The Friday Job's Curse

Yes, the dreaded curse has struck the yellow metal once again on a payrolls Friday. These volatile numbers are big market movers and today they did so again as the number came in better than expected. Keep in mind that gold has drawn strong buying support from the PREVIOUS TWO reports which their much worse than expected job hirings. Those reports gave rise to the thinking that the Fed, which by its own admission is going to be heavily relying on economic data to determine its approach to the tapering plans, was going to either slow the rate of tapering or cut it altogether.

I mentioned at that time that the weather was having a big impact on the data. The cold was a RECORD and that cannot be ignored as it makes sense that it was going to have at least some impact on those affected by it. Thus, there was a great deal of uncertainty surrounding these numbers. To draw too dogmatic of a conclusion from them was therefore unwise and premature. Even after today's numbers, I still want to see the next month's numbers to see if we are going to get a trend or these reports are just anomalies.

But for RIGHT NOW, those who were leaning heavily on the idea that the payrolls situation was quickly deteriorating and that the Fed was on hold were caught leaning way too hard to one side and got blindsided. The result - a plethora of sell orders from panicked longs.

This is what I meant when I said to be extremely careful if you cannot stop yourself from trading the metal on the Comex right now. It is just so volatile because no one knows for sure exactly what the Fed may or may not do. Everyone is guessing based on their take on the various economic reports. If they get it right - they are heroes; if they get it wrong - they are zeroes.

The mechanics of this are really quite simple - interest rates went back on the Ten Year - that brought some support ( buying support which has been missing of late) into the US Dollar and this derailed the metals.

I am also noting that once again Dr. Copper is getting hammered lower due to credit-related fears out of China. I have been beating that dead horse for some time now but copper has not been confirming the move higher across a large segment of the commodity markets. It is down nearly 4% today alone crashing through chart support in the process. Unless is can stage a quick recovery prior to the close of trading today, it is on course to put in the lowest weekly close since July of last year...

Keep this in mind particularly when you read the silver perma bulls talking about price manipulation. Silver is both a precious metal and an industrial metal and I have rarely seen it moving higher when copper is sinking lower.

More later

The Draghi Party

Early in today's session ECB President Draghi threw the Euro bulls a nice bone to chew on and with that, it was off to the races for that currency with the US Dollar and the Japanese Yen both getting ceremonially dumped.

If that was not enough for the US Dollar, one of the Fed governors, Mr. Dudley, made his way to the microphones to state that the "Fed has a long time before raising short term rates". STRIKE TWO for the DOLLAR.

STRIKE THREE seemed to come in the form of ????. Perhaps it was Dudley's comment about the tapering being data dependent ( recent data has not exactly been resplendent). He did go on to say however that the threshold to change the tapering plans would be "pretty high".

Either way, today was one of those days in which certain commodity sectors were seeing big inflows of hot money. Soybeans continue charging higher with corn getting in on the action. Already there is chatter that the planting season here in the US is going to be delayed on account of the abnormally cold weather ( where is that damned global warming when we really need it?).

Gold garnered support from the surging Euro but was also aided by the vote out of the Crimean Parliament which wants to put to a vote the idea of breaking away from Ukraine and becoming a part of the Russian sphere. Some are viewing this as an escalation in the drama over there and that of course brings a bid into gold.

Like I said the other day, if you have the uncontrollable urge to actually trade the yellow metal at the Comex either lock yourself in vault somewhere away from a computer screen or at least trade small in size. This market is very fickle right now. Just be careful and do not get reckless or listen to all the hype currently coming out of certain segments of the gold community.

I put far more credit on what is happening to the Euro and the Dollar than I do to the ridiculous talk of a nuclear war. If the Euro can clear a strong overhead resistance zone near the 1.39 level while the Dollar CANNOT hold support between 79.50 - 79.00 on the USDX, gold should be able to breach overhead chart resistance near the $1,360 zone. It would have to best $1,375 but if it does, should be able to set up at least a test of psychological resistance at the $1,400 level.

Dip buying has continued to occur in gold with the situation in Ukraine keeping bears nervous but in my mind, the big driver has been the weakness in the Dollar and the continued move higher across certain key commodity markets. Strangely - and I have yet to make any sense out of this - Copper continues to go absolutely NO WHERE. It baffles me to no end to see this key industrial commodity NOT LEADING the sector. Either copper is going to have to make a sudden move higher or I am concerned that we are going to see some big retracements in the commodity sector at some point. There is a lot of hot money flooding into the sector but a great deal of it is purely technical in nature as momentum funds are buying. The problem is that unless there is a strong fundamental underpinning to some of this, once the upside momentum plays itself out, prices could get hit hard as the longs bail out.

The key, at least in my mind, will be whether or not the US Dollar can find its friends again. That is going to take some strong economic data soon. Perhaps it will be a payrolls number but one thing is for sure, the more traders are convinced that the Fed is not going to move on the short term interest rate front any time soon, the more the gigantic specs are going to play their carry trade and shove certain commodity sectors higher.

More later if time permits.... busy, busy week....

Putin Pulls Troops - Bulls Pull Longs

Apologies for the lack of commentary yesterday - a bit busy and worn out from trying to navigate the Ukranian-based volatility.

Watching the price action in gold last evening was an exercise in the difficulties in trading gold, or for that matter, any commodity futures markets, based on geopolitical events. They can be so volatile, so unpredictable, so fluid that those who overload their account with related positions run the very real, and unfortunately, all too frequent risk of having those positions turn against them without the least bit of warning.

The yellow metal dropped rather rudely last evening here in the US ( daytime in Ukraine). Moments later the news showed up on the wire services that Putin had seemed to dismiss the use of military force ( for the moment) in dealing with the situation on the ground in the Crimea region. That sent gold bulls packing faster than one can say: "Oligopoly". Dip buyers did show up later in the session however as the situation is quite fluid.

AS a side note - buying PHYSICAL gold because one has been told that  a nuclear WWIII is just around the corner as some are now claiming (  personally I dismiss this altogether) might make sense to some but for goodness sake, do not go piling into the highly leveraged Gold futures market at the Comex based on those sorts of wild claims. You will inevitably ending up buying at the highs while the market then drops off leaving you stranded and with deep losses.

I have already gone on record in the comments section here but might as well go on record on the "front page" as stating that my suggestion is that the West should stop meddling in Russia's back yard and get behind a national referendum there in Ukraine to split the region into two parts with the Eastern half being given the option to remain under Russia's umbrella while the Western half can drift into the sphere of European influence. My guess is that such a vote would pass. Russia would retain its warm water port on the Black Sea and the Western half could then get bailed out by Germany, who would more than likely be sorry that they adopted it as Ukraine is an economic basket-case. The US itself has NO strategic interest, especially in the Crimea region.

While chart technical levels are important to watch in trading, geopolitical events tend to make buying solely on chart patterns very tricky for the reasons stated above. Let me leave it at that for now. Traders, if you are going to stick your neck out and trade this yellow metal right now, do yourself a favor and stick your mouse hand in a bowl of icy water until it goes numb and you cannot move it. There are better opportunities without the risk of staying awake for endless hours out there.

This is one time when the physical gold buyers can sleep much better. If things happen to escalate and tensions get higher, they have their metal in hand. If things calm down, they still have their metal in hand. Traders on the other hand, can easily end up battered and bruised as no one knows how these events will unfold, contrary to the many confident and reckless predictions that now abound.

Short Covering continues to be the Feature in the Gold market

Gold seems to have run out of gas up near the $1340 level as it has been unable to extend its near month long gains here at the end of February. Upside momentum is waning and that requires close attention.

There are several things that I would like to bring up right now. The first is the nature of the buying that has been driving this market higher since the first of the year. Gold started 2014 near the $1,200 level and has since then put on $140, the largest portion of that this month when it moved $100 higher.

Based on the COT reports since the beginning of this new year, one can easily observe that the largest portion of the buying this year has come from whole scale short covering. Here are the numbers:

At the beginning of the year, the Hedge Fund OUTRIGHT short position consisted of 72,571 futures contracts and options. As of Tuesday this week, that position was 30,996. Doing the math, we can see a reduction of 41,575 short positions or short covering.

That same Hedge Fund category had a OUTRIGHT long position of 106,675 futures contracts and options. Tuesday this week shows a build in that same position to 144,907. The math - an increase of 38,232 positions on the long side.

In other words, short covering by the gigantic hedge fund community has outnumbered the amount of new buying by that same category in the amount of 3343 futures contracts and options since the start of 2014.

This is not a recipe for a sustainable bull market. One wants to see eager, strong, abundant fresh buying driving a market higher because it is a reflection of bullish sentiment, not a wave of aggressive short covering which once it fades, drops the upside momentum. Now, whether we can see something which will spur traders/investors to pile onto the long side with a greater fervor than the short which have been getting out remains to be seen, but until we do, caution is still warranted towards this market. The one thing about rallies led primarily by short covering is that they tend to fade quickly. We'll see what we get to begin the new month.

By the way, as a side note, for you folks over at a certain paid-subscription newsletter site that enjoy taking the articles posted here and republishing them nearly verbatim without giving credit to where you got them, I have not included a chart of the above so that you can at least add something of your own when you indulge your inclination to plagiarize.

Take a look at the chart below however and you can see the extent of the move this year but you can also see the obvious resistance zone that has formed up at $1,340.

The Directional Movement Indicator is showing the ADX line rounding over. It has stopped moving higher which in itself is a warning sign that there exists the potential for a halt in the uptrend. While bulls still remain in control of the market, upward progress is stalling indicated by the falling Positive Directional Movement indicator ( Blue Line ).

Dip buyers have thus far emerged in gold and kept it from breaking down sharply but if the physical market buyers begin to back away and wait for lower prices, I am skeptical that buying from Western-based investment sources will be sufficient take the price through this overhead resistance zone against which it is currently being held in check.

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.