Please click on the following link to listen in to my regular weekly interview with Eric King over at King World News Markets and Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/13_KWN_Weekly_Metals_Wrap.html
Saturday, July 13, 2013
Friday, July 12, 2013
Unleaded Gasoline on the Move
I have been watching developments in the crude oil and unleaded gasoline markets with a great deal of interest. This week's numbers from the EIA and other private sources shocked the market due to the extent of the drop in crude at Cushing and sent both markets on a tear higher. Crude is now trading close to $106/bbl as I write this and unleaded gasoline has pushed above the $3.10 mark (remember - that is a wholesale price not the pump price).
Frankly I do not see the US economy as strong enough to support either crude or unleaded gasoline at current prices but right now hedge funds are driving these markets higher and the momentum is strong to the upside. There certainly is no shortage of WTI from what I can see but a goodly portion of it appears to be leaving the US via exports to the EU and elsewhere.
One has to wonder however at one point the spike in gasoline prices at the pump is going to hit Mr. and Mrs. Consumer right between the eyes. You can make a case for rising energy prices being inflationary but you can also make a case for them being deflationary.
In the former case, energy costs are a major input in manufacturing of all kinds not to mention shipping/transportation costs of goods that need to move to market. Think also airlines, railroads, etc. Unless companies are willing to eat the higher costs, they have to raise prices to shore up profit margins.
In the latter case, consumers are not exactly awash with surplus income right now thanks mainly to the moribund labor markets and flat wages. If a larger chunk of their disposable income goes toward transportation expenses ( it is also summer vacation time), that results in them having less to spend at the local Wal-Mart.
I do think that if crude somehow manages to push past $110 (basis WTI) and especially if it climbs through $115, we are going to see some market impacts elsewhere. Let's keep a close eye on this.
By the way, those of you working the grains markets might have noticed the sharp selloff in the beans today. Yesterday's forecast changed and that, in combination with the bearish USDA reports yesterday, finally caught up with the corn and the beans. That might be the silver lining for consumers to help enable them to cope better with rising gasoline prices. If food prices begin to drop, it will take some of the pressure off their checkbooks.
Lots of variables to consider - one thing however is extremely important - gold, and especially silver, need an inflationary psyche to thrive. Right now we have energy up and food moving down. One is tending to cancel the other out. What we have to watch is to see whether or not the two groups will move in sync at some point.
Physical market tightness helps keep a floor of support under gold but it takes a genuine shift in sentiment towards one of inflation to make the yellow metal run. Until the gold shares can put in a better performance than they heretofore have managed to accomplish, I look for rallies in gold to be sold. Bulls are going to have to PROVE that they are determined to drive prices higher before the strong-handed shorts are going to panic.
Frankly I do not see the US economy as strong enough to support either crude or unleaded gasoline at current prices but right now hedge funds are driving these markets higher and the momentum is strong to the upside. There certainly is no shortage of WTI from what I can see but a goodly portion of it appears to be leaving the US via exports to the EU and elsewhere.
One has to wonder however at one point the spike in gasoline prices at the pump is going to hit Mr. and Mrs. Consumer right between the eyes. You can make a case for rising energy prices being inflationary but you can also make a case for them being deflationary.
In the former case, energy costs are a major input in manufacturing of all kinds not to mention shipping/transportation costs of goods that need to move to market. Think also airlines, railroads, etc. Unless companies are willing to eat the higher costs, they have to raise prices to shore up profit margins.
In the latter case, consumers are not exactly awash with surplus income right now thanks mainly to the moribund labor markets and flat wages. If a larger chunk of their disposable income goes toward transportation expenses ( it is also summer vacation time), that results in them having less to spend at the local Wal-Mart.
I do think that if crude somehow manages to push past $110 (basis WTI) and especially if it climbs through $115, we are going to see some market impacts elsewhere. Let's keep a close eye on this.
By the way, those of you working the grains markets might have noticed the sharp selloff in the beans today. Yesterday's forecast changed and that, in combination with the bearish USDA reports yesterday, finally caught up with the corn and the beans. That might be the silver lining for consumers to help enable them to cope better with rising gasoline prices. If food prices begin to drop, it will take some of the pressure off their checkbooks.
Lots of variables to consider - one thing however is extremely important - gold, and especially silver, need an inflationary psyche to thrive. Right now we have energy up and food moving down. One is tending to cancel the other out. What we have to watch is to see whether or not the two groups will move in sync at some point.
Physical market tightness helps keep a floor of support under gold but it takes a genuine shift in sentiment towards one of inflation to make the yellow metal run. Until the gold shares can put in a better performance than they heretofore have managed to accomplish, I look for rallies in gold to be sold. Bulls are going to have to PROVE that they are determined to drive prices higher before the strong-handed shorts are going to panic.
Thursday, July 11, 2013
Rick Santelli echoing my Sentiments
If you would like to watch Rick Santelli at his best, check out this segment of his show on CNBC where he describes exactly how he feels about this idiocy with the "Taper Caper".
I can tell you as a long time professional trader, that he is exactly dead on target. Once upon a time, those of us who make our living in the market and not off the market, attempted to master the fundamentals of those markets in which we traded. We prided ourselves on our understanding of the factors determining supply and demand, seasonal trends and tendencies, value pricing, etc. I can say that more often than not, it seems as if none of that matters at all. All that does matter is whether or not Uncle Ben will keep the money spigots wide open or close them off.
Trading used to be a business which required hard work, long hours of meticulous research and devotion to ones craft if one was to be successful. Not any more! Now all that is required is ferreting out the inner workings of Mr. Bernanke's mind and determining whether or not he is in a generous mood when it comes to supplying punch to the multitude of bowls laid out in front of him on Wall Street.
I can only say that if this is what the greatest nation on the face of the earth's financial market system has been reduced to, kiss us goodbye, because we are going the way of ancient Rome faster than I had even contemplated.
Enjoy Rick's rant! It is a classic....
http://video.cnbc.com/gallery/?video=3000182232&play=1
I can tell you as a long time professional trader, that he is exactly dead on target. Once upon a time, those of us who make our living in the market and not off the market, attempted to master the fundamentals of those markets in which we traded. We prided ourselves on our understanding of the factors determining supply and demand, seasonal trends and tendencies, value pricing, etc. I can say that more often than not, it seems as if none of that matters at all. All that does matter is whether or not Uncle Ben will keep the money spigots wide open or close them off.
Trading used to be a business which required hard work, long hours of meticulous research and devotion to ones craft if one was to be successful. Not any more! Now all that is required is ferreting out the inner workings of Mr. Bernanke's mind and determining whether or not he is in a generous mood when it comes to supplying punch to the multitude of bowls laid out in front of him on Wall Street.
I can only say that if this is what the greatest nation on the face of the earth's financial market system has been reduced to, kiss us goodbye, because we are going the way of ancient Rome faster than I had even contemplated.
Enjoy Rick's rant! It is a classic....
http://video.cnbc.com/gallery/?video=3000182232&play=1
HUI Chart Improving but more Work Needed
The rally in gold is finally pulling the lackluster mining shares higher and while it has somewhat improved the technical chart posture of the complex as a whole, work remains to be done to cement a bottom or at the very least, spook some of the bears who have been extremely complacent.
I have noted a significant chart gap that the index has of yet been unable to close. For this chart to turn friendlier, bulls must at least push into the gap, preferably closing it completely and holding the index through it. Should that occur, we will begin to see some more sizeable short covering in the complex.
The key question potential buyers of the miners are asking is whether or not the rally in the metal will continue or stall out below $1300. There is a line of thinking that the sell off in the Dollar is only due to money flows reversing as many traders were completely caught off guard by Mr. Bernanke's almost bizarre reversal on the duration of the QE program yesterday afternoon in his comments. (Count yours truly in that crowd).
That being said, many look for interest rates to rise FIRST in the US before elsewhere around the globe meaning that the sell off in the Dollar, though quite deep, may only be temporary before buyers return and begin bidding it up again. Upcoming economic data will be critical in this regards.
So far the Euro remains well bid against the greenback but most would agree that the state of the overall European economy is decidedly weaker than that of the US (which isn't saying much now is it?). If the Euro were to clear 1.34, we would have to re-evaluate that but as of now, it has already retreated one full point off its best level against the Dollar. Let's see how it closes the week out tomorrow and whether or not the trade reversals are pretty much done by now or will continue some into the close of trading Friday. If the Dollar begins to start working higher again, gold could come under some selling pressure.
I have noted a significant chart gap that the index has of yet been unable to close. For this chart to turn friendlier, bulls must at least push into the gap, preferably closing it completely and holding the index through it. Should that occur, we will begin to see some more sizeable short covering in the complex.
The key question potential buyers of the miners are asking is whether or not the rally in the metal will continue or stall out below $1300. There is a line of thinking that the sell off in the Dollar is only due to money flows reversing as many traders were completely caught off guard by Mr. Bernanke's almost bizarre reversal on the duration of the QE program yesterday afternoon in his comments. (Count yours truly in that crowd).
That being said, many look for interest rates to rise FIRST in the US before elsewhere around the globe meaning that the sell off in the Dollar, though quite deep, may only be temporary before buyers return and begin bidding it up again. Upcoming economic data will be critical in this regards.
So far the Euro remains well bid against the greenback but most would agree that the state of the overall European economy is decidedly weaker than that of the US (which isn't saying much now is it?). If the Euro were to clear 1.34, we would have to re-evaluate that but as of now, it has already retreated one full point off its best level against the Dollar. Let's see how it closes the week out tomorrow and whether or not the trade reversals are pretty much done by now or will continue some into the close of trading Friday. If the Dollar begins to start working higher again, gold could come under some selling pressure.
Wednesday, July 10, 2013
"TO QE or not to QE, that is the Question"
And the answer is....
Even though I have become accustomed to this madness since the Fed first started its QE programs back in late 2008, I still marvel in wonder at the reaction of the investment/trading world to the words that proceed out of the mouth of a mere mortal, who puts his underwear and socks on just like the rest of us lesser beings.
The initial reaction of gold to the much anticipated FOMC minutes today was one of apparent confusion. It first spiked higher only to then fade and lose most of its gains after the minutes hit the wire. Trading seemed to reflect the confusion arising from what I can only term, "convoluted" remarks from the FOMC. On the one hand there were comments about tapering the program by the end of this year; on the other were the usual remarks about the dependency on economic data releases. Basically what the market got was a big, large batch of NOTHING. No one was the least bit clearer or the least bit more insightful into when the Fed would or would not begin to taper. The erratic trading was proof of that to me.
Wait a little while and PRESTO; out popped Uncle Ben and his Magic Money Machine and that was all she wrote: all hell broke loose in the currency markets, the bond markets and of course, the gold market.
What Bernanke did was to give probably one of the most dovish statements coming out of his mouth in some time. And what did the demi-god of finance declare to the mortals? "highly accommodative monetary policy will be needed for the foreseeable future".
And with that, gold was off to the races. As I stated in several private emails - all this chatter about backwardation and Gofo or Tofu or whatever didn't amount to a hill of beans. What mattered and more importantly, WHAT MOVED THE GOLD MARKET, were the words that came out of the Chairman's mouth. That is what scared the hell out of the Bears who had managed to successfully beat back the initial challenge to Resistance near the $1265 level when the FOMC minutes were released.
They were however, no match for the delicious probability of more funny money for the FORESEEABLE FUTURE.
My guess is that what has happened in the halls of the Fed was that the spike in interest rates on out along the long end of the yield curve had them terrified. Just today there was a story on CNBC about the impact of rising mortgage rates making it more difficult for prospective home buyers to qualify for properties that just a couple of months ago would not have been a problem.
What to do? Why send out Ben and sound like a DOVE and take care of those pesky bond vigilantes who had the audacity to actually attempt to run the bond market at cross purposes to their lawful masters.
Quite frankly I am unsure what to make of the bond market at this juncture. The long bond would have to clear 137 to convince me that the rise in interest rates has been anything other than temporarily halted. They are still a good way from that level last trading near 134`15 as I type this.
Back to gold - from a technical perspective, it finally cleared overhead resistance on the chart (see above) as the move occurred in relatively thin trading conditions allowing the market to experience only light selling pressure as stops were run. You can see that there are now two levels of chart resistance that need to fall for the metal to get a little more upside excitement. The first is near $1290 which is basically what has stopped this evening's progress. The second is psychological round number resistance at $1300. The latter will be a BIGGIE. If it goes, you will see some more sharp short covering and a good shot at $1350 and a solid end to the short term downtrend.
I want to see those recalcitrant mining shares have a good day tomorrow to give the bullish cause more conviction. It is difficult for me to envision them not doing so, as the US Dollar is now imploding on the Forex markets. The Euro is up over 2% as is the Swiss Franc. Even the sickly British Pound is up 1.5% and the Yen, why everyone is suddenly back in love with it. All this because of some words... amazing, absolutely amazing!
Equities of course are loving it - we will probably see the S&P take out its all time high as the party is back on with tapering fears no where to be found, at least for today.
More monetary crack cocaine for the markets - it was either that or watch the borrowing costs of the US government soar higher in the face of an already insurmountable national debt as lenders demanded higher interest rates to accept its IOU's.
Even though I have become accustomed to this madness since the Fed first started its QE programs back in late 2008, I still marvel in wonder at the reaction of the investment/trading world to the words that proceed out of the mouth of a mere mortal, who puts his underwear and socks on just like the rest of us lesser beings.
The initial reaction of gold to the much anticipated FOMC minutes today was one of apparent confusion. It first spiked higher only to then fade and lose most of its gains after the minutes hit the wire. Trading seemed to reflect the confusion arising from what I can only term, "convoluted" remarks from the FOMC. On the one hand there were comments about tapering the program by the end of this year; on the other were the usual remarks about the dependency on economic data releases. Basically what the market got was a big, large batch of NOTHING. No one was the least bit clearer or the least bit more insightful into when the Fed would or would not begin to taper. The erratic trading was proof of that to me.
Wait a little while and PRESTO; out popped Uncle Ben and his Magic Money Machine and that was all she wrote: all hell broke loose in the currency markets, the bond markets and of course, the gold market.
What Bernanke did was to give probably one of the most dovish statements coming out of his mouth in some time. And what did the demi-god of finance declare to the mortals? "highly accommodative monetary policy will be needed for the foreseeable future".
And with that, gold was off to the races. As I stated in several private emails - all this chatter about backwardation and Gofo or Tofu or whatever didn't amount to a hill of beans. What mattered and more importantly, WHAT MOVED THE GOLD MARKET, were the words that came out of the Chairman's mouth. That is what scared the hell out of the Bears who had managed to successfully beat back the initial challenge to Resistance near the $1265 level when the FOMC minutes were released.
They were however, no match for the delicious probability of more funny money for the FORESEEABLE FUTURE.
My guess is that what has happened in the halls of the Fed was that the spike in interest rates on out along the long end of the yield curve had them terrified. Just today there was a story on CNBC about the impact of rising mortgage rates making it more difficult for prospective home buyers to qualify for properties that just a couple of months ago would not have been a problem.
What to do? Why send out Ben and sound like a DOVE and take care of those pesky bond vigilantes who had the audacity to actually attempt to run the bond market at cross purposes to their lawful masters.
Quite frankly I am unsure what to make of the bond market at this juncture. The long bond would have to clear 137 to convince me that the rise in interest rates has been anything other than temporarily halted. They are still a good way from that level last trading near 134`15 as I type this.
Back to gold - from a technical perspective, it finally cleared overhead resistance on the chart (see above) as the move occurred in relatively thin trading conditions allowing the market to experience only light selling pressure as stops were run. You can see that there are now two levels of chart resistance that need to fall for the metal to get a little more upside excitement. The first is near $1290 which is basically what has stopped this evening's progress. The second is psychological round number resistance at $1300. The latter will be a BIGGIE. If it goes, you will see some more sharp short covering and a good shot at $1350 and a solid end to the short term downtrend.
I want to see those recalcitrant mining shares have a good day tomorrow to give the bullish cause more conviction. It is difficult for me to envision them not doing so, as the US Dollar is now imploding on the Forex markets. The Euro is up over 2% as is the Swiss Franc. Even the sickly British Pound is up 1.5% and the Yen, why everyone is suddenly back in love with it. All this because of some words... amazing, absolutely amazing!
Equities of course are loving it - we will probably see the S&P take out its all time high as the party is back on with tapering fears no where to be found, at least for today.
More monetary crack cocaine for the markets - it was either that or watch the borrowing costs of the US government soar higher in the face of an already insurmountable national debt as lenders demanded higher interest rates to accept its IOU's.
Monday, July 8, 2013
Gold pops higher in Asia
Gold jumped in overnight trading during the early Asian session when China released its version of the CPI. June CPI came in at +2.7% on the year where the market was looking for +2.5%. Apparently there was a rush to grab gold when the data hit the wire. Prior to that gold was relatively quiet with a slight bias to the upside.
As you can see on the chart, volume is miniscule however. The big test will be what the metal does when it enters European trading but more importantly, New York trading.
The weakness in the gold shares today (Monday) is generally a bearish sign when the metal and the shares go their own separate way so call me a skeptic until proven otherwise. Asia still loves gold while the West seems to despise it; until the West comes around to falling back in love with the metal, it will be up to Asian buying to do the heavy lifting in the metal.
I have noted an overhead chart resistance zone which basically extends from last week's high at $1267 - $1269. Bears will be complacent unless this region is taken out with strong volume, otherwise they are going to look to sell into this rally. If the mining shares were strong, that would make them second guess so we will have to see how that sector trades during Tuesday's session.
I have also noted a region between $1210 and $1185 on the downside which was the price range delineated by very strong volume. Most of that volume was short covering after the $200 plunge where bears rang the cash register on what was one of the most profitable gold trades in a very long time. There was some bottom picking as well but compared to the extent of the short covering, it was insignificant.
The key for the market right now is that it did drop back down into the very top of that region but attracted more buying that selling. That is a positive. We have moved up some $40 since that brief foray into the HIGH VOLUME REGION. The trend is down however so we can expect the rally to be sold but if the bulls can surprise and take price through the anticipated selling that is going to surface, bears will run and this market could lift towards $1285 - $1290.
It does appear that once again we have that gold backwardation talk emerging. Keep in mind that all those proponents of that theory cost their devotees a tremendous amount of money the last time they were proclaiming a bottom based on that occurrence.
I maintain that until the gold futures market shows a true backwardation structure on the board, all this is just talk that is interesting but as far as a trader goes, meaningless. Price action is what confirms theories. If it does, fine. If it does not, that is also fine. Watch for resistance levels and support levels and make your trading decisions on that and that alone.
Remember what I have written here more times than I care to recall at this point - calling market bottoms and tops is a fool's errand for those with egos that need to be fed. A profitable and successful trader can make a fine living just catching 60- 70% of a trending move.
What will eventually take gold higher will be that shift in sentiment from one of deflation or benign inflation to one of concerns about a resurgence in inflation. That is what we are watching for signs of. When it does, we will know it from the price action!
As you can see on the chart, volume is miniscule however. The big test will be what the metal does when it enters European trading but more importantly, New York trading.
The weakness in the gold shares today (Monday) is generally a bearish sign when the metal and the shares go their own separate way so call me a skeptic until proven otherwise. Asia still loves gold while the West seems to despise it; until the West comes around to falling back in love with the metal, it will be up to Asian buying to do the heavy lifting in the metal.
I have noted an overhead chart resistance zone which basically extends from last week's high at $1267 - $1269. Bears will be complacent unless this region is taken out with strong volume, otherwise they are going to look to sell into this rally. If the mining shares were strong, that would make them second guess so we will have to see how that sector trades during Tuesday's session.
I have also noted a region between $1210 and $1185 on the downside which was the price range delineated by very strong volume. Most of that volume was short covering after the $200 plunge where bears rang the cash register on what was one of the most profitable gold trades in a very long time. There was some bottom picking as well but compared to the extent of the short covering, it was insignificant.
The key for the market right now is that it did drop back down into the very top of that region but attracted more buying that selling. That is a positive. We have moved up some $40 since that brief foray into the HIGH VOLUME REGION. The trend is down however so we can expect the rally to be sold but if the bulls can surprise and take price through the anticipated selling that is going to surface, bears will run and this market could lift towards $1285 - $1290.
It does appear that once again we have that gold backwardation talk emerging. Keep in mind that all those proponents of that theory cost their devotees a tremendous amount of money the last time they were proclaiming a bottom based on that occurrence.
I maintain that until the gold futures market shows a true backwardation structure on the board, all this is just talk that is interesting but as far as a trader goes, meaningless. Price action is what confirms theories. If it does, fine. If it does not, that is also fine. Watch for resistance levels and support levels and make your trading decisions on that and that alone.
Remember what I have written here more times than I care to recall at this point - calling market bottoms and tops is a fool's errand for those with egos that need to be fed. A profitable and successful trader can make a fine living just catching 60- 70% of a trending move.
What will eventually take gold higher will be that shift in sentiment from one of deflation or benign inflation to one of concerns about a resurgence in inflation. That is what we are watching for signs of. When it does, we will know it from the price action!
Saturday, July 6, 2013
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 Metals Wrap.
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/6_KWN_Weekly_Metals_Wrap.html
http://www.kingworldnews.com/kingworldnews/Broadcast/Entries/2013/7/6_KWN_Weekly_Metals_Wrap.html
Friday, July 5, 2013
Long Bond Chart Breakdown Continues
The multi-decade bull market in US bonds is clearly over and with it comes an entirely new set of issues that the US government is going to eventually be forced to come to grips with. A monumental federal debt requires LOW interest rates to deal with the mathematics that can quickly make it completely unmanageable. Those days are now behind us.
Take a look at the following chart and you will see what I mean. I had expected that the long bond would find some buying support emerge near the intersection of TWO CRITICAL REGIONS. The first of these was a band of horizontal chart support near the 135 region. The second just so happens to be that region is also the 50% Fibonacci Retracement level of the rally off the secondary low in early 2011 to the peak last fall.
Guess what? The bond market collapsed through that level as if it did not even exist. Next stop looks to be the 61.8% Fibonacci retracement level down near 131 now that the bonds have CLOSED BELOW the 200 week moving average.
Safe havens bonds are now firmly out of favor with the view that tapering of the bond buying program of the Fed (QE4) will now begin as early as September of this year. Rising interest rates are working to bring the US Dollar into increasing favor among global investors as most countries out there with major currencies are no where near to a period of rising interest rates.
It does appear that we are going to be entering a period of rising stocks, rising interest rates and a rising Dollar, all at the same time.
Pretty remarkable isn't it considering that trillions of those self-same dollars have been created by the Fed over the last few years? It just goes to show that demand for the US currency is phenomenal mainly because demand for the other major currencies is rotten!
Take a look at the following chart and you will see what I mean. I had expected that the long bond would find some buying support emerge near the intersection of TWO CRITICAL REGIONS. The first of these was a band of horizontal chart support near the 135 region. The second just so happens to be that region is also the 50% Fibonacci Retracement level of the rally off the secondary low in early 2011 to the peak last fall.
Guess what? The bond market collapsed through that level as if it did not even exist. Next stop looks to be the 61.8% Fibonacci retracement level down near 131 now that the bonds have CLOSED BELOW the 200 week moving average.
Safe havens bonds are now firmly out of favor with the view that tapering of the bond buying program of the Fed (QE4) will now begin as early as September of this year. Rising interest rates are working to bring the US Dollar into increasing favor among global investors as most countries out there with major currencies are no where near to a period of rising interest rates.
It does appear that we are going to be entering a period of rising stocks, rising interest rates and a rising Dollar, all at the same time.
Pretty remarkable isn't it considering that trillions of those self-same dollars have been created by the Fed over the last few years? It just goes to show that demand for the US currency is phenomenal mainly because demand for the other major currencies is rotten!
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