Bulls Buy the Dip in Stocks - Get Rewarded Once Again

Pavlov's Dogs could not have been conditioned any better than those who have used every single bout of weakness in US equities to reload the boat and secure more stocks.

The stronger-than-expected jobs number ( combined with upward revisions to previous months ) initially jolted the market as TAPERING FEARS were running rampant as soon as the numbers hit. Down went stocks as traders began crying that the punch bowl was going to be taken away. Not to fear however; dip buyers began talking up the numbers as a good thing and thus positive for stocks ( Heads - I win; Tails - you lose). The technical support zone held and back up they went.

Note that the volume is very large on the move higher which no doubt is a great deal of short covering as once again attempting to short this market has proven to be a fool's errand. At some point, and I honestly do not have the faintest idea when, the bulls will go to the well once too often and we will finally see this bubble pop, but for now, it continues to shrug off any warnings of internal deterioration.

Each time this market has moved lower, bulls have moved in, bought the dip and then been rewarded by a move to yet another all time high. However, this time around we do have the POTENTIAL for a double top up above 1770. Shellshocked bears are going to be watching very closely for any signs of this market stalling  out. They have gone back into hibernation today but will awaken in a surly mood if the technical chart tells them to pounce.

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

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

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

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

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

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

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

Strange Day

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

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

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

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

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

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

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

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

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

Golden See-Saw

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

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

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

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

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

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

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

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

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

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

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

Dow Jones - UBS Commodity Index Rebalancing

Each year the sponsors/originators of the various commodity sector indices announce a reweighting or rebalancing of their respective commodity index. This is done for assorted reasons but for whatever the reason, those index funds that benchmark to these things, must adjust their portfolio at the onset of the New Year in order to bring them into line with the new weightings.

The Dow Jones/UBS Commodity Index has announced that the target weighting of both gold and silver will be increased in the 2014 index. Silver's new weighting will be 4.1% compared to its current 3.9%. WTI Crude will be lowered to 8.5% from the current 9.2%.

Gold, surprisingly enough, will be raised to 11.5% (the largest weighting) from this year's 10.8%.

I am still looking for the Goldman Sachs Commodity Index reweighting and will try to note the changes in the precious metals, if any.

This will bring in some buying after the first of the year of both gold and silver futures contracts. While this is purely a technical development, it will tend to have a very short term impact on the metals.

I might add that this is not at all friendly towards crude oil which is already seeing large selling pressure.

A lot can happen between now and then, but I did want to note this.

As of today, the commodity complex as a whole is experiencing another strong bout of selling as the Dollar is moving a bit higher and traders continue to have their doubts about the longevity of the "no tapering" policy.

As has been the case, the equity markets could seemingly care less about much of anything. Dips continue to be bought as that bubble grows larger and larger. It really is mind-boggling to me to see this drug-induced march higher and higher in the US equity markets. The disconnect between the US stock market and what is occurring all across Main Street is something to behold. There still does not seem to be any sign that the mania is about to end anytime soon.

Feds Falling out of Love with JP Morgan?

The following story ( click to read the article) caught my eye this morning for reasons that many in the gold community will easily understand. Ask most of those who believe that the feds closely monitor the price of gold and work to tame any price rallies when the metal is in a bullish uptrend, just who are the agents employed to actively short the metal at the Comex and you will always get two names, Goldman Sachs and JP Morgan.

I find the following article both interesting and revealing therefore as it introduces something which I have not heard from any who adhere to this view - namely an apparent falling out between the political authorities and the latter of these two banks, J P Morgan.

I also find it interesting, and have remarked about this many times of late, that the largest stopper of gold during the Comex delivery process in recent times has been JP Morgan for their HOUSE account. In other words, they are LONG gold at the Comex in order to take delivery of the physical metal ( I explained this when I was attempting to debunk the silly notion of bullion bank caused "FLASH CRASHES" that is currently circulating through the halls of the gold community edifice.

It sure does make one wonder does it not what is going on behind the scenes when Morgan is being targeted by federal power? Have the feds lost one of their purported allies in the gold suppression scheme?

Either way it is very interesting reading and certainly lays bare the methodology employed by the current administration which uses tactics of intimidation against all those who dare defy it.

You know that this is brazenly arrogant when even Barney Frank seems to be taken aback by this concerted federal effort being used to harass J P Morgan.

Those of you who have been reading my comments for many years know full well that there is no love  lost between myself and either of these two megabanks. I have seen enough of their antics in the commodity markets over the years to have lost any sympathy for what might happen to either or both of them. Still there is something very unseemly in this episode which smacks more of a government shakedown rather than a pursuit of unbiased justice and fair play.

http://dailycaller.com/2013/11/01/are-the-feds-targeting-jpmorgan-for-criticizing-obama/

Trader Dan interviewed at King World News Markets and Metals Wrap

Please click on the following link to listen in to my regular weekly audio interview with Eric King over at the KWN Markets and Metals Wrap.

http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/11/2_KWN_Weekly_Metals_Wrap.html

More Commodity Weakness

I am monitoring the following chart with a great deal of both concern and interest. Concern because month after month of $85 billion in Bond and MBS buying by the Federal Reserve, deflationary pressures remain undaunted. Interest because the grand experiment in "unconventional" monetary measures by the Fed is proving, thus far, to have little LASTING impact on the US Dollar.

Back in 2008, when I first learned of QE1, I swore up and down that the US Dollar was finished as a result of this. Little did I know then that it would not be long before every Western Central Bank on the planet would be doing the same thing as the Fed!

I learned a valuable lesson and hopefully will be a little less dogmatic when it comes to expectations of market responses as a result. I still believe that in the long run the US Dollar is going to be in serious trouble. No nation that runs deficits and carries a national debt the size that this one does will be able to escape all the consequences of so doing. Then again, I wonder if I will still be alive long enough to see when it comes time to pay the Piper.

So far the modern day alchemists appear to be doing their thing with little consequences. This no doubt will embolden them to do even more should they feel the need (think Janet Yellen and be afraid; be very afraid). As I have stated in some private emails to others - I was shaking in my little boots when I first saw the Balance Sheet of the Federal Reserve approaching the $3 TRILLION mark. Now that it has eclipsed that and is on its way to $4 TRILLION, my attitude is: "Why not just let it go to $5 TRILLION or $6 TRILLION or even higher? Hardly anyone seems to be particularly disturbed by any of this. Certainly the stock market could care less".


Anyway, gold no longer seems to be reacting positively to ideas that the Fed is going to continue QE buying with no abatement for the near term. That is certainly cause for concern if you are a gold bull. The question then becomes, "what is it going to take as a fundamental catalyst to push gold into a sustained trend higher?"

This is the reason that the chart of the commodity sector concerns me - if after $4 trillion + of QE the commodity sector is moving LOWER, and not HIGHER, gold is going to have to find another reason for a rally other than inflation expectations. After all, it is next to impossible to make the case for inflation when the price of tangible commodities is moving down instead of up!

Note that the index below is right on the verge of making one of those important technical developments which sets Technical Analysis geeks such as myself to yapping. What I am referring to is the dreaded "Death Cross". No, this is not when the Death Star crosses in front of the Emperor's Battle Cruiser so that Luke Skywalker and friends can see it, but rather the 50 day moving average crossing down below the 200 day moving average from above.

Such a thing is a big time bearish development and portends, as a general rule, more losses ahead for the complex. In other words, we are looking at falling commodity prices as we move forward, not rising prices. This is obviously great news for the consumer who will benefit as a result but a tougher environment for those whose living deals with these products/commodities.

What this means for farmers is that the banner years that they have enjoyed in recent past are coming to a close, barring any major weather event. It also means that the price of farm land in the Corn Belt is probably as good as it is gonna get.  Farm equipment dealers too are going to get a dose of reality after selling lots of big, shiny, state of the art tractors, planters, combines, etc. As a matter of fact, I would look for the USED farm equipment business to see a boom as a result. Hey, maybe I should move to Iowa and start a used farm equipment business! I can put it right next to Kevin Costner's Field of Dreams!

For the consumer, it means lower gasoline prices at the pump. Yippee! It also means it will be cheaper to heat one's home this winter for those using heating oil. Nat gas prices are well off their lows under $2.00 but remain cheap by historical standards. So perhaps the harm from that abomination known as Obamacare will be offset somewhat for the struggling consumer in the form of lower prices at the grocery store and for energy use.

Maybe, and of course, we can dream, airlines will lower their fares or at least get rid of any fuel surcharges and actually bring us some damned food for free while we sit in their newly scrunched up seats and endure hours of torture merely because we wish to transverse the country and get to another side of it.

I find it perverse that the administration which has never met an energy pipeline it did not hate or a fossil fuel that it did not despise, gets to somehow preside over the greatest energy boom in US history. All this in spite of the obstacles that it places in front of one of the he most innovative industries in the US, the oil and gas industry. Keep in mind that the finds of oil and natural gas have been occurring on PRIVATE LANDS, not government owned lands. Those have been effectively shut to the energy industry except for those where everyone and their dogs knows that there is little to no oil or gas.

Thankfully American know-how and ingenuity continue to help make energy cheap and affordable. As an American who is deeply distressed at what is happening both to and in my nation, I am grateful that at least that is the case. Throw in the fact that the American Farmer is the still the BEST anywhere in the world, and we can be grateful that these two necessities of life, food and energy, remain relatively available and affordable, unlike other places in this world.


As far as the US Dollar and gold goes - It will come down to CONFIDENCE as far as I am concerned. When the game ends and there is the sudden awakening of the investment crowd as to the artificial nature of the entire US financial system, then and only then, will gold find its footing and shoot upward. As to when that will occur or what the catalyst/event/events that will usher in this awareness I am at a loss to say. I can only hope that I can recognize it when it does arrive.