Copper Continues to Fall as Stocks Continue to Soar

Very strange doings occurring in Doctor Copper when one considers the nearly unstoppable surge higher across the US equity markets. One does not generally see copper parting ways with the broader stock market for long as this key bellwether commodity has an excellent track record at predicting ( or at least confirming ) economic strength, not only domestically these days, but globally, especially in regards to China's economy.

Take a look at the following copper chart and notice the sharp drop on the daily chart. Some of today's gap can be attributed to the fact that the March contract has given way to the May as the most active and that is now being plotted on the continuous contract chart; nonetheless, the technicals remain extremely poor for copper - remarkably so given the euphoria around US equities.

Two things stand out - first, copper is trading BELOW both its 50 day and its 200 day moving averages. That is bearish. Secondly - it is sitting right on top of a series of support zones. It tested the first of these today and managed to stay above that zone, but just barely.

Also notice that the Directional Movement Indicator shows the bears currently in control of this market. Negative Directional Movement Indicator ( Red Line ) remains ABOVE the Positive Directional Movement Indicator ( Blue Line ). Also, the ADX is beginning to undergo a slight upturn. It has not managed to climb above the 25 level, much less the 20 level, but it is rising as the market is moving lower indicating the POSSIBILITY of a trending move lower.

If copper were to break chart support indicated above in conjunction with a rising ADX line, it would tend to bode poorly for the overall commodity sector in general, especially those commodities which tend to be good proxies for overall economic activity such as cotton.

Cotton's chart looks decent for now but if it were to drop below 84 simultaneously with an additional move lower in copper, it would not bode well for commodities in general. Obviously there are going to be exceptions to this depending on the specific demand/supply scenario for each commodity market but I am speaking of the sector in general.

I find it particularly disconcerting to see copper moving lower, even as the US Dollar weakens. That has not been a frequent occurrence.

I will try to get some more up on gold later as time permits along with some analysis of the COT data. this has been a busy week in these markets with lots of strange, wild moves occurring and violent whipsaws at times ( the grains come to mind today). I for one am glad to see February come and go and look forward to March trading. While one has to respect the chart action if they are trading, I personally never feel comfortable putting large positions on in any market unless I can understand what is moving it. Some guys like to buy without asking questions based on the technical pattern ( I will too to a certain extent ) but only the brave ( or reckless ) will pile into a market without knowing what in the world is moving it. Reversals in such market come with little to no notice whatsoever and can punish you severely for being so brash and foolish.

Mining Shares Cannot Hold Gains

In what appears to be reminiscent of the not-too-distant past, the mining shares traded hesitantly for the entire session while the broader markets were on a tear higher. Yellen's testimony early in the day seemed to put the precious metals sector on a bullish footing but by the afternoon, prices began to slip with the result that the HUI ended up settling barely above its session low. That is not encouraging especially with the broader market just missing setting yet another all time high ( basis the S&P). It did manage to put in an all-time CLOSING HIGH however.

Here is the chart - a couple of things stand out to me. First, and most importantly, the ADX has turned down indicating that there is at least a temporary halt in what had been the recent uptrending move. Positive Directional Indicator remains above the Negative Directional Indicator meaning that the bulls still have control of the market however.

We will have to monitor the subsequent price action to see at what levels the dip buyers surface. A reasonable place to expect their first appearance would be when/if the index dips towards the 200 day moving average near 231-232. Below that lies the near confluence of the 100 day and 50 day moving averages. That comes in around the 215-217 level on the index. Bulls would not want to see this index fall below that level as it would probably trip the ADX into a negative posture.

There were some very wild moves occurring across several commodity markets today. How much of this is related to end-of-the-month position squaring and how much to actually waning upside momentum but the grains were hit fairly hard today, especially the beans. I definitely want to see the price action across the grains tomorrow as we end this month. AS I said yesterday, maybe the February Break is going to show up here to END the month of February and start the month of March. If so, it is a month overdue.

Fed Chair Yellen gives Gold Bulls Reason to Cheer

Yes indeed, the Dove of Doves is living up to her reputation as far as the gold market is concerned:

"Low inflation gives Fed room to pursue full employment".

What further, besides personally buying gold futures, could she have done to spook gold bears?

The spin being put on this is that the Fed will hold off on the tapering as they wait to see if the recent poor economic data is an anomaly due to the harsh, frigid winter weather or if it is becoming a trend.

Gold bulls are betting it is the latter.

For that matter, Dollar bears are too because back down the Dollar is going this morning and back up are going commodities in general. You could not have asked for a statement that would better clip yesterday's Dollar rally than that which Yellen supplied this morning. I sometimes get the idea that the Fed would love to see the Dollar even weaker - after all - they are not getting the inflation that they want to produce.

I have said it many times, the markets no longer are interested in fundamentals - they are interested in what the Fed may or may not do. I guess this is what free-market capitalism has degenerated into. Then again, with the rest of the decline in this nation, we should not be surprised to see this sort of thing.

America is rotting internally. Any observer from outside of the nation ( and those within who are attuned to these things ) can observe its rising degeneracy and ignorance. We are fast becoming a nation given totally over to hedonism at the expense of discipline, ethics, virtue and morality. Our national character is deteriorating and with that, so too are our various institutions. We are short-term oriented; the longer term consequences be damned.

The Fed's answer to any economic hiccup or slowdown, especially under Yellen, has been and always will be to pump liquidity into the system and artificially suppress interest rates in the hopes of spurring increased borrowing and further indebtedness. They have to because ours is a debt-based economy.

In the process of so doing however, they have created more misallocation of capital than all of the bone-headed decisions of hedge fund managers combined throughout our modern financial era. Big specs cannot be blamed for going with the Fed -  after all they exist to make money from speculating. But if the Fed, particularly this Yellen-led Fed, is not careful, they are going to end up ruining the Dollar with this idiocy. Only the Dollar's reserve status has allowed the US to continue with its reckless spending and incessant borrowing. The more those authorities who are charged with maintaining its "value" undermine that value, the greater the possibility that the financial quality of life for the average US citizen comes under attack.

We are talking about the future of our children. Those who foolishly squander their birthright for a bowl of stew to satisfy the immediate lusts of Wall Street, are doing no service to the next generation.

Wee Bit becomes Big Bit

Yesterday's headline was; " A Wee Bit of Commodity Weakness". Today, that "wee bit" became a lot larger as the combination of a waning upside momentum met early end-of-the-month book squaring.

February has been an incredibly profitable month for anyone who was long the commodity sector. So much so that the famed February Break apparently decided to "take a break" from showing up. Maybe it will appear here at the end of the month or perhaps it has been a bit postponed until early March.

Either way, several key commodity futures markets experienced some big downside reversal patterns. That is taking some of the buying momentum out of the general sector as traders, particularly hedgies, do not want to let these profits slip away prior to getting those monthly statements out to their clients showing them how smart and clever they have been with their investment capital this month.

Here is a BIGGIE - Natural Gas and a HUGE downside reversal pattern.

Check out OATS - which is not a very largely traded market from a spec standpoint but nonetheless tends to be regarded by many as a type of general bellwether for the grain sector.

Here is Cotton:

And of course, Copper, which I continue to maintain has not validated the move higher across so many different commodities as it has been a laggard ( something which should not go unnoticed by those talking up hyperinflation concerns ).

This last chart of copper is the one that has made me such a skeptic when it comes to the recent buying binge that occurred throughout the commodity sector. In my view, you cannot have bellwether copper going one way on chatter about rapid growth and escalating inflation concerns all the while you have the rest of the sector moving higher. Something was not making any sense.

The month is not yet over but I must admit that this is one of the weirdest months I can ever remember because they entire commodity sector was on a tear higher and for the life of me, I haven't a clue as to what the heck was behind the move in some of these markets.

It has certainly been a momentum-driven buying event but other than perhaps some desire for diversification away from equities and into commodities, I failed to see the reason for this sort of wild buying. There has been a tremendous amount of damage done to the bears in the sector who were forced out across so many of these markets. Now the question, at least in my mind, is where do we go from here?

Further clouding the issue is this end-of-the-month book squaring. I want to see how things look at the close of trading this coming Friday ( the last day of this month ) and then see if money is put back to work in the commodity sector to start off the month of March or if we go back to range trading with markets being moved more by their own specific set of demand/supply fundamentals instead of this rather mindless and indiscriminate entire sector buying that we have seen this month of February.

Notice by the way, that both gold and silver are moving lower in sync with the sector. Also putting some pressure on both of the precious metals is a firm US Dollar and generally stable interest rates which seemed to stopped moving lower, at least for today.

Gold has stalled out at the resistance zone noted on the chart but still remains above initial chart support as dip buyers are still coming in on the heels of further nervousness involving Ukraine. The ADX has been steadily rising indicating the good trending move to the upside but it too is beginning to show some signs of that fading upward momentum.

The USDX has managed to get a nice bounce away from strong chart support near the 80 level. The New Home sales number seems  to have made some Dollar bears nervous.

Try not to draw too much from any one day's worth of price action. Remaining flexible and not dogmatic is wise during this zany period.

A Wee Bit of Commodity Weakness

Finally - a sign that some of the commodity markets have seen a brief respite from the recent buying orgy that has dominated the sector for this month. As said in a previous post - so much for the famed February Break this year. Either we missed it or maybe it is going to be renamed the March Break. Then again, maybe it will not come at all this year. As long as the US Dollar continues to lose friends, and some investors are feeling uneasy about the very high level of the US equity markets, commodities are attracting some diversification money flows.

Coffee backed off a bit today as did sugar. Unleaded gasoline is about 6 cents off its recent high. The most active natural gas contract has lost $1.70 from its best level. Cotton puked today and copper continues to slide. Silver could not hold above $22.00 but gold is still getting a bid, especially after the US consumer confidence numbers suggested that sentiment among this all important group faded somewhat. That lousy number led to pretty good buying in the bond market today, especially on the long end with the result that interest rates fell some more. The yield on the Ten Year is now near 2.70%. It was over 3% to start this year.

Take a look at the GSCI ( Goldman Sachs Commodity Index). It is having a bit of trouble moving higher after hitting some fairly hefty overhead resistance noted by the shaded rectangle. One of the indicators is showing some signs of rolling over. My own view is that the overall sector has come too far, too fast, given the very tepid rate of growth across the overall global economy but as I have told others many times before, my opinion, as well as that of any other pundit, is inconsequential as far as the charts are concerned. Right now they are merely showing a pause in the move higher but have not yet indicated a sector-wide turn lower.

Never mind though, that is not going to stop the "gold is always manipulated all the time" crowd from their usual drivel about nefarious forces capping gold once again and preventing it from soaring higher. Sorry - but the older I get the more I cannot seem to resist attacking this nonsense. After a while it is so superficial, so droll, so predictable as to be utterly disdainful.

Look, no market ever goes straight up without a pause at some point. As to when that is going to occur and at what level, we can attempt to locate such potential reversal or pause points by studying the price charts. But merely because a market pauses, does not mean it is under attack. It takes time for buyers of the physical product that underlies the commodity futures market to become accustomed to the new and higher price level. Sometimes those buyers will pull back refusing to chase the price higher if they believe they can buy it lower at some point in the future. Sometimes those same buyers might happen to panic and chase price higher. Sometimes specs are piling in driving prices higher and higher not so much because of strong buying but rather because of a lack of willing sellers at the lower price levels. They can push prices higher because they have no resistance to their buying so they are going to keep pressing until they do get some resistance. When the price moves high enough, those formerly reluctant sellers will begin to let go some of the product that they are holding. It all is just part of the price discovery process.

Some more thoughts on gold however -

As long as US interest rates are not rising and investors/traders are of the opinion that the Yellen-led Fed is not going to hike interest rates anytime soon, the Dollar is going to have some trouble and that means gold should continue to see rather good support on dips in price. The big key will be any economic data that comes out on the strong side - that will put a firm bid back into the Dollar almost immediately and should pressure gold so anyone trading this stuff will need to pay close attention to nearly every single important economic data release.

I am going to be especially interested in watching the payrolls data once the weather disruption issues go away and we can get a better glimpse into the reality of what is taking place. I suspect that the Obamacare issue is going to continue to be a lead anchor on the jobs market and that Yellen and her crew are going to have to avoid putting a heavy-foot on the liquidity hose at the risk of crimping what little growth there already is.

The thing about this however is that there remains two ways of looking at the same glass. If the economy is that sluggish and growth is languishing to that extent, then why would we expect commodity prices to surge in that kind of slow growth environment? After all, that is what have essentially had for some time now and until just recently, commodities have been essentially moving lower.

The flip side is that this same sluggish growth means near zero interest rates for an extended period and that means a Dollar that should have trouble finding a lot of friends. That of course feeds into the carry trade in which the weak Dollar spurs all manner of tangible asset buying by assorted hedge funds and index funds, which exist to provide investors some broad exposure to the overall commodity sector.

Thus one can make a bull case or a bear case for commodities, merely based on how they want to view the same glass.

I personally find it difficult to grasp the bullish case for the overall sector.
That does not mean I am not bullish some sectors or particular commodities within the sector. It does mean however that I am leaning more towards the deflationary aspect at this time unless I see some sort of economic data that tells me that growth is actually really picking up and more importantly that hirings are increasing. After all, if $4trillion + of QE has not managed to turn around growth or generate any serious sustained inflationary pressures in tangible assets, why would another dose do the trick?

IN the meantime, some of these commodity markets are actually moving as they respond to weather or other factors that impact their particular and unique supply/demand scenario. Coffee for example has soared higher on drought fears in Brazil during a crucial growing period. Natural gas had recently been going parabolic due to an extreme weather event known as the Polar Vortex, which has brought an unusually prolonger and bitterly cold spell to nearly the entire Eastern half of the country. Weather events generally get factored into price in a relatively short period of time however and unless the forecasts continue to be the same, once the weather has been factored in, there is not much left after that to support the higher prices for much longer unless the weather pattern remains around longer than originally expected.

In the meantime, try not to lose your sanity over the price action across many of these various markets. computers are doing what computers will do.

Commodities Continue Soaring... Gold and Silver following

If you want to see some absolutely amazing charts for the sheer ferociousness of a combination of short squeezes and fresh longs, look at the following...

Here is Coffee:

Here is Sugar:

Here is the Soybeans Chart:

Here is Copper:

Hey, what gives?

Sugar and Coffee have been driven higher with the recent dry, hot spell in those growing regions of Brazil; however, what really kicked them higher has been the massive number of speculative short positions that are being forced out by the buying that has moved across the entirety of the commodity sector. Beans are being carried higher by some of that same weather talk from Brazil but I think that is more of a knee-jerk reaction as they are grown in a different region. Tight old crop ending stocks are what is kicking that market higher.

Of course crude oil remains strong as does cotton, cattle and hogs.

What I find very odd however is the copper chart. It has managed a bit of a bounce off its recent lows but on a day like today, when there is a orgy of buying ( and that is the best word I can use to describe this sort of bizarre buying ) copper is actually moving lower. Lingering Chinese fears continue to undercut copper even in the face of a soaring US equity market. This chart bears very close monitoring as copper has a very solid record for its overall predictive ability in regards to global economic growth or the lack thereof.

The rate at which some of these markets is rising is simply too steep to be maintained for much longer. Would be buyers in some of these rocket shot moves, be careful....

Commitment of Traders Info

A bit of information...I mentioned a while back (when gold was trading closer to $1200 and the "gold is always manipulated all the time" crowd was crying up their usual blues,) that the reason gold was lower was not because it was being manipulated but rather because speculators were generally shunning commodities in general in favor of high flying equities.

Take a look at the following two charts to illustrate the absurdity of those claims that gold was only lower because it was being manipulated.

Notice that from the peak in outright long positions in gold in October 2012, the TREND in hedge fund long positions was steadily lower until it reached an ultimate low in December 2013. Since that time the number of hedge fund long positions has been increasing while the number of hedge fund shorts has been steadily declining. And what has gold been doing since then...? Answer, why it has been moving higher just like one would expect it to do when the specs are coming back into the market.

Keep this in mind - specs drive our modern markets - when they are buying, prices rise. When they are selling, prices fall. Specs have had no reason to buy gold until apparently the start of this year but more so apparently since the start of this month of February. It has nothing to do with backwardation claptrap, lease rates, JP Morgan, and all the usual BS that so regularly pollutes the web in the gold bug community.

For some reason, commodities in general have been soaring recently. Shorts are getting obliterated across the entire sector with a vengeance. You name it - coffee, sugar, hogs, soybeans, wheat, corn, silver and of course gold. Frankly I am unclear as to what the main driver is for this sudden interest in the commodity sector. I have heard the usual chatter than equities are overvalued and commodities are undervalued, and there is some truth in that, but it seems to me that the weakness in the Dollar of late ( due to the weakness in the recent economic US data) has apparently caused a mass move back into the sector as part of another carry trade.

How far this could go or how long it could last is unclear. Frankly I have no idea what happened to the usual "February Break" but for now the charts in the sector have turned bullish. I have my own doubts that any of this is sustainable but will not argue with those same charts until they show some evidence that the mad buying binge has run its course.

One thing I can tell you, in some of the commodity markets that I monitor, the shorts or the bears if you prefer, have been obliterated. The fact that this has happened in almost every single commodity market makes me suspect that this general rally encompassing the sector is not going to last. A large amount of short covering has been taking place in tandem and that lets me know it is more of a macro trade that is indiscriminate in its buying.

In the meantime, traders, respect the technicals but remain vigilant for signs that this binge buying is fizzling out.

Hawkish Fed Derails Gold Rally

Not that it was "new" news but the FOMC minutes set the tone for gold ( and equities) for the rest of the session once they were released. The consensus seems to be a more upbeat view of the economy by the majority of the FOMC members. Keep in mind that this merry group does not exactly have a sterling track record of which to boast!

Either way, the hawkishness lent some support to the US Dollar and pressured gold as a result. Interest rates bumped a bit higher and once again we were back to gold having to compete with higher US interest rates.

I still have my doubts about the strength of the US economy but I suppose we will get a better sense of how things stand in reality after we get through this round of frigid weather and get back to more seasonal norms. Maybe then we can see what retail sales really look like, what housing really looks like and what the trend in the jobs picture really looks like.

If the market starts to believe that the US economy is faltering, interest rates will move lower, the Dollar will move lower and gold should get some further support. If the contrary is the case and the US Dollar bounces away from chart support near the 80 level basis USDX, look for gold to move lower.

Two noteworthy developments today on the heels of that FOMC statement - the mining shares led the bullion price lower with the HUI moving down and, more importantly, there was a rather large dishoarding of gold out of the ETF, GLD - about 5.5 tons to be exact. This brings the total holdings reported to 795.61 tons which incidentally is now BELOW THE STARTING LEVEL of 798.22 tons for the year.

It was just last week that the usual gold hucksters were out heralding the "surge" in gold holdings in GLD as evidence that the bull train was fast leaving the station. Yes, the technical chart posture of gold has improved tremendously, of this there can be no doubt for any unbiased observer. To see GLD give up this much gold so quickly however tells me that bulls are scared to death of any further bond buying reductions by the Fed. There was even chatter today about the Fed actually raising short term interest rates sooner than expected. I personally find that hard to believe but nonetheless, the market did not and thus gold was jettisoned out of interest rate fears.

Gold throws off no yield as any gains must come from price appreciation. Investors looking for yield will often look first at interest bearing Treasuries rather than a non-interest bearing asset, IF THEY ARE NOT FEARFUL OF INFLATION ERODING THOSE GAINS. If inflation becomes a concern, then real rates become important to the gold price.

Here is a chart of the ETF, GLD for your reference. Not exactly awe-inspiring as of yet is it?

Gold, from a technical standpoint, is riding the 200 day moving average. It strongly cleared this level last week and has been backing down this week. Thus far it remains above the moving average, which is friendly. The ADX is continuing to rise indicating that the uptrend is still intact.

We will have to wait to see at what level dip buyers, should they come back in right away, surface. I cannot help but think that today's price weakness is going to give Asian buyers some reason for pause. After all, the metal has risen, practically non-stop since the beginning of February. At some point, price sensitive Asian buyers are going to back away from the market and see if the price will move lower.


Psychological support should come in near the $1300 level. Below that is better support emerging first near $1280 and extending down towards $1270. Resistance is first at today's high near $1330.

Several commodity markets screamed higher today, most notably coffee, which suddenly is the darling of the commodity complex after being the ugly stepsister for a long, long time. Corn also showed some life today and wheat continues pressing further away from the $6.00 level.

Speaking of the $6.00 level, natural gas blew through it like a hot knife through butter. The genius forecasters changed the weather forecast again, this time putting another shot of frigid air into the longer term forecast. The words, "polar vortex" are fast becoming the natural gas equivalent of the grain market's " high pressure ridge". Mention it and traders become raving lunatics devouring their children and anything else that happens to stand between them and the buy button.

I will be watching the Euro to see what it does with the 1.38 level. Gold has essentially been following its movements almost exactly this entire month.