Friday, September 30, 2011
Thursday, September 29, 2011
Gold market has calmed down a bit
It is still volatile but compared to the wicked roller coaster rides of recent days, it seems a bit calmer. Physical buying under $1600 has been very strong which is serving to shore up support on the chart. Still, there is not enough "umph" to take it convincingly through the $1680 level, a level which must be cleared to let this thing retest $1700.
Downside support near $1580 needs to continue to hold to keep it from dropping back towards $1550. So far the spike low seems to be safe.
The mining shares are still struggling to get anything going to the upside. The S&P has faded from its earlier gains and moved into negative territory as I wriet this. That has taken most of the wind out of the HUI.
Downside support near $1580 needs to continue to hold to keep it from dropping back towards $1550. So far the spike low seems to be safe.
The mining shares are still struggling to get anything going to the upside. The S&P has faded from its earlier gains and moved into negative territory as I wriet this. That has taken most of the wind out of the HUI.
Tuesday, September 27, 2011
Gold Chart and comments
I am basically reposting the 4 hour chart that I sent up yesterday as it has been a good guide for locating resistance levels and support levels. I noted yesterday that gold would run into selling near the $1680 level, the location of the former gap and go region. That is where it ran in today's session before the sellers showed up.
A probable bottom has been put in down near $1535 based on today's followthrough buying but there remains a fair amount of technical damage that will require repairing before anyone can start talking about a new leg higher.
I do like the action however as it bodes well for a period of sideways consolidative trade, which is just what the doctor would want to order for this "disorderly market".
On the downside, it will likely retest $1640 for starters to see whether or not it can entice any bulls at that level. Failure there should let it move down towards $1620 - $1615 and then $1600.
On the topside, we need to clear $1680 and hold above that level to set up a push back into psychological resistance at $1700. Above that is $1710 - $1715.
Some could argue that a potential bearish flag formation can be seen on the chart but I think the rebound off the low was too strong for a flag. Perhaps their reasoning would be more solid if the market could not get back over $1600 but it did moving over $120 off the recent low.
Not only that, we are getting a very good washout of speculative money, both in gold and in silver. Quite frankly I wonder where we would get the downside firepower to take price down below $1550 once again on strong enough volume to constitute a fresh, legitimate leg lower. It would take a rather sizeable exodus of hedge fund money not only out of long side positions, but also into establishing fresh short positions.
Not that those guys care a whit about fundamentals, but given the current interest rate environment and the pumping of further liquidity into the system, that seems to be a rather remote possibility.
By the way, to a totally disinterested observer, the modern hedge fund community must no doubt resemble those who have some sort of pathological disturbances in their brains. The mood shifts and swings are downright manic. Sunday evening the world as we know it was coming to an end. Today the only fear is being left behind as the bull train leaves the station without being on board. Are these guys pitiful or what?
What is especially distressing is the fact that we have an entire generation of investors who seem to have absolute faith and confidence in the power of Central Bankers to create prosperity by conjuring liquidity into existence. I am not exaggerating when I say that historians will liken our generation to those of the Medieval period who spent countless hours and resources studying alchemy while attempting to turn lead into gold.
When all is said and done, what the hell is the difference between us and them? Both feats are impossible yet that has absolutely no inhibiting effects whatsoever. Pity the generations that came before us - if they only realized how easy it was to build a strong economy with such little effort....
Country Western buffs will no doubt remember Mel Tillis, the stuttering talker (we used to call him, M,M,M, Mel Tillis) who totally lost that impediment while singing. He had a song out that became a classic:
"Stomp, stomp them grapes
and make that wine,
put it in a bottle boys
and ship it on down the line".
http://www.tropicalglen.com/Country/Jukebox/1974/YR-1974.html
This could be the new song for the Western Central Bankers. They used to be the ones who took away the punch bowls from the party. Not any more... They are the bartenders in chief.
A probable bottom has been put in down near $1535 based on today's followthrough buying but there remains a fair amount of technical damage that will require repairing before anyone can start talking about a new leg higher.
I do like the action however as it bodes well for a period of sideways consolidative trade, which is just what the doctor would want to order for this "disorderly market".
On the downside, it will likely retest $1640 for starters to see whether or not it can entice any bulls at that level. Failure there should let it move down towards $1620 - $1615 and then $1600.
On the topside, we need to clear $1680 and hold above that level to set up a push back into psychological resistance at $1700. Above that is $1710 - $1715.
Some could argue that a potential bearish flag formation can be seen on the chart but I think the rebound off the low was too strong for a flag. Perhaps their reasoning would be more solid if the market could not get back over $1600 but it did moving over $120 off the recent low.
Not only that, we are getting a very good washout of speculative money, both in gold and in silver. Quite frankly I wonder where we would get the downside firepower to take price down below $1550 once again on strong enough volume to constitute a fresh, legitimate leg lower. It would take a rather sizeable exodus of hedge fund money not only out of long side positions, but also into establishing fresh short positions.
Not that those guys care a whit about fundamentals, but given the current interest rate environment and the pumping of further liquidity into the system, that seems to be a rather remote possibility.
By the way, to a totally disinterested observer, the modern hedge fund community must no doubt resemble those who have some sort of pathological disturbances in their brains. The mood shifts and swings are downright manic. Sunday evening the world as we know it was coming to an end. Today the only fear is being left behind as the bull train leaves the station without being on board. Are these guys pitiful or what?
What is especially distressing is the fact that we have an entire generation of investors who seem to have absolute faith and confidence in the power of Central Bankers to create prosperity by conjuring liquidity into existence. I am not exaggerating when I say that historians will liken our generation to those of the Medieval period who spent countless hours and resources studying alchemy while attempting to turn lead into gold.
When all is said and done, what the hell is the difference between us and them? Both feats are impossible yet that has absolutely no inhibiting effects whatsoever. Pity the generations that came before us - if they only realized how easy it was to build a strong economy with such little effort....
Country Western buffs will no doubt remember Mel Tillis, the stuttering talker (we used to call him, M,M,M, Mel Tillis) who totally lost that impediment while singing. He had a song out that became a classic:
"Stomp, stomp them grapes
and make that wine,
put it in a bottle boys
and ship it on down the line".
http://www.tropicalglen.com/Country/Jukebox/1974/YR-1974.html
This could be the new song for the Western Central Bankers. They used to be the ones who took away the punch bowls from the party. Not any more... They are the bartenders in chief.
Monday, September 26, 2011
Gold charts and some comments
Gold breached the downside of the downtrending price channel that had been containing price action for the better part of the month of September last week. Overnight it was hit especially hard as a wave of selling across the entire commodity sector flared up as traders ran away from anything remotely resembling risk trades. That selling sent gold down nearly $100 at one point. The volume of trade was especially heavy for those particular hours. However, the selling exhausted itself as some larger buyers swooped in (very possibly Asian Central Banks) and scooped up the metal that was being discarded by the hedge fund algorithms. The recovery basically brought the market back up to its closing level from last Friday creating a potential spike bottom on the chart.
I am looking for and indeed would prefer to see, some sort of stability in the price. The last thing this market needs is another $100- $150 push higher right away. That might actually spook some of the would-be end users.
A come down in volatility with perhaps a smaller daily trading range is exactly what it needs to inspire some confidence on the part of the many end users who are wanting to stock up before the festival seasons. Extreme volatility can spook those guys and leave them on the sidelines. They will want to see that prices have indeed moved into a level that is going to hold and then they will feel more comfortable making larger purchases.
If you note the first blue level of resistance drawn in on the chart that comes in just shy of the $1640 level. Gold will need to push through this level and stay above it to give the bears a bit of unease who have been very confident of late. If the bulls can take this hill, then they have a legitimate shot at seeing price run back up towards $1680, which was a level commensurate with a former "gap and go" on the daily price chart. That level should bring in some selling and could stall any upward motion barring any fresh fundamental news.
I am looking for and indeed would prefer to see, some sort of stability in the price. The last thing this market needs is another $100- $150 push higher right away. That might actually spook some of the would-be end users.
A come down in volatility with perhaps a smaller daily trading range is exactly what it needs to inspire some confidence on the part of the many end users who are wanting to stock up before the festival seasons. Extreme volatility can spook those guys and leave them on the sidelines. They will want to see that prices have indeed moved into a level that is going to hold and then they will feel more comfortable making larger purchases.
The other possibility that we will watch for is for another leg back down lower again, only this time on decreasing volume which would indicate a loss of appetite on the part of the bears to sell aggressively at these lower levels.
One does reach a point in these hedge fund driven markets where price overshoots both the upside and to the downside making the risk/reward of a given trade not particularly attractive. In this recent case, how much more downside risk do you think gold has compared to upside risk when price is down below $1550? If we were moving into a rising or higher interest rate environment, that would be one thing but we are going to remain mired in an ultra-low interest rate environment for the foreseeable future; one that I might add is highly conducive to owning gold since opportunity cost is lowered to hold the metal in that sort of environment. Besides, any solution being offered by the West to shore up its tottering economies is going to certainly contain measures designed to increase liquidity (debauch the currency by money creation). In that environment, gold's risk will always be more to the upside than to the downside, again, especially after it has been battered down so severely.
Market Volatility
My initial thoughts on this insanity is that we went from total despair overnight to downright euphoria in about 12 hours time. At this rate of mood swinging, those with bi-polar disorder are going to be looking downright tranquil and serene.
Another thought - all those brand new shorts who loved to chase momentum and sell prices lower just had their entire NEW and REVISED MARGIN requirements to trade silver wiped out. The move from near $26 to near $31 amounts to just a tad less than $25,000 per single contract. The new margin requirement will be raised at the end of today's session to $24,975.
At this rate, they will need to hike margin requirements to $35,000 for single futures contract.
One last thought - I think I waited too damn long to fill up my gas tank today. I should have done that overnight....
Another thought - all those brand new shorts who loved to chase momentum and sell prices lower just had their entire NEW and REVISED MARGIN requirements to trade silver wiped out. The move from near $26 to near $31 amounts to just a tad less than $25,000 per single contract. The new margin requirement will be raised at the end of today's session to $24,975.
At this rate, they will need to hike margin requirements to $35,000 for single futures contract.
One last thought - I think I waited too damn long to fill up my gas tank today. I should have done that overnight....
Copper Bottoming?
Copper often seems to function as a type of bellwether for the entire commodity sector. As fears of a global economic slowdown have intensified, copper prices have been hammered lower. Chinese buying just below the $4.00 level had kept the market supported but once that evaporated, there was a general dearth of buying. That allowed the bears to press the price into downside sell stops which have then fed on themselves.
However, there are some preliminary signs that the bleeding in copper might be coming to an end. The red metal seems to have found support just above the $3.00 level; a level closely corresponding to horizontal chart support and just a tad above the technically significant 50% Fibonacci retracement level of the rally off the 2008 low and the peak early this year.
The chart damage has been severe however so it is going to take further work to repair both the technical picture and the mental state of some of the badly bruised bulls. The spike off of support is a first step but we will need to see some confirmation for the remainder of this week.
If this is the case and copper has bottomed, it will serve to stop the rampant selling in the silver market. Some of that might be showing up today as silver has put in a massive spike off the $26 level.
However, there are some preliminary signs that the bleeding in copper might be coming to an end. The red metal seems to have found support just above the $3.00 level; a level closely corresponding to horizontal chart support and just a tad above the technically significant 50% Fibonacci retracement level of the rally off the 2008 low and the peak early this year.
The chart damage has been severe however so it is going to take further work to repair both the technical picture and the mental state of some of the badly bruised bulls. The spike off of support is a first step but we will need to see some confirmation for the remainder of this week.
If this is the case and copper has bottomed, it will serve to stop the rampant selling in the silver market. Some of that might be showing up today as silver has put in a massive spike off the $26 level.
Sunday, September 25, 2011
Gold coming under selling pressure in very early European trading
Gold opened in Asian trade on a relatively firm note as buyers came in to take advantage of the break in prices. That buying eventually gave way to sellers looking for a bounce to exit from longs. As price dropped down to Friday's closing level (commensurate with the 100 day moving average), longs who had been bottom picking stepped aside removing any support from the market. That allowed the shorts to press it into stops below Friday's low which dropped the metal rapidly into the band of chart support near the $1600 level.
Upon its initial test of this level, it did bounce somewhat but renewed selling then took it back lower and violated this key psychological level.
Should it fail to recapture $1600, the next stop is near the $1580 level. Should that give way, it looks most likely to drop back into the band of congestion on the charts that held the price from late April of this year through the breakout that came in July. Should this occur, the entirety of the leg higher from July will have been erased. The top of that band was centered near $1550 while the bottom of the band was near the $1480 level.
That is rather fascinating to observe considering the fact that the monetary authorities' solution to the woes confronting the European economy and the US economy is further currency debauchment. Some of this is no doubt due to the fact that traders on the losing side (currently the longs) are going to be dealing with increased margins to hold these losing positions come the close of trading Monday (tomorrow) afternoon.
What we are experiencing is very similar to the events of the summer of 2008 when traders began fearing a deflationary outbreak which led to widespread commodity selling as carry trades were unwound. What is different right now is that the US equity markets are not imploding lower ( I suspect we are seeing official sector intervention occuring in there with the Exchange Stabilization Fund very active - whether they can hold it is unclear).
While monetary officials are no doubt quite pleased to see the commodity sector getting pummelled by hedge fund selling, it is going to be very difficult for that sector to continue its freefall without a spillover effect on the equity sector. What's good for the goose is good for the gander. If the global economy is slowing to this extreme to justify the severity of the sell off taking place in commodities, then stocks are overvalued and ripe for a breach of important chart support levels as well. Either the commodity sector will find value based buying very soon or the US stock markets are going to experience a free fall in price.
One further note for those who like to do historical comparisons. The plunge in 2008 took gold down from its peak by approximately 30% before it bottomed out and began its next leg higher. If that same plunge were to occur this time around, the price could drop as low as $1345 or so by comparison. Gold ended last year at $1422 on the front month Comex gold contract so such a plunge would take the metal negative for the year. Those who are buying the physical metal are being given one helluva gift. Scale in buying can take advantage of this setback in price but this is for buyers of physical only. LEveraged futures guys have got to be careful not to let these hedge funds trample you to death in their mindless rush to the exit. Wait for some signs of a bottom before moving in on the long side unless you have extremely deep pockets.
Upon its initial test of this level, it did bounce somewhat but renewed selling then took it back lower and violated this key psychological level.
Should it fail to recapture $1600, the next stop is near the $1580 level. Should that give way, it looks most likely to drop back into the band of congestion on the charts that held the price from late April of this year through the breakout that came in July. Should this occur, the entirety of the leg higher from July will have been erased. The top of that band was centered near $1550 while the bottom of the band was near the $1480 level.
That is rather fascinating to observe considering the fact that the monetary authorities' solution to the woes confronting the European economy and the US economy is further currency debauchment. Some of this is no doubt due to the fact that traders on the losing side (currently the longs) are going to be dealing with increased margins to hold these losing positions come the close of trading Monday (tomorrow) afternoon.
What we are experiencing is very similar to the events of the summer of 2008 when traders began fearing a deflationary outbreak which led to widespread commodity selling as carry trades were unwound. What is different right now is that the US equity markets are not imploding lower ( I suspect we are seeing official sector intervention occuring in there with the Exchange Stabilization Fund very active - whether they can hold it is unclear).
While monetary officials are no doubt quite pleased to see the commodity sector getting pummelled by hedge fund selling, it is going to be very difficult for that sector to continue its freefall without a spillover effect on the equity sector. What's good for the goose is good for the gander. If the global economy is slowing to this extreme to justify the severity of the sell off taking place in commodities, then stocks are overvalued and ripe for a breach of important chart support levels as well. Either the commodity sector will find value based buying very soon or the US stock markets are going to experience a free fall in price.
One further note for those who like to do historical comparisons. The plunge in 2008 took gold down from its peak by approximately 30% before it bottomed out and began its next leg higher. If that same plunge were to occur this time around, the price could drop as low as $1345 or so by comparison. Gold ended last year at $1422 on the front month Comex gold contract so such a plunge would take the metal negative for the year. Those who are buying the physical metal are being given one helluva gift. Scale in buying can take advantage of this setback in price but this is for buyers of physical only. LEveraged futures guys have got to be careful not to let these hedge funds trample you to death in their mindless rush to the exit. Wait for some signs of a bottom before moving in on the long side unless you have extremely deep pockets.
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