A Day for Composure

With the kind of week we have just been through, it is certainly a relief to see a bit of "calm" coming back into the markets to close out this wild week. Drawing too many conclusions from the price action is probably not too wise given the fact that there were huge money flows flipping into and out of various sectors as traders were trying to avoid not only getting steamrolled, but in many cases, apparently from what I have seen in the price action of some areas, desperately trying to minimize what no doubt were some enormous losses.

At least the Complacency Index, as I prefer to call the VIX, nudged down somewhat from what was a 22 month high!

The Gold Volatility Index also moved lower today. It hit its highest level this year but compared to the VIX, still looks rather tame by comparison.

The Dollar, in spite of all the wild swings, violent price action and outright chaos that seemed to mark the currency markets this week essentially ended the week going no where! It remains in a consolidation mode working between 87 on the topside and 85 on the bottom. The market has certainly relieved its overbought status on the technical indicators so this range trade is actually a pretty good thing as far as I am concerned.

I am noting that the grains all moved lower today. There was some chatter making the rounds earlier this week that one of the reasons for the sharp moves higher in the beans and to some extent the wheat and corn, was the result of hedge funds moving money out of stocks and into agricultural commodities. I am not sure I buy that explanation as I see no reason from a macro level for big funds to be committing to the grains especially when the Dollar has been firm.

There was the usual chatter about harvest delays, dryness in some key Brazilian growing areas during the current planting season down there, as well as some decent export business but as the FOMC notes revealed this week, a harvest is on the way that is going to tax the ability of the US to move it and store it.

As of now I see nothing that would convince me that a harvest low is in especially with a lot more of this year's crop yet to go under the combines. I am looking for some hedge pressure to begin surfacing next week as the weather across the Midwest looks very conducive to some substantial harvest progress being made.

The tightness in last year's bean carryover has contributed to some strength in the meal as processors scramble for supplies but with some big harvest progress coming our way, that supply tightness that currently exists is not going to last too much longer.

Feeder cattle hit limit down today. Let's see they were LIMIT DOWN on both Tuesday and Wednesday this week - then they  hit limit down Thursday morning only to reverse and CLOSE LIMIT UP ( that is an intraday price swing of some $3,000 per single contract). Today they went back down the LIMIT once more. And people wonder why my hair is all turning gray!! like I have said many times, - those gold perma bulls who are always screaming about gold manipulation when it experiences a huge move lower have NEVER TRADED anything else remotely resembling a commodity. Just look at these goofy cattle this week not to mention the hogs, which were obliterated.

I will get some more up later on today on the Commitments of Trader reports and see if there is anything noteworthy in there. Sadly that report is essentially dated by the time we get it since it does not cover Wednesday through Friday of the current week. With a week like the one that we have just witnessed, there is no telling what has happened to the various positions of a huge number of traders out there.

Copper managed to claw its way back over the $3.00 level. There is one helluva battle shaping up near that zone. It dipped down to $2.95 today but some good buying was seen. As the equities began coming back, so did copper.

Silver was not helped by copper's mild strength today as it succumbed to the selling seen in nearby gold. Silver is currently stuck under a resistance level coming in near $17.50.

One last thing - the S&P 500 just barely touched ( depending on which chart one uses ) hitting the 10% CORRECTION LEVEL before bouncing right off of it and moving higher once more. The index ended down only around 13 points on the week after all its wild gyrations. That is a pretty impressive feat the bulls pulled off!

It does however need to climb back ABOVE the 1900 level, which was the support zone that was holding it aloft. If the bulls can manage to close out next week's trading above that level, they will have managed some kind of feat! If they do not, 1800 is going to be tested once more.

Fed's Beige Book notes Competition for Rail Cars among Grain Growers/Users

Dow Jones is carrying a very short blurb this morning excerpting some comments from the Cleveland Fed's notes in the Beige Book citing, "concern about stress on the freight-transport system from this year's grain harvest, which is expected to be at a historic high". They also cite the Atlanta Fed which noted, "significant strengthening" in grain shipments in the Southeast.

Here is the exact line from the Fed's Beige Book which can be found on their website: This is from the Cleveland Fed:

Contacts from trucking and railroads observed that insufficient capacity is a major issue that is currently confronting the industry and that there is concern about stress on the freight-transport system from this year’s grain harvest, which is expected to be at a historic high.

And now the exact quote from the Atlanta Fed's contribution to the Beige Book:

Overall, transportation contacts reported an improvement in demand since the previous report. District railroads cited increases in total carloads, led by significant strengthening in shipments of petroleum products; grain; and military, machinery, and transportation equipment. Intermodal traffic continued to increase on a year-over-year basis. Ports in the District reported a notable increase in container traffic and substantial growth in overall cargo tonnage in September.

Essentially, the Beige Book is confirming what most in the industry are already well aware of; that this year's massive crop is going to test the capacity of our transportation system as well as our storage ability.

Incidentally, soybeans are trading higher today with the complex being led higher by the meal. That tight carryover from last year's harvest is the reason as processers scramble to secure what is left of available beans in some regions while they wait for the new crop to make its way into the pipeline. With an open harvest window apparently in the forecast for the next two weeks or so, we should see significant harvest progress which will begin to finally remedy that tightness from last year's crop. The beans are transitioning from one of tightness to one of abundance.

This is not your Daddy's Bond Market

Having been trading the bonds for many years, the recent volatility has really caught my eye. The extent of the price swings in this market has been nothing short of breathtaking.

Whenever you see a market make swings of this magnitude, know that someone is in serious trouble.

Take a look at this short term price chart and imagine the carnage being inflicted on some traders as they swing back and forth from such huge extremes.

Do you see those big volume spikes? Someone got obliterated!

Try to imagine that you are a risk manager for a large banking or mortgage interest and are attempting to institute some sort of hedges! How in the world do you even read a market that is doing this sort of thing? I can tell you that hedgers and speculators both have been run over in this market the last couple of days.

This is what I am referring to when I caution traders out there. These markets can clean you out faster than a package of Ex-Lax if you let down your guard. Either trade smaller or stay on the sidelines but do not try to play the hero right now. It is just too dangerous!

Making predictions, postulating this or prophesying that, in dogmatic terms is very foolish and speaks more to hubris than it does to sound judgment. What I do know is that the entirety of the markets is very unsettled right now with the VIX having rising sharply and with the currency markets having been thrown into turmoil. Until the currency markets calm down, be careful.

By the way, crude oil is managing to hold above $80 for now and the XLE is up today. Maybe crude has gone down enough? I don't know but am monitoring it very closely.

XLE Rebounds

As you all know, crude oil and its products have been hammered of late. One has to wonder if the Saudis' decision to not reduce output was a deliberate attempt to go after the US fracking industry. Either way, the energy complex has been hit extremely hard over the last six weeks. Just look at the following chart!

The XLE had lost 22% over that time frame before some decent buying finally showed up today which enabled it to close up on a day in which the entirety of the US equity markets were getting clobbered.

Maybe the worst is over for crude? I don't know for sure but I am definitely going to be keeping an eye out on the XLE to see if it shows any upside follow through tomorrow and certainly on Friday.

As I type these comments, crude is down another full dollar to $80.73 in the early overnight trading.

Yet another thing I felt the need to point out and that is related to the reported holdings in GLD. It showed a DROP in the tonnage this afternoon which is really disconcerting if one is a bull. It lends credence to the idea that some are selling gold to keep the margin clerks happy with the equity positions.

Total tonnage fell 2.09 tons from the last reported number and currently sits at 759.14 tons, down 39.08 tons on the year and the lowest level since early December 2008.

Lastly, this is the updated TIPS spread/Gold chart from yesterday. Since then interest rates have fallen sharply (* today ) so it will be interesting to see what numbers we get tomorrow when the update is complete. Notice that gold has been moving in the opposite direction of the spread the last few days, something which is out of the more normal behavior, indicating the  metal is functioning as a safe haven for some.

Late Session buying coming into Equities.

Bulls begin to stir once again as we wind down today's session.

The S&P 500 just missed falling into correction territory ( near 1813) but has since rallied up from near that level. Apparently the "buy the dip" sentiment has not yet given up the ghost.

I am closely watching the resistance zone noted on this hourly chart. If the bulls can take it back through that level they have a chance at having put in a short term bottom. Even so, the big spike back up is giving them a sigh of relief at this point ( although I must admit that the session is not yet ended as I am typing these comments).

Dr. Copper Succumbing to Deflationary Pressures

Even the sharp fall in the US Dollar today has not been enough to keep copper from falling sharply. It is currently down over $.08 as I type these comments, some 2.65% on the day.

The fall in the red metal has completely erased the gains made on Monday and Tuesday of this week as well as those made late last week when it bounced away from the psychological $3.00 mark.

It is threatening to sink below that once more. The meddle of the bulls is going to be severely tested here. If copper falls below the lows made last week and CLOSES below $3.00, I think we all had better pay attention as that would be a horrendous signal that the fall in stocks could become even more serious than it already is.

Dr. Copper would be signaling a sharper contraction in the overall global economy and would bring into serious challenge the idea of "buy the dip" in stocks which has been the featured sentiment for longer than I can remember now. If the equity market sentiment shifts towards one of "sell the rally", look out!

 

Speaking of equities, let me post up a quick chart of the Russell 2000 index. That is about as broad a basket of stocks as you can get. Two things to note. First - the highs near 1213 are now confirmed as a Double Top on the chart. The reason? Because support zone down near 1080-1075 has failed to hold. Bulls still have a chance to end the week back above that level in the last two trading days but the current negative sentiment seems quite strong for now.

 

 

Secondly - the market has officially entered "CORRECTION" territory - which is defined as a move of 10% + off the peak high. Notice however that for the market to be declared officially a "BEAR", it would have to fall to near the 975 level and collapse through that level, preferably on strong volume.

Thus, even though the selloff is incredibly violent at the moment, the market is undergoing a correction and has not yet, from a technical analysis standpoint, entered become a Bear. In other words, the Bull is wounded but not dead yet.

 

Take a look at the S&P 500. It is quite different from the Russell. The index is flirting ever so dangerously with entering "CORRECTION" territory in today's session.

 

 

 

 

Note how far down below the current price level it would have to drop to turn the BULL into a Bear. Stay tuned... as usual, time will make things clear for us but for now, the Bears have the upper hand but the Market is moving to levels that might shake the bulls out of their stupor.

 

What is also rather interesting on a day like this is that while the Dollar has been getting shellacked, on the chart, it is still just bouncing up and down like a ping pong ball going nowhere. It is still stuck in a range between 87 on the top and 85 on the bottom. It did violate the bottom of the range early in the session but has rebounded and move back within the "box".

 

 

Cattle are all over the place today. First they sold off quite sharply across the Board. Then the two front months began to move up and turned positive. Then the sellers came back in again and back down they went. The big fund long contingent in this market is fighting for dear life NOT to be flushed. Right now it looks as if they are losing the battle but the close is about 20 minutes off so anything is possible. It is amazing watching the amount of money some players will spend in an attempt to defend a position.

 

 

 

Gold thus far has been able to shrug off the selling pressure coming in from those selling it to cover losses in stocks but is having some difficulty getting through the $1250 level. Silver is being drug lower by copper but getting some buying related to gold's good showing. I fear that if copper cracks $3.00 decisively, silver is going to fall.

 

With the current equity weakness, unless we get some dose of economic data that is surprisingly strong ( say a jobs number ) instead of the surprisingly weak data we have been getting, gold is drawing support from ideas that any notion of the Fed raising interest rates soon is effectively DOA for the time being.

 

What a day... I am already ready for Friday afternoon and it is only Wednesday!

 

 

Three Strikes and You're Out

and no, I am not talking about the baseball playoffs but rather the triple whammy that completely obliterated both the US equity markets and the US Dollar this morning.

The New York Fed released its business conditions index and it was scary; spooky scary. The index fell to - hold onto your hat - from 27.54 in September to 6.17 in October. Most analysts had been expecting a decline but a more modest one to near 20. This index is a reading of manufacturing activity. If the reading comes in above zero, it indicates expansion but come on already, a plunge of that magnitude is hardly reassuring if one is trying to find a healthy economy!

That was strike one...

Strike two - falling retail sales. They dropped 0.3% in September. Retail sales have been rising since January - albeit not at a breakneck speed but this is the first drop since then. Again, analysts had been expecting a fall but only a meager 0.1%.

Strike three - a fall in the PPI or producer price index. It fell 0.1% in September. That was the first fall in a year!

STocks plunged and so did the Dollar but what is breathtaking is the action in the long bond. The thing SOARED and was up over 4 points in early action. It has subsequently settled down to being up a mere 2 points ( note - this is sarcasm). Yields on the Ten Year just now fell BELOW 2% hitting a low, thus far, of 1.868%.

Can anyone say DEFLATION!

If that were not enough bad news for one day, yet another hospital worker has sadly contracted the Ebola virus. People are getting scared as they know full well that Mr. Happy Face, the current propaganda in chief from the CDC, has been lying to them about the mode of transmission.

Let's see - we have a deadly disease in Africa that is threatening to become a world-wide epidemic, a group of grotesquely barbaric terrorists on the rampage through Mesopotamia and an economy that is looking more and more like it is running out of juice to sustain it - and NO, I am not talking about the bubonic plague, the Ottoman empire Turks and the mess in Europe during the Middle Ages but rather the 21th century. The more things change, the more they become the same.

"That which has been is that which will be so that there is nothing new under the sun, " echoed the wisest man of a former age, one named Solomon in the book of Ecclesiastes.

I will try to get some charts up a bit later. The long bond chart is breathtaking.

By the way, the sinking Dollar is having a profound impact on gold as it moved strongly higher. However, there are two schools of thought out there right now impacting the yellow metal. The first is gold is a safe haven. The second is that it is liquid and can be sold to cover losses in equities ( margin related) and could very well sink along with the crude oil and rest of the commodity complex.

IT looks as if the former is winning at the moment.

Soybeans are still being squeezed by whomever it is that has decided to go after the shorts. The excuse this time around is the falling Dollar will make US beans more competitive on the global export markets. I am very concerned however about almost all of the commodities because if indeed this market selloff is the start of something more serious on the economic front, it is hardly going to be conducive to higher grain and bean prices.

Even cattle, that stalwart of the commodity sector is succumbing. That has me sitting up and taking serious notice. Can beans be far behind? We'll see.

Traders - be so very careful in these markets right now. They can run you over in mere seconds.

Harvest Running Behind the Average Pace

This is not news for any grain trader who has been paying attention for the last few weeks however. Wet weather has prevented farmers from getting into the fields as quickly as they would like as has the lagging maturity of the crops in general but today's report just confirms that a very big crop is still out there.

Corn ratings held steady at 74% rated Good/Excellent with Beans rating 72% Good/Excellent so the crops remain in outstanding condition in general. These conditions numbers however are soon, if not already, going to lose the interest of traders as it will be harvest completion % that will be the focus and that means weather. Also, attention will shift to weather down in S. America as it is planting season in the S. Hemisphere.

There are some reports that the Argentinian government is getting ticked off at grain farmers down there, many whom are not selling their harvest from last year because of the depreciating peso. They would rather hold the "hard asset" than sell it and that has the government riled because it wants to see the sales so that it can tax them and generate some revenue.

On the maturity front, corn is now at 87% mature compared to the 5 year average of 89%. Illinois and Indiana are actually ahead of the 5 year average now on maturity while Iowa, Minnesota, Wisconsin and the Dakotas are behind.

Corn harvest is lagging but that was expected with the trade coming in a bit on the low side of actual harvest numbers when it came to pre-report estimates. Currently 24% of the crop is harvested compared to the 5 year average of 43%. That is why the recent storm was a good excuse for those gunning for stops to run the stops.

Someone ran a huge buy stop order after $3.50 and that got the ball rolling big time in the corn. I saw the violent price spike higher and figured someone's stop got picked. That is how the sharks operate.

Apparently an awful lot of call option writers got obliterated and were forced to buy futures to try to stem their bleeding.

On the soybeans - the national crop average has caught up with the 5-year average of 91% when it comes to dropping leaves.

Harvest is at 40% nationally compared to the 5-year average of 53%. That is a bit better than the pre-report averages. The best I saw was a 32% complete so those bidding up the beans for harvest lagging reasons may have lost a bit of ammunition based on this. We'll see however as there is now a huge "money game" taking place because of forced liquidation of short positions over margin calls that has been induced.

We have quite a few "bottom callers" in the grains right now on account of the technical price action of the last two days. It will be interesting to see how the competing technicals fare against the bearish fundamentals. Technicals win in the short term and thus MUST be respected but fundamentals always assert themselves but one does not know exactly when!

I can only say that I cannot remember seeing corns or beans bottoming with this low percentage of the harvest complete. If the forecasts hold, harvest progress should begin gathering some real momentum later this week. Northwest areas probably are already seeing a lot of combines running. I expect that to continue to the East as the soils dry out from West to East this week. low lying areas will have some issues due to the large amounts of rain where the impact from the recent weather system was felt.

That should lead to some strong farmer pricing of grain that is being harvested as some farmers have been fervently hoping for some sort of rally in prices that they could use to price grain. Well, thanks to the antics of some big specs, they now have that opportunity. whether they take advantage of it remains to be seen however. Many farmers tend to get bulled up quite quickly whenever some of these violent shortcovering rallies take place. The problem with short squeezes is that they can end just as quickly as they started.

Quick comment on the livestock - cattle got hit hard once again with feeders locking limit down. Those who were squeezing corn prices higher managed to obliterate the "math" for those paying these recent sky-high prices for replacement calves.

Hogs are hanging in there better right now due to the very deep discount of the now front-month December contract to the current lean hog index. The October contract expired today at 109.525 with the index at 109.70. The December closed today at 94.925 although it was smacked very hard later in the afternoon session as the pork collapsed in price today.

Falling crude oil prices are flashing quite a warning signal that the global and domestic economy continues to slow. Stocks rebounded a bit today but after being beaten down so hard the last few sessions, I guess that should not come as a surprise. Still the bounce looks tepid. In an environment such as this, with the GSCI making once more a brand new 49 month low, it does make one wonder why some entities are intent on chasing grain prices so steeply higher.

Lastly, unleaded gasoline has just plumbed more new lows today. One begins to suspect that ethanol distillers are going to have some trouble!

Incidentally, interest rates on the long end of the curve continue to plummet indicating the building deflationary pressures. Yield closed at 2.206%, the lowest in 16 months!

The Dollar remains stuck right smack dab in the middle of support near 85 and resistance near 87, basis USDX.