The overall tone of the commodity complex is firm in today's session as the CCI is up. From what I can see, some of this is tied to news out of China that inflation is relatively tame. This has traders breathing a sigh of relief that there will be no raising of short term rates anytime soon in China. Traders are already fearful enough of slowing growth so the last thing that they want to hear coming out of China is anything that might dampen what economic growth there is.
The second main thing is the Chilean copper strike at the giant state owned mine, Codelco. Chile produces approximately 1/3 of all global copper and thus anything that might interfere with the supply piques traders' interest. The immediate result of any strike will be to alleviate concerns about the rising stocks of the red metal at the LME, one of the main factors behind the grind lower in copper prices as hedge funds have noted that and have been heavy sellers of the metal. We are seeing some short covering occur in there.
There has been a subsequent spillover effect on silver also as a result.
Further aiding the rise across the commodity spectrum has been the weakness in the Dollar brought on by strong buying of the Euro. I am not sure what the strength in the Euro is all about. I only know that I want no part of it. Maybe there is some thinking that all the problem nations, Cyprus, Portugal, Greece, etc. will drop out of the thing leaving the stronger nations behind. Who knows what these guys are thinking anymore? As I have stated previously again and again, a long term trade to this modern generation of mindless gnats is 60 minutes.
There is also a bit of strength in the grains today as shorts cover recent extremely profitable trades while they wait for tomorrow's USDA report. It would not surprise me to see a bearish report to be quite honest although some traders, after having been burned and buried by the last report, are no doubt heading to the sideways preferring retreat as the better part of valor until they can see what numbers the bean counters over there will spit out this time around.
A comment on Silver - it has managed to pop to $28 today on the heels of all of the above - the big test for the bulls however will be to take the metal firmly past that level and hold it there. Right now, traders are still interested in selling rallies. If copper continues to firm however, they might have some second thoughts about the wisdom of doing that. Strikes are dangerous things to trade however. They can end as quickly as they begin and when that happens, traders have a nasty habit of turning around and looking at each other while they say, "what the hell is the market doing way up here?" You know what happens after that!
As usual, US equity markets are higher. What else is new? I am noting however weakness in the Russell 2000 today. That, and the Transports are also weak. Hmmm......
Doesn't seem to phase these guys however as they are pushing the Dow and the S&P 500 higher. My thinking at this point is why not just take the Dow to 16,000 and the S&P 500 to 1600 and get it over with. The bears are not permitted to get any downside due for national security reasons so they might as well just take the market higher into bubble territory all the while they shout out loud how cheap stocks still are.
And for those who might be wondering, Yup, the VIX is lower once again. NO FEAR.... Party Hearty.
Tuesday, April 9, 2013
Monday, April 8, 2013
Silver Showing some potential Bullish Divergence
Bullish and Bearish Divergences in Technical Indicators are becoming increasingly more common nowadays because of the nature of the Fed induced volatility which brings wild swings in price and then periods of uncertainty or confusion as traders attempt to sort out what the latest round of either verbal or outright intervention into the marketplace brings with it.
I have written at length about the woes of silver due to hedge funds playing it along with copper, from the short side of the market. Last week's break of significant technical support down at the $28 level brought in even more hedge fund shorts.
However, silver is showing some signs of bullish or positive divergence which merit watching. For those who are newer at this, bullish divergences occur whenever a technical indicator fails to produce a new low while the underlying commodity is in the process of making new lows. In other words, the commodity and the indicator are diverging.
In the case of bullish divergence, the technical indicator has been moving lower but note that the lows it is making are successively higher than the previous lows in the indicator even as the metal has been moving lower and making successively lower lows in the process.
Keep in mind that bullish divergences are often times mere continuation patterns so never buy a market based solely on a divergence. What will make things interesting however is if silver prices can climb back above broken support now turned resistance at that $28 level and HOLD ABOVE it.
Downside momentum is slowing even as traders have been selling rallies in silver so any sign of an overhead resistance level giving way is going to induce some of the shorter term oriented shorts to book some good profits.
Let's keep an eye on this.
One thing to also watch, last week's low near $26.50 is now a critical support level. If it fails to hold, a test of round number support near $26 will happen almost immediately. That MUST hold to prevent a drop to $24.
I must admit that it is difficult seeing these precious metals continuing to move lower with the massive Bank of Japan stimulus package and the rotten jobs number of last week serving to reinforce the idea of QE3 and QE4 continuing to last throughout the remainder of this year, but there are real concerns about the efficacy of these stimulus measures. After all, when we consider the fact that by the time QE3 and QE4 reach the month of December of this year, a total of $3.5 TRILLION will have been conjured into existence as the sum all four Quantitative Easing programs. In spite of where we currently are in this money creation binge, job hiring seems to have stalled out.
Let's face it, consumers without jobs cannot engage in spending sufficiently large enough to provide any serious or solid economic growth. Oh, yes, they can use government benefits to purchase goods and services but not at a size sufficient to jolt this economy higher. More importantly, the VELOCITY of MONEY needed to spur inflation is simply not there.
One has to wonder what exactly will be the trigger or catalyst that is needed to shake off the deflationary psyche among the hedge funds towards commodities in general and get them to begin anticipating inflation. It is more than evident that the stock market rally is nothing else but a spectacular display of PAPER ASSET INFLATION brought about by the Fed's unlimited paper dollar creation schemes. As stated repeatedly now at this site, that money is almost exclusively ending up in US equities in the desperate chase for yield in a ZERO INTEREST RATE environment. It has bypassed commodities for the most part even after QE3 and QE4 were both announced and them implemented.
As we watch the mining shares sinking further into the red nearly day after day after day, one begins to wonder at what point the shorts are going to say, "ENOUGH" and finally ring the cash register. There is an old saying in trading, "Bulls make money; Bears make money; but Pigs get slaughtered".
By the way, copper is getting some buying coming into it on the heels of a strike in Chile. That is serving to prop up the red metal in spite of growing warehouse stocks. We are seeing some of that buying of the red metal spilling over into silver, at least in Asia this evening.
I am continuing to monitor the yield on the Ten Year note to see if traders are showing any signs of anticipating an outbreak of inflation. So far nothing doing.
There is a very gradual uptrend on the yield showing up on the chart that has been underway since summer of last year, but I personally will not be impressed that longer term yields are going solidly higher unless I see this chart consistently remaining above 2.0 percent and that is just a bare minimum to be quite honest that would get my serious attention.
I have written at length about the woes of silver due to hedge funds playing it along with copper, from the short side of the market. Last week's break of significant technical support down at the $28 level brought in even more hedge fund shorts.
However, silver is showing some signs of bullish or positive divergence which merit watching. For those who are newer at this, bullish divergences occur whenever a technical indicator fails to produce a new low while the underlying commodity is in the process of making new lows. In other words, the commodity and the indicator are diverging.
In the case of bullish divergence, the technical indicator has been moving lower but note that the lows it is making are successively higher than the previous lows in the indicator even as the metal has been moving lower and making successively lower lows in the process.
Keep in mind that bullish divergences are often times mere continuation patterns so never buy a market based solely on a divergence. What will make things interesting however is if silver prices can climb back above broken support now turned resistance at that $28 level and HOLD ABOVE it.
Downside momentum is slowing even as traders have been selling rallies in silver so any sign of an overhead resistance level giving way is going to induce some of the shorter term oriented shorts to book some good profits.
Let's keep an eye on this.
One thing to also watch, last week's low near $26.50 is now a critical support level. If it fails to hold, a test of round number support near $26 will happen almost immediately. That MUST hold to prevent a drop to $24.
I must admit that it is difficult seeing these precious metals continuing to move lower with the massive Bank of Japan stimulus package and the rotten jobs number of last week serving to reinforce the idea of QE3 and QE4 continuing to last throughout the remainder of this year, but there are real concerns about the efficacy of these stimulus measures. After all, when we consider the fact that by the time QE3 and QE4 reach the month of December of this year, a total of $3.5 TRILLION will have been conjured into existence as the sum all four Quantitative Easing programs. In spite of where we currently are in this money creation binge, job hiring seems to have stalled out.
Let's face it, consumers without jobs cannot engage in spending sufficiently large enough to provide any serious or solid economic growth. Oh, yes, they can use government benefits to purchase goods and services but not at a size sufficient to jolt this economy higher. More importantly, the VELOCITY of MONEY needed to spur inflation is simply not there.
One has to wonder what exactly will be the trigger or catalyst that is needed to shake off the deflationary psyche among the hedge funds towards commodities in general and get them to begin anticipating inflation. It is more than evident that the stock market rally is nothing else but a spectacular display of PAPER ASSET INFLATION brought about by the Fed's unlimited paper dollar creation schemes. As stated repeatedly now at this site, that money is almost exclusively ending up in US equities in the desperate chase for yield in a ZERO INTEREST RATE environment. It has bypassed commodities for the most part even after QE3 and QE4 were both announced and them implemented.
As we watch the mining shares sinking further into the red nearly day after day after day, one begins to wonder at what point the shorts are going to say, "ENOUGH" and finally ring the cash register. There is an old saying in trading, "Bulls make money; Bears make money; but Pigs get slaughtered".
By the way, copper is getting some buying coming into it on the heels of a strike in Chile. That is serving to prop up the red metal in spite of growing warehouse stocks. We are seeing some of that buying of the red metal spilling over into silver, at least in Asia this evening.
I am continuing to monitor the yield on the Ten Year note to see if traders are showing any signs of anticipating an outbreak of inflation. So far nothing doing.
There is a very gradual uptrend on the yield showing up on the chart that has been underway since summer of last year, but I personally will not be impressed that longer term yields are going solidly higher unless I see this chart consistently remaining above 2.0 percent and that is just a bare minimum to be quite honest that would get my serious attention.
Total and Complete Complacency
Payrolls down to a pitiful 88,000 jobs created. Alcoa warning on earnings. N. Korean sabbling rattling in a big way. Bail-ins as precedent. Surging numbers of Americans sinking into poverty. Record numbers of Americans on Food Stamps and Disability. Shrinking Labor Force...
NOTHING and I mean NOTHING matters to these equity guys. It is all about missing the rally instead of being cautious in the face of so many serious headwinds.
While Central Planner continue to drone on about "No Bubble", every single sign that I can see about this stock market rally is screaming in my ears, "BUBBLE".
There is no fear anywhere; it is absolutely mind boggling to see this sort of mass hypnosis.
The Complacency Index continues to hover at SIX YEAR LOWS. Absolutely astonishing!
NOTHING and I mean NOTHING matters to these equity guys. It is all about missing the rally instead of being cautious in the face of so many serious headwinds.
While Central Planner continue to drone on about "No Bubble", every single sign that I can see about this stock market rally is screaming in my ears, "BUBBLE".
There is no fear anywhere; it is absolutely mind boggling to see this sort of mass hypnosis.
The Complacency Index continues to hover at SIX YEAR LOWS. Absolutely astonishing!
Saturday, April 6, 2013
Dow Jones Industrial versus Dow Jones Transports
Dow Theory conventionally holds that moves higher in the Dow should be validated or confirmed by matching moves in the Dow Transportation Average. When divergences between these two indices occur, it is something that one wants to generally take note of. It does not always signify a market reversal but the signal is reliable enough that only the foolhardy would ignore it.
The first chart is of the Dow Jones Industrial Average. Note how it is well above its 50 day moving average and has been since the start of this year.
Next is a chart of the Dow Jones Transports. Quite a difference between the two charts is there not? On Wednesday of this past week, the Transports fell below their 50 day moving average for the first time this year. Thursday saw the index remain below it also. Friday, the late session recovery pulled the Transports back above the moving average effectively preventing a further deterioration. However, this weakness in the Transports needs to be monitored as it could be a precursor to further weakness in the broader stock market.
The rationale behind the Dow Theory is quite simple - the Transports basically include the stocks of those companies involved in moving things. If the economy is humming along, things are moving and lots of them. That tends to bolster the profits of those companies involved in the transportation of goods which feeds into higher stock prices for that sector. That confirms or validates the move higher in the broader stock market.
I sometimes wonder if the shift in the nature of the US economy from that of a manufacturing based economy to more of a service based economy has tended to marginalize this formerly reliable connection somewhat. Still, with the weakness showing up in the Russell 2000 (see the chart posted on Friday) and with a growing number of corporations that make up the S&P 500 showing negative first quarter earnings guidance, I am growing increasingly concerned that we are going to see the US stock markets roll over into a deeper and more protracted move lower. Thus far price retracements have been very shallow and of short duration because the stock market bulls have tended to ignore just about everything negative and have chosen to focus exclusively on the $85 billion worth of QE3 and QE4 being pumped into the system by the Fed.
I shudder to think what we are going to witness next if this massive amount of money creation fails to stem the deflationary tide that continues to rear its head not only here in the US but globally. The problem has been and remains, EXCESSIVE LEVELS OF DEBT.
My belief is that unless one can suspend the laws of economics and invalidate everything we have ever learned from history, there is a point at which the Piper is going to have to be paid and no amount of Central Bank money alchemy is going to prevent it.
The first chart is of the Dow Jones Industrial Average. Note how it is well above its 50 day moving average and has been since the start of this year.
Next is a chart of the Dow Jones Transports. Quite a difference between the two charts is there not? On Wednesday of this past week, the Transports fell below their 50 day moving average for the first time this year. Thursday saw the index remain below it also. Friday, the late session recovery pulled the Transports back above the moving average effectively preventing a further deterioration. However, this weakness in the Transports needs to be monitored as it could be a precursor to further weakness in the broader stock market.
The rationale behind the Dow Theory is quite simple - the Transports basically include the stocks of those companies involved in moving things. If the economy is humming along, things are moving and lots of them. That tends to bolster the profits of those companies involved in the transportation of goods which feeds into higher stock prices for that sector. That confirms or validates the move higher in the broader stock market.
I sometimes wonder if the shift in the nature of the US economy from that of a manufacturing based economy to more of a service based economy has tended to marginalize this formerly reliable connection somewhat. Still, with the weakness showing up in the Russell 2000 (see the chart posted on Friday) and with a growing number of corporations that make up the S&P 500 showing negative first quarter earnings guidance, I am growing increasingly concerned that we are going to see the US stock markets roll over into a deeper and more protracted move lower. Thus far price retracements have been very shallow and of short duration because the stock market bulls have tended to ignore just about everything negative and have chosen to focus exclusively on the $85 billion worth of QE3 and QE4 being pumped into the system by the Fed.
I shudder to think what we are going to witness next if this massive amount of money creation fails to stem the deflationary tide that continues to rear its head not only here in the US but globally. The problem has been and remains, EXCESSIVE LEVELS OF DEBT.
My belief is that unless one can suspend the laws of economics and invalidate everything we have ever learned from history, there is a point at which the Piper is going to have to be paid and no amount of Central Bank money alchemy is going to prevent it.
Trader Dan Interviewed at King World News Markets and Metals Wrap
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
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/4/6_KWN_Weekly_Metals_Wrap.html
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.
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