should be considering the huge sums of money that have been conjured into existence by the Central Banks of the West, including Japan. They are looking at the same thing some of us are looking at, namely, the VELOCITY of MONEY, which is going nowhere. That is what I mean to say when I say that the money being created by the Fed is fueling a bubble on Wall Street. The velocity of money tells me that it ends up not changing hands frequently as is needed to fuel inflation but is rather shoved one direction, into stocks and staying there. Certainly we are not seeing many of these companies, whose stock prices are daily soaring higher and higher embarking on a hiring binge now are we?
As a matter of opinion I believe we are seeing really chinks in the armor of the equity bulls even in spite of this mammoth liquidity injection being orchestrated by the Fed. Consider yesterdays abysmal payrolls number. That stunned observers. I have noted the breakdown in the Russell 2000 which is now below its 50 day moving average. The Dow Transports also are lagging, another sign of deterioration internally of the equity rally.
One way or the other we are going to see which indicator is right - Dr. Copper or the US equity markets. As long as the hedge funds are eager to short copper and pound it lower, I will have to go with that. When this speculative crowd changes their mind and their perception of things, then our task as traders is to recognize this shift and act accordingly. If we can do that, we will profit. If not, then we lose.
I will leave you with a chart of copper indicating the trend which currently is sideways to down. It is closing in on a support zone. If it were to break down through this zone for any reason, it would signal odds of a further slowdown in global economic growth. Given the size of the recent Bank of Japan "anti-deflation" package, along with the rest of the actions by the Western Central Banks, and the actions of the Chinese, it seems to me that the odds of this market breaking that level are not especially high however. If it bounces off of support, I would look for silver to hold support also. If not, silver is going lower.
I do not view silver as a pure monetary metal in the same manner in which I view Gold. Yes, it is and has been in the past, a metal used as money. It will continue to do so in the future. But one does not read about Central Banks acquiring silver for their reserves as one does about Gold. When people are concerned about the health of a domestic currency, they generally resort first to the price of Gold in that currency, not silver. These are just simple facts and are in no way meant to disparage silver. It is simply the way things are. Traders/investors, if they are to be successful (and is this not what we all aspire to be?) must come to terms with how the broader world of investors see their particular holdings.
I will give you an example - suppose you find what you believe is a good stock at a good price and just know, I mean really know, that the stock is going to trade considerably higher in the future. So you take your hard earned money and invest it into that particular stock waiting for it to go higher, as you are just absolutely certain it is going to do. However, it just sits there and goes nowhere, day after day, week after week, generating more and more frustration and might I say, anger in your heart that other people can possibly be so stupid not to see what you see. Sound familiar?
The problem is, for any stock, or any commodity, to continue moving higher, more and more people must come around to seeing your choice in the same manner as you do. In other words, the CROWD must come around to your way of thinking. Now, you may mutter and grumble and cuss and swear because the stock is just sitting there and not moving higher, but no amount of that is going to change the opinion of others UNTIL.... get ready for this.... that OPINION changes. Wow, is that profound or what?
Seriously, what it takes for a stock or commodity to move higher is a change in sentiment towards it where a consensus forms among the crowd that the price is too cheap. When that occurs, and who can say with any certainty when opinions of others will change, then the price will move higher as the perception of VALUE will then change.
I said all that to say this.... Silver is currently trading as more of an industrial metal in an environment in which the MAJORITY are convinced that inflation is non-existent. NOTE WELL - I did not say that I believe this. I am simply telling you what the CROWD believes right now, at this moment. This is also not to say that the CROWD is right. It is to say however that this is all that currently matters when it comes to the metal.
Take a look at the following chart I put together to help you understand this. Note that there are two lines; one in red which is the Continuous Commodity Index or CCI; the other in Black, which is Silver. Can you not clearly seen that these two lines exhibit a near perfect symmetry? I have pointed this out in the past but feel the need to do so again. What is this chart saying?
The answer to that is simple - Silver is tracking the rest of the broader commodity complex and that commodity complex is moving in a sideways to down pattern. Remember when I stated some time back that we more experienced traders used to buy silver when soybeans were going up? I know at that time some of you who read that were perplexed but quite honestly, it is a very simple connection. Rising soybean prices tended to move up alongside of corn and wheat meaning food input costs in general could be expected to rise. This fed into the INFLATIONARY EXPECTATIONS of higher food costs percolating through the broader economy. Yes, the connection was not perfect nor was it meant to be but it did indicate how silver thrived in an inflationary environment.
Now, can any of you out there looking at this chart honestly tell me that you expect silver to shoot sharply higher while the CCI is tracking lower? I repeat - SILVER thrives in an inflationary environment. It will not perform in a deflationary environment. Now, for whatever reason, and frankly who cares, the hedge funds are pressing many of the individual commodity markets from the short side. The grains, some of the softs, and the base metals are notable examples of this.
I mentioned copper and will continue to do so to illustrate that as a perfect example of the disconnect between Dr. Copper and the US equity markets. I have said that I believe that Dr. Copper is a better indicator of growth than the equity markets. The latter are being goosed higher by artificial stimulus, much like a drug addict is kept from experiencing withdrawal by having regular doses of the drug injected into his system.
Let me digress here a bit to answer a critic - I made the statement that I do not expect silver to move higher until we get some solid evidence that there is real growth in the US economy, the nature of which will drive stocks higher. The critic said that stocks were going higher while silver was going lower thereby invalidating that claim. What he misses however is the FACT that US economic growth is comatose; what is goosing stocks higher is $85 BILLION a month of QE that is ending up in the Wall Street casino. In other words, it is not solid growth driving stocks to record highs, it is artificial money that is doing that. That is not sustainable.
This is the reason that hedge funds are pounding Dr. Copper lower - their models are telling them that global economic growth is no where near it should be considering the huge sums of money that have been conjured into existence by the Central Banks of the West, including Japan. They are looking at the same thing some of us are looking at, namely, the VELOCITY of MONEY, which is going nowhere. That is what I mean to say when I say that the money being created by the Fed is fueling a bubble on Wall Street. The velocity of money tells me that it ends up not changing hands frequently as is needed to fuel inflation but is rather shoved one direction, into stocks and staying there. Certainly we are not seeing many of these companies, whose stock prices are daily soaring higher and higher embarking on a hiring binge now are we?
As a matter of opinion I believe we are seeing really chinks in the armor of the equity bulls even in spite of this mammoth liquidity injection being orchestrated by the Fed. Consider yesterdays abysmal payrolls number. That stunned observers. I have noted the breakdown in the Russell 2000 which is now below its 50 day moving average. The Dow Transports also are lagging, another sign of deterioration internally of the equity rally.
One way or the other we are going to see which indicator is right - Dr. Copper or the US equity markets. As long as the hedge funds are eager to short copper and pound it lower, I will have to go with that. When this speculative crowd changes their mind and their perception of things, then our task as traders is to recognize this shift and act accordingly. If we can do that, we will profit. If not, then we lose.
I will leave you with a chart of copper indicating the trend which currently is sideways to down. It is closing in on a support zone. If it were to break down through this zone for any reason, it would signal odds of a further slowdown in global economic growth. Given the size of the recent Bank of Japan "anti-deflation" package, along with the rest of the actions by the Western Central Banks, and the actions of the Chinese, it seems to me that the odds of this market breaking that level are not especially high however. If it bounces off of support, I would look for silver to hold support also. If not, silver is going lower.
Friday, April 5, 2013
Hedge Funds Target Silver
The hedge fund community, after pressing the Copper market from the short side to the point that they are now net short in the red metal by nearly a THREE to ONE ratio, are now moving to go after silver from the short side. This is the first time since the history of Disaggregated Commitment of Traders report broke out the hedge fund category (2006) that this group of traders has been NET SHORT the silver market.
Keep in mind that today's report (Friday) does not cover the further drop in silver below the $27 mark that occurred Wednesday and Thursday of this past week. No doubt a large portion of that further plunge was due to additional hedge fund shorting. The report also will not pick up today's short squeeze which caught a few of these newcomers to the short side off guard. However, based on what I can see of the attitude of the hedge fund community towards commodities in general, it is going to take some strongly bullish fundamental factor to drive these guys out of their short positions.
Any sort of sustained and strong rally in stocks might do it but I suspect it is going to take a series of economic reports showing solid growth in the US and global economies to get silver going to the upside along with copper.
Today's strength in silver was a by-product of gold, which pulled the grey metal higher - nothing else....
Keep in mind that today's report (Friday) does not cover the further drop in silver below the $27 mark that occurred Wednesday and Thursday of this past week. No doubt a large portion of that further plunge was due to additional hedge fund shorting. The report also will not pick up today's short squeeze which caught a few of these newcomers to the short side off guard. However, based on what I can see of the attitude of the hedge fund community towards commodities in general, it is going to take some strongly bullish fundamental factor to drive these guys out of their short positions.
Any sort of sustained and strong rally in stocks might do it but I suspect it is going to take a series of economic reports showing solid growth in the US and global economies to get silver going to the upside along with copper.
Today's strength in silver was a by-product of gold, which pulled the grey metal higher - nothing else....
Gold and Mining Shares Part Way
Once again we are being treated to the sad spectacle of watching the ancient metal of kings soar higher today while the shares of companies that explore or mine it went lower. It is becoming a like a bad play or drama or to quote from Shakespeare:
"A tale told by an Idiot, full of sound and fury, signifying nothing."
Although, in our case, it does signify something, namely, that the mining shares continue to attract selling seemingly no matter what comes their way. First we were told that they were heading lower because miners were unprofitable and had not gotten expenses under control. Then we were told that they were selling off as investors were putting money to work in other sectors and the miners had fallen out of favor as gold saw no immediate threat of inflation. Now we are told that they are falling further out of favor because stocks in general are falling out of favor. Need I say any more? There always seems to be an excuse to see another move lower in the mining sector. Quite frankly, until I see some signs of solid, sustained buying that comes in to take this index through some overhead chart resistance levels, I expect rallies to be sold.
I am not rooting for this; I am merely stating the situation from a technical analysis perspective and attempting to stay as objective as possible. The current situation is that the miners seem to have lost all sponsorship except for the most stubborn of bulls. Value based buying is certainly occurring as the shares are shifting into the possession of strong hands but we need more than value based buying to ignite a fire in the shares. When will that come is the question that we all want to know and the simple truth is that no one, and I mean, no one, knows at this point.
Here we had a day in which gold is up over 1.6% while the HUI is down. This further exacerbates the already way out of whack HUI/Gold ratio which had recovered somewhat in yesterday's blip higher but has now given back most of its gains. At this point I almost shudder to think what might happen were the US equity markets to finally rollover to the downside in earnest.
Remember, it took the announcement of QE1 back in late 2008 to turn the gold shares, as well as gold and the broader equity markets to the upside. We have had 4 bouts of QE already and they are still sinking. What do we need - a new round of QE - the sort of US version of the recent Bank of Japan, "Let's throw everything but the kitchen sink at the problem" and hope that this will work? Will that finally do the trick of getting the mining shares moving higher?
If you look at a chart of the Nikkei you can see that the Bank of Japan has been successful in getting the Nikkei moving higher but at what great cost to their currency and eventually to their bond markets?
The CCI was higher today but that was no thanks to crude oil or to the rest of the commodity complex. Were it not for this nice big up day in gold and some strength in silver, we would have been lower in the CCI also. Crude oil to me continues to defy gravity given the general weakness in the US economy but it has retreated away from $98 and is now well off that mark. I am surprised it is sitting above $90 to be honest especially with the stark weakness in many of the other commodity complexes and today's pathetic payroll's report. Someone is intent on driving that market higher even in spite of the negative news in the economy, not only here but globally. I am not sure who is trying to squeeze the shorts but they are playing with fire in my view, not with clear signs of stagnating growth everywhere one looks with perhaps the exception of the housing market that is being fed an IV containing an abundance of liquidity drugs compliments of the Fed.
Take a look at the Russell 2000, a very broad basket of small cap stocks which has been a good gauge of investor sentiment towards risk. It led the larger cap stocks higher as the liquidity party commenced but now has shown definite signs of becoming "tired". It is trading below its 50 day moving average, something that it has not done since the beginning of December of last year. While the Plunge Protection Team is no doubt out in full force today continuing their meddling in our financial markets, this particular index is revealing a genuine flight away from risk on the part of the investment crowd. Throw in the fact that the bond market is soaring today with the yield on the Ten Year Note sinking below 1.7%, and it is difficult to see whether the market rigging by the authorities is going to be able to shove the US stock markets higher in defiance of gravity.
Don't worry however - if they do, rest assured you will have the roosters crowing about how resilient this US stock market is and how it shows a vote of confidence by investors... right.... and elephants also roost in trees at night.
Archimedes was once said to have stated" "Give me a place upon which to rest a lever, and I will move the earth". The Fed and the Bank of Japan are apparently putting his Lever Theory to a test because they are attempting to move the entire financial system of the world with their level of QE.
My view on this is that they are destroying capitalism. Remember when former President George W. Bush stated that as much as he was reluctant to employ TARP to bail out the banks that "we had to do it to save capitalism"? HUH? Yep, free market capitalism, meaning markets function smoothly when left to themselves as they are efficient allocators of capital. Apparently that died a long time ago. I do not recall seeing the funeral but I know for sure that it happened.
All that these people manage to do is to blow enormous bubbles and then spend the rest of their days here on the earth managing the disastrous results that result from the bursting thereof.
"A tale told by an Idiot, full of sound and fury, signifying nothing."
Although, in our case, it does signify something, namely, that the mining shares continue to attract selling seemingly no matter what comes their way. First we were told that they were heading lower because miners were unprofitable and had not gotten expenses under control. Then we were told that they were selling off as investors were putting money to work in other sectors and the miners had fallen out of favor as gold saw no immediate threat of inflation. Now we are told that they are falling further out of favor because stocks in general are falling out of favor. Need I say any more? There always seems to be an excuse to see another move lower in the mining sector. Quite frankly, until I see some signs of solid, sustained buying that comes in to take this index through some overhead chart resistance levels, I expect rallies to be sold.
I am not rooting for this; I am merely stating the situation from a technical analysis perspective and attempting to stay as objective as possible. The current situation is that the miners seem to have lost all sponsorship except for the most stubborn of bulls. Value based buying is certainly occurring as the shares are shifting into the possession of strong hands but we need more than value based buying to ignite a fire in the shares. When will that come is the question that we all want to know and the simple truth is that no one, and I mean, no one, knows at this point.
Here we had a day in which gold is up over 1.6% while the HUI is down. This further exacerbates the already way out of whack HUI/Gold ratio which had recovered somewhat in yesterday's blip higher but has now given back most of its gains. At this point I almost shudder to think what might happen were the US equity markets to finally rollover to the downside in earnest.
Remember, it took the announcement of QE1 back in late 2008 to turn the gold shares, as well as gold and the broader equity markets to the upside. We have had 4 bouts of QE already and they are still sinking. What do we need - a new round of QE - the sort of US version of the recent Bank of Japan, "Let's throw everything but the kitchen sink at the problem" and hope that this will work? Will that finally do the trick of getting the mining shares moving higher?
If you look at a chart of the Nikkei you can see that the Bank of Japan has been successful in getting the Nikkei moving higher but at what great cost to their currency and eventually to their bond markets?
The CCI was higher today but that was no thanks to crude oil or to the rest of the commodity complex. Were it not for this nice big up day in gold and some strength in silver, we would have been lower in the CCI also. Crude oil to me continues to defy gravity given the general weakness in the US economy but it has retreated away from $98 and is now well off that mark. I am surprised it is sitting above $90 to be honest especially with the stark weakness in many of the other commodity complexes and today's pathetic payroll's report. Someone is intent on driving that market higher even in spite of the negative news in the economy, not only here but globally. I am not sure who is trying to squeeze the shorts but they are playing with fire in my view, not with clear signs of stagnating growth everywhere one looks with perhaps the exception of the housing market that is being fed an IV containing an abundance of liquidity drugs compliments of the Fed.
Take a look at the Russell 2000, a very broad basket of small cap stocks which has been a good gauge of investor sentiment towards risk. It led the larger cap stocks higher as the liquidity party commenced but now has shown definite signs of becoming "tired". It is trading below its 50 day moving average, something that it has not done since the beginning of December of last year. While the Plunge Protection Team is no doubt out in full force today continuing their meddling in our financial markets, this particular index is revealing a genuine flight away from risk on the part of the investment crowd. Throw in the fact that the bond market is soaring today with the yield on the Ten Year Note sinking below 1.7%, and it is difficult to see whether the market rigging by the authorities is going to be able to shove the US stock markets higher in defiance of gravity.
Don't worry however - if they do, rest assured you will have the roosters crowing about how resilient this US stock market is and how it shows a vote of confidence by investors... right.... and elephants also roost in trees at night.
Archimedes was once said to have stated" "Give me a place upon which to rest a lever, and I will move the earth". The Fed and the Bank of Japan are apparently putting his Lever Theory to a test because they are attempting to move the entire financial system of the world with their level of QE.
My view on this is that they are destroying capitalism. Remember when former President George W. Bush stated that as much as he was reluctant to employ TARP to bail out the banks that "we had to do it to save capitalism"? HUH? Yep, free market capitalism, meaning markets function smoothly when left to themselves as they are efficient allocators of capital. Apparently that died a long time ago. I do not recall seeing the funeral but I know for sure that it happened.
All that these people manage to do is to blow enormous bubbles and then spend the rest of their days here on the earth managing the disastrous results that result from the bursting thereof.
Payrolls number gives Gold a Jolt Higher; Sinks S&P 500 - Unemployed Resort to Stealing Maple Syrup
It what has to be one of most miserable jobs numbers in some time, we learned today that the number of Americans who are involved in the Labor Force has now shrunk to levels not seen since 1979! Think about this for a minute - we are talking 34 year lows!
Yesterday we were greeted with the news that the US poverty rate is now back at levels last seen in the 1960's! Remember when Lyndon Johnson declared war on poverty in this nation. Well, it looks like under the Obama administration, the US just lost that war.
We had a market looking for an increase in hirings somewhere in the vicinity of 200,000. Instead we got a paltry 88,000 and one has to wonder how many of those are due to the birth/death model.
Taken together, any idea of a premature end to QE3 and QE4 is certainly off the table based on this recent series of data.
While not trying to make light of the number of our fellow citizens who have completely given up on finding decent employment or have been forced into taking part time work to attempt to make ends meet, I was struck with a story appearing on the Drudge Report this AM detailing an increase in theft of maple syrup up in the state of Maine. It seems like you can get $50/gallon at the retail for this stuff. Maybe some of the unemployed have decided to go into the maple syrup business. They sure as hell cannot find work in this nation.
http://www.myfoxny.com/story/21876578/sticky-fingered-thieves-target-sap-in-maine
It looks as if the bullish euphoria, a euphoria which I have been mocking and will continue to do so, is finally wearing off of the equity bulls. WE noted this week on the S&P 500 chart a "just miss" on a Bearish downside reversal pattern. After we got news about the Bank of Japan's "all-in" on the liquidity front, the force of the reversal was lessened as risk was back in vogue. Today, that reversal pattern is seeing some further downside confirmation. The day is yet young but the S&P 500 stands a good chance of putting in a WEEKLY DOWNSIDE REVERSAL PATTERN. We have not seen one of these on the S&P 500 chart for a long time (since May 2011). If the market does not stage one of those late-in-the-session miraculous recoveries, it could very well portend that this overbought, overextended stock market is going to finally see a deeper and more protracted retracement in price.
I want to add here that in the battle between Dr. Copper and the broader US equity markets, it appears as if Dr. Copper is being vindicated. The base metals, the grains, some of the softs as well as the broader Continuous Commodity Index were all sinking while the equity world was in its own little La-La land and soaring ever higher into the clouds. Both of these cannot be right. It looks as if those concerned about slowing global growth and deflationary pressures are being vindicated although cackling before laying an egg is not a good idea. Let's see where the dust settles today before getting too dogmatic.
Something else to note here - normally in the past, on a day like this in which risk is being taken off as indicated by soaring bond prices, the US Dollar and the Yen are the recipients of safe haven flows. The Dollar is moving lower today as the Euro and the Pound are seeing inflows while the Yen is dropping sharply on the heels of the policy change by the Bank of Japan.
Just when you think you have the drill figured out, the rules of the game change. Now we will need to see how to interpret all of this in the days and weeks ahead. Is this a temporary aberration or the start of yet another new trend. It is hard to believe that anyone would consider the Euro a safe haven given the recent events over there. What does that tell you about the mess in the currency markets? This is gold's moment to shine if there ever was one. It had better not disappoint.
At least it is not disappointing in terms of the Yen. Take one look at the following chart and you can see how the Japanese public is seeing their currency debauched. Given this, why anyone would want to own Japanese government bonds outside of the Bank of Japan, I will never understand. When you are getting 0.5% on money for TEN YEARS and the underlying currency is collapsing, you would have to require a frontal lobotomy if you put any money into those things.
Yesterday we were greeted with the news that the US poverty rate is now back at levels last seen in the 1960's! Remember when Lyndon Johnson declared war on poverty in this nation. Well, it looks like under the Obama administration, the US just lost that war.
We had a market looking for an increase in hirings somewhere in the vicinity of 200,000. Instead we got a paltry 88,000 and one has to wonder how many of those are due to the birth/death model.
Taken together, any idea of a premature end to QE3 and QE4 is certainly off the table based on this recent series of data.
While not trying to make light of the number of our fellow citizens who have completely given up on finding decent employment or have been forced into taking part time work to attempt to make ends meet, I was struck with a story appearing on the Drudge Report this AM detailing an increase in theft of maple syrup up in the state of Maine. It seems like you can get $50/gallon at the retail for this stuff. Maybe some of the unemployed have decided to go into the maple syrup business. They sure as hell cannot find work in this nation.
http://www.myfoxny.com/story/21876578/sticky-fingered-thieves-target-sap-in-maine
It looks as if the bullish euphoria, a euphoria which I have been mocking and will continue to do so, is finally wearing off of the equity bulls. WE noted this week on the S&P 500 chart a "just miss" on a Bearish downside reversal pattern. After we got news about the Bank of Japan's "all-in" on the liquidity front, the force of the reversal was lessened as risk was back in vogue. Today, that reversal pattern is seeing some further downside confirmation. The day is yet young but the S&P 500 stands a good chance of putting in a WEEKLY DOWNSIDE REVERSAL PATTERN. We have not seen one of these on the S&P 500 chart for a long time (since May 2011). If the market does not stage one of those late-in-the-session miraculous recoveries, it could very well portend that this overbought, overextended stock market is going to finally see a deeper and more protracted retracement in price.
I want to add here that in the battle between Dr. Copper and the broader US equity markets, it appears as if Dr. Copper is being vindicated. The base metals, the grains, some of the softs as well as the broader Continuous Commodity Index were all sinking while the equity world was in its own little La-La land and soaring ever higher into the clouds. Both of these cannot be right. It looks as if those concerned about slowing global growth and deflationary pressures are being vindicated although cackling before laying an egg is not a good idea. Let's see where the dust settles today before getting too dogmatic.
Something else to note here - normally in the past, on a day like this in which risk is being taken off as indicated by soaring bond prices, the US Dollar and the Yen are the recipients of safe haven flows. The Dollar is moving lower today as the Euro and the Pound are seeing inflows while the Yen is dropping sharply on the heels of the policy change by the Bank of Japan.
Just when you think you have the drill figured out, the rules of the game change. Now we will need to see how to interpret all of this in the days and weeks ahead. Is this a temporary aberration or the start of yet another new trend. It is hard to believe that anyone would consider the Euro a safe haven given the recent events over there. What does that tell you about the mess in the currency markets? This is gold's moment to shine if there ever was one. It had better not disappoint.
At least it is not disappointing in terms of the Yen. Take one look at the following chart and you can see how the Japanese public is seeing their currency debauched. Given this, why anyone would want to own Japanese government bonds outside of the Bank of Japan, I will never understand. When you are getting 0.5% on money for TEN YEARS and the underlying currency is collapsing, you would have to require a frontal lobotomy if you put any money into those things.
Thursday, April 4, 2013
HUI - Dead Cat Bounce or Something More?
The mining shares displayed an unusual bit of activity in today's session (Thursday). What was that you ask? They went up! Better check that because it might have been a misprint on the tape. I am not sure what the catalyst was other than some profitable bears ringing the cash register but they at least stopped moving lower for a day.
Here is a longer term chart of the index where you can see that it has entered a support zone surrounding the 61.8% Fibonacci retracement level of the 2008 low and 2011 high. If this index cannot get back above the 375 level, there is a chance it could fall as far as the region marked, "SECONDARY SUPPORT ZONE".
The repercussions of such an occurrence would be a further drop in the price of gold. That or else the HUI/Gold ratio would be reaching levels that would stagger us all.
I would not make too much of today's pop higher in the mining shares unless we see this index move back above this week's high. Even at that, I would prefer to see it clear 375 to indicate this move lower has put in a spike bottom. Bulls will not be able to breathe a sigh of relief until the HUI is sitting with a "4" handle on it again.
Here is a longer term chart of the index where you can see that it has entered a support zone surrounding the 61.8% Fibonacci retracement level of the 2008 low and 2011 high. If this index cannot get back above the 375 level, there is a chance it could fall as far as the region marked, "SECONDARY SUPPORT ZONE".
The repercussions of such an occurrence would be a further drop in the price of gold. That or else the HUI/Gold ratio would be reaching levels that would stagger us all.
I would not make too much of today's pop higher in the mining shares unless we see this index move back above this week's high. Even at that, I would prefer to see it clear 375 to indicate this move lower has put in a spike bottom. Bulls will not be able to breathe a sigh of relief until the HUI is sitting with a "4" handle on it again.
Wednesday, April 3, 2013
Bank of Japan Surprises Market with an Aggressive Campaign to Beat Deflation
Currency traders are reacting to the unexpected aggressive policy action announced by the Bank of Japan this evening by coming back in droves to sell the Yen, which had been steadily moving higher lately due to safe haven flows and disappointment that had set in. The thinking had been that the new BOJ leader would not act as aggressively as some had hoped. That sure went out the window with this news!
They are basically going to be doing Y7 trillion (somewhere near $75 billion) each month of purchases of Japanese government bonds. Currently they were buying Y3.8 trillion each month. Not only that, they are going to also target longer dated bonds, something that they had not done previously with a 3 year maturity rate the longest dated bond that was purchased under their current liquidity measures.
The news also stated that the BOJ would purchase Real Estate REITS as well as exchange traded funds or ETF's in addition to aiming to increase the monetary base annually by Y60-Y70 trillion!
This is quite aggressive. I should note here that gold, in yen terms, or yen-gold as I prefer to call it, shot sharply higher and is currently up nearly 2.5% as I type these comments.
The US equity markets are following the lead of the Japanese Nikkei which ADORED the news. We will have to wait and see how today's downside reversal pattern holds up. Is it going to be yet another one or two day wonder and then back off to the upside race we go or is the S&P going to finally see something of a deeper and more prolonged setback.
There are plenty of warning signs out there in regards to US stock prices - the Down Transport are weaker than the actual Dow; the Russell 2000 is losing ground to the larger cap stocks, etc, all of which indicate that traders are leery of risk. This announcement by the BOJ, being as unexpected as it was, may put those fears on the back burner for now.
The key for gold will be how it handles the inception of London trade and particularly New York trade.
They are basically going to be doing Y7 trillion (somewhere near $75 billion) each month of purchases of Japanese government bonds. Currently they were buying Y3.8 trillion each month. Not only that, they are going to also target longer dated bonds, something that they had not done previously with a 3 year maturity rate the longest dated bond that was purchased under their current liquidity measures.
The news also stated that the BOJ would purchase Real Estate REITS as well as exchange traded funds or ETF's in addition to aiming to increase the monetary base annually by Y60-Y70 trillion!
This is quite aggressive. I should note here that gold, in yen terms, or yen-gold as I prefer to call it, shot sharply higher and is currently up nearly 2.5% as I type these comments.
The US equity markets are following the lead of the Japanese Nikkei which ADORED the news. We will have to wait and see how today's downside reversal pattern holds up. Is it going to be yet another one or two day wonder and then back off to the upside race we go or is the S&P going to finally see something of a deeper and more prolonged setback.
There are plenty of warning signs out there in regards to US stock prices - the Down Transport are weaker than the actual Dow; the Russell 2000 is losing ground to the larger cap stocks, etc, all of which indicate that traders are leery of risk. This announcement by the BOJ, being as unexpected as it was, may put those fears on the back burner for now.
The key for gold will be how it handles the inception of London trade and particularly New York trade.
Gold, Crude Oil and Copper Break Down
Today's big move lower in gold, coupled with a sharp drop in WTI crude oil and further weakness in the Continuous Commodity Index, could be the beginning of a signal change that the global economy, despite the best efforts of the Central Banks and their unlimited money creation, is entering another period of slowing growth.
Quite frankly, the commodity complex has been signaling deflation for some time now with speculative flows OUT of the base metals and some of the foods. Grain prices are working lower as the high prices brought about by last year's drought have effectively shut off demand while end users wait for much cheaper South American supplies to make their way into the distribution channel.
All the while, against such a backdrop where hard asset prices are falling, the US equity markets have been powering higher and higher. The last report I read stated that they had now reached levels exceeding the height of the Towel of Babel related in the book of Genesis and that it had gotten the attention of the market gods.
It seems as if that disconnect that I spoke to some time back between Dr. Copper and the rest of the CCI, and the US equity markets has been getting even wider; that is, until today. It looks like we might, and I want to emphasize this word "might", be seeing some reality hit these idiotic equity bulls who keep shoving prices upwards no matter what happens in this world.
I was going to post a story on April Fools Day about California experiencing "THE BIG ONE" and subsequently falling into the ocean and disappearing somewhere with Atlantis, and then relate how the "BUY TV" analysts viewed it as wildly bullish because off all the construction work it would create with dirt having to be trucked in to fill in the gaping hole that was left.
Seriously, the way the Cyprus situation was swept under the rug and quickly forgotten about, the complete ignoring of rising tensions involving that nut in North Korea, the manner in which the labor participation rate in this country keeps sinking, (just name some other negative factory) and yet day after day after day seeing a rising stock market to levels that are this preposterous, makes me wonder if the story of the Pied Piper of Hamlin was actually an allegory about today's investor/trader class.
What I find quite noteworthy today is that with all the selling pressure in the commodity complex, along with the very weak equity markets here in the US and with rising bond prices (falling interest rates), the US Dollar was actually experiencing more selling than buying. That is interesting because even the Japanese Yen is experiencing that same idiotic safe haven buying that we see during these periods when investors get nervous. Normally that pushes the Dollar higher as well since it has been the go to safe haven for some time now. Not today. I do not know what to make of that yet but want to see some further price action the remainder of this week before commenting. It might be just a one hit wonder.
Also, remember yesterday when I was questioning what crude oil is doing up at these levels given the lack of growth globally and rising stocks at Cushing, not to mention the weakness in the commodity complex as a whole. Well, today it got clocked and is down over 2% as I type these comments. Let's see where it ends the day before drawing too many conclusions however.
The same goes with the S&P 500. Look at this chart...
The S&P just missed putting in a downside reversal because its session high did not exceed the session high from yesterday. Nonetheless, the sell off has been strong and is coming on high volume. We have seen these fake outs before however in this market as we just had one show up on the chart a mere six weeks ago that lasted every bit of a few days before we once again went on to make yet another new high. Maybe this one is for real. We'll see.
Momentum based indicators show a definite loss of upside momentum here but they have been doing that for some time now and yet the market keeps going up. It is almost as if this thing is being shoved higher by some mysterious hand that will not let it fall. If these hedge fund algorithms ever shift into a "SELL" mode in these equities, look out! They are all on one side of the boat in a big way.
As far as gold goes, it either holds here in this support region between $1550 - $1525, or it is going to sink to $1480 for starters. With the gold stocks continuing to stink up the place, gold is losing any help whatsoever from that quarter. Central Bank buys out of Asia and elsewhere have been keeping this floor solid in the gold market so they had better not falter in those purchases or else...
I am not even going to put up a chart of the HUI at this point as it is simply too ugly. There is a pivot region near 300 and that is more than likely where the pathetic thing is headed unless we see some spark to the gold price.
I will leave you with a ratio chart of the HUI to Gold price. It is now closing in on the 2008 low. Keep in mind, this is AFTER FOUR ENORMOUS QUANTITATIVE EASINGS attempts. What in the world will it take for these stocks to do anything if 4 rounds of QE cannot take them higher? Makes me seriously wonder if some of the gold mining companies are going to survive to be honest.
In the long run such a thing would bring less supply onto the world market which would be supportive for prices moving forward, not to mention allowing those healthy companies which remain to become more profitable. The problem is, how long is the long run going to take to get here......?
Quite frankly, the commodity complex has been signaling deflation for some time now with speculative flows OUT of the base metals and some of the foods. Grain prices are working lower as the high prices brought about by last year's drought have effectively shut off demand while end users wait for much cheaper South American supplies to make their way into the distribution channel.
All the while, against such a backdrop where hard asset prices are falling, the US equity markets have been powering higher and higher. The last report I read stated that they had now reached levels exceeding the height of the Towel of Babel related in the book of Genesis and that it had gotten the attention of the market gods.
It seems as if that disconnect that I spoke to some time back between Dr. Copper and the rest of the CCI, and the US equity markets has been getting even wider; that is, until today. It looks like we might, and I want to emphasize this word "might", be seeing some reality hit these idiotic equity bulls who keep shoving prices upwards no matter what happens in this world.
I was going to post a story on April Fools Day about California experiencing "THE BIG ONE" and subsequently falling into the ocean and disappearing somewhere with Atlantis, and then relate how the "BUY TV" analysts viewed it as wildly bullish because off all the construction work it would create with dirt having to be trucked in to fill in the gaping hole that was left.
Seriously, the way the Cyprus situation was swept under the rug and quickly forgotten about, the complete ignoring of rising tensions involving that nut in North Korea, the manner in which the labor participation rate in this country keeps sinking, (just name some other negative factory) and yet day after day after day seeing a rising stock market to levels that are this preposterous, makes me wonder if the story of the Pied Piper of Hamlin was actually an allegory about today's investor/trader class.
What I find quite noteworthy today is that with all the selling pressure in the commodity complex, along with the very weak equity markets here in the US and with rising bond prices (falling interest rates), the US Dollar was actually experiencing more selling than buying. That is interesting because even the Japanese Yen is experiencing that same idiotic safe haven buying that we see during these periods when investors get nervous. Normally that pushes the Dollar higher as well since it has been the go to safe haven for some time now. Not today. I do not know what to make of that yet but want to see some further price action the remainder of this week before commenting. It might be just a one hit wonder.
Also, remember yesterday when I was questioning what crude oil is doing up at these levels given the lack of growth globally and rising stocks at Cushing, not to mention the weakness in the commodity complex as a whole. Well, today it got clocked and is down over 2% as I type these comments. Let's see where it ends the day before drawing too many conclusions however.
The same goes with the S&P 500. Look at this chart...
The S&P just missed putting in a downside reversal because its session high did not exceed the session high from yesterday. Nonetheless, the sell off has been strong and is coming on high volume. We have seen these fake outs before however in this market as we just had one show up on the chart a mere six weeks ago that lasted every bit of a few days before we once again went on to make yet another new high. Maybe this one is for real. We'll see.
Momentum based indicators show a definite loss of upside momentum here but they have been doing that for some time now and yet the market keeps going up. It is almost as if this thing is being shoved higher by some mysterious hand that will not let it fall. If these hedge fund algorithms ever shift into a "SELL" mode in these equities, look out! They are all on one side of the boat in a big way.
As far as gold goes, it either holds here in this support region between $1550 - $1525, or it is going to sink to $1480 for starters. With the gold stocks continuing to stink up the place, gold is losing any help whatsoever from that quarter. Central Bank buys out of Asia and elsewhere have been keeping this floor solid in the gold market so they had better not falter in those purchases or else...
I am not even going to put up a chart of the HUI at this point as it is simply too ugly. There is a pivot region near 300 and that is more than likely where the pathetic thing is headed unless we see some spark to the gold price.
I will leave you with a ratio chart of the HUI to Gold price. It is now closing in on the 2008 low. Keep in mind, this is AFTER FOUR ENORMOUS QUANTITATIVE EASINGS attempts. What in the world will it take for these stocks to do anything if 4 rounds of QE cannot take them higher? Makes me seriously wonder if some of the gold mining companies are going to survive to be honest.
In the long run such a thing would bring less supply onto the world market which would be supportive for prices moving forward, not to mention allowing those healthy companies which remain to become more profitable. The problem is, how long is the long run going to take to get here......?
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