“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)

"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput

Friday, October 31, 2014

Hedge Funds Feasting on Small Specs in Silver

If you want to get some sort of idea how the big sharks eat the little fish alive, take a gander at the following Commitments of Traders chart for the silver market.

Here is the chart:

I dropped out both the Swap Dealer Category and the Other Large Reportables Category for the sake of keeping the chart cleaner and more readable.

The Blue line is the NET POSITION of the hedge funds. The Red line is the net position of the Small Spec or the General Public. The other line is the Commercial category.

What have the hedge funds been doing in silver for the last few months? Answer - liquidating longs and adding shorts. In other words, they have been SELLING.

What has the general public or the minnows been doing since then. Well, some longs have liquidated so there has been some selling but look at their position. They are still net long in the silver market!

What has silver done since the peak in July on this chart? Answer - it has collapsed in price from near $21.50 to today's low near $15.50. That is nearly a 30% LOSS in 4 month's time.

I cannot count the number of emails that hit my inbox from the gold cult members yapping about HIGH OPEN INTEREST in silver as if somehow that is yet one more reason to be long the precious metals. When pointing out to them that the interest is both from increasing numbers of spreads, and from speculators interested in SELLING THE METAL, I am usually greeted with derision and condescending rebuttals as if somehow I am ill-equipped to understand the esoteric secrets of the strange universe that they are privileged to inhabit.

Some love to argue even more throwing around such insightful comments as, "Mr. billionaire fund manager asserts with great confidence that sometime this year, silver goes north of $50" as if somehow that settles the matter.

And yet, look at the chart. What does it tell you? Answer, a long silver position has butchered those who were foolish enough to think that they knew more than the market especially Mr. billionaire fund manager who is now probably Mr. millionaire fund manager.

The thing about this which is even more tragic, is the sheer size and extent of the losses that this erratic metal can inflict on the account of anyone who gets on its wrong side. A $1.00 move in silver is $5,000 per single contract. Do the math and you get the idea how much money the hedge funds took out of the pockets of the inept general public who continue to listen to the siren-songs of those self-proclaimed market experts who keep pushing them to buy it in spite of the obvious.

Now, this late session bounce in silver is interesting as it indicates some decent buying came in late, very late, in the session but in looking over at the mining share indices, they stink, having barely managing any sort of significant closing bounce heading into the weekend.

That today was also the end of the month, a day on which one can expect to see a great many big price swings and a day on which some funds tend to realize some paper gains for the sake of their monthly statements, and the fact that those mining indices closed so poorly, one has to be skeptical that the bounce higher in this metal signifies the end of the downtrend. It could very well just sit down here for a while and move sideways while it consolidates its severe losses from this week.

I will be watching closely next week to see what kind of follow through to the upside, if any, we might get. The ability to push back above $16.00 is constructive but we will know whether or not it has any staying power early next week. Until then, the general public remains LONG and WRONG and is serving as fodder for the hedge fund bears who are mercilessly goring them to no end. A lot of would-be trading careers from the small public were ended this week by the devastation suffered at the hands of this most fickle of metals.

Surging US Dollar Technically Strong on the Chart

The greenback, as illustrated by the USDX, has managed to poke through the chart resistance level at 87 in today's session. The overnight, surprise action by the Bank of Japan, has given currency traders a strong reason to hammer the Yen lower and they are doing exactly that.

The Euro is holding a bit better and is only down some .7% compared to the 2.5+% beating that the yen is taking, but both majors are down against the Dollar and that has enabled the greenback to finally better that tough chart level noted.

Essentially what we have is a currency, that was trading in a very broad range for the last two years that broke out of that range to the upside in September. The reason for the breakout was simple - investors and traders are convinced that is any of the Western industrialized nations ( and I am including Japan in this group ) was going to move higher on the interest rate front, it would be the US.

This is in spite of the clear statements by the Fed that they intend to keep interest rates low for a "considerable time".

The issue however is very clear - the ECB and the Bank of Japan were NOT going to move higher on rates. Neither was Canada or Australia, not with the price of commodities moving lower. In effect, the Dollar wins by default when it comes to the currency of choice for investors and traders in such an environment.

After the upside breakout on the chart, the Dollar has spent the last month consolidating its gains building a base from which to launch the next move higher. That appears to have finally taken place today with the BOJ move the catalyst.

At this point, a weekly CLOSE above 87, sets up a likely run at 89.  As long as the Dollar is exhibiting such strength, gold has little chance of halting its slide lower.

I can add another comment to this... grain traders who are oblivious to these movements in the critical currency markets and are happily chasing grain and bean prices higher, are going to experience a lesson in global markets very soon that they will not forget.

With crusher margins at levels not seen in two months, and at levels which by any historical standard of comparison, are incredibly profitable, they will crush as many beans as they can get their hands upon and do it as fast as they possibly can. At some point, the supposed meal shortage is going to become a meal glut.

Gold Bears Nail Hedge Fund Sell Stops

We have been chronicling with some detail the regular weekly Commitment of Traders reports for some time in many of the markets that I choose to comment upon. In those comments, I have noted the positioning of some the LARGE speculative forces as being on the LONG SIDE of gold.

Here is a graphic of the condition ( or better - what WAS the condition ) of all those SPECULATIVE longs in the market.

Note the HUGE NUMBER: It currently stands at 241,792 if you include option positioning.

By the way, just for comparison's sake, the total number of SPECULATIVE SHORTS in the gold market is a trifling 134,381. As you can see, speculators have continued to be stubbornly long in the gold market despite the deteriorating chart pattern and despite the deteriorating fundamentals for gold. By the latter, I am speaking primarily of the surging US Dollar and the fact that commodity prices in general are falling right along with the TIPS spread which is indicating the sentiment that inflation is of no concern at this moment.

Here is the point in all this... an examination of the chart shows that approximately 55,000 of those new long positions put on in gold near the $1200 are all completely underwater. That is where this selling is coming from. Once the TRIPLE BOTTOM at $1180 failed ( remember the old trading adage that, "TRIPLE BOTTOMS RARELY HOLD" ), the sell stops were activated and out they came.

Bears have been licking their chops to get to those for some time now. Today, they got them. With that level being the last line of defense in the sand for the gold bulls, speculative forces are going to be aggressive in going after gold from the short side now, just like they had begun doing in the silver market for some time. The carnage might just be getting started.

Interestingly enough, at the moment I am typing these comments, gold is down 2.96% compared to the HUI being down 5.42%. Guess what - that HUI-gold ratio that I have been charting, noting that it has reached levels last seen 14 years ago in the year 2000, is still falling lower. Gold is therefore either going to continue to move lower or the HUI Is going to have to move higher. Gold is overvalued, even after its fall today, compared to the mining universe.

Either that, or as I said yesterday, many mining companies are finished.

Thursday, October 30, 2014

Bean Meal Running into Selling near $400

Those of you who follow the grains ( have there been a lot of markets to follow these days or what?) know by now the issues surrounding soymeal, which has been pulling the entirety of the grain floor higher, in spite of the fact that we are on our way to bringing in record harvests.

The sheer ferocity of this recent rally  - ( I do not even like to use the word, 'rally' when dealing with this because this is not a rally - it is an event almost akin to what some refer to as a Black Swan - it came out of nowhere catching an awful lot of people completely by surprise) - and its SPEED has been breathtaking.

Notice that the meal market has now put on, in one month's time, what it took four months to lose! And folks wonder why some of us old time traders either have no hair or have it all turning grey! 

A couple of things - there is no concrete sign as of yet that this thing is ready to move lower. It did however put us on notice that a $105/ton rally in 4 week's time might be asking too much. It seems as if there are some willing sellers up above $400.

Traders began to see that last evening and perked up somewhat with today's export numbers the assigned culprit for some profit taking. I cannot tell at this point whether or not we have had some decent farmer selling of new crop beans today and this selling is related to hedge pressure or if this is just a round of profit-taking by the funds.

I do know that a boatload of shorts were swamped, sunk, obliterated, shot through, stabbed, mugged, dismembered, chain-sawed, buried alive, and just about any other Halloween-like actions one can use to describe what is a horror show that acts as if it was choreographed just in time for Halloween tomorrow.

This is a short squeeze the likes of which one witnesses every now and then in our commodity futures markets and which leave indelible impressions upon either those who were fortunate enough to survive them and those who were less fortunate and had their dream of becoming a commodity trader meet an untimely end. I have no doubt that many traders were ruined this month and some commercial firms took some severe body blows as a result.

In looking over the ADX, the Directional Movement Indicators are showing some signs of upward fatigue. Notice in the bottom panel that the +DMI ( Positive Directional Movement Indicator) turned lower and crossed below the rising ADX line. That is a warning sign.

Again, this is not a sign that a top is in but it does put the bulls on notice that the easy money might be coming to an end. Two-sided trade might be the new order. We'll see.

The RSI, in the second panel, hit the severely overbought level near 80. I am usually not a big fan of "overbought" or "oversold" levels because markets that reach those heights or depths reach them for a reason; however, the fact that this is doing so, when the situation in regards to the meal is a temporary one, has me taking notice.

The move lower today took the reading below the overbought zone, but just barely. One could make the case that with the overbought reading corrected, this market could simply remain near current levels for some time now and undergo a correction in time and not much in price. Again, that is unclear.

Lastly, a look at the same chart this time including the Bollinger Bands. Notice that price has been well ABOVE the upper line of the band for the entirety of this week. That is not something that happens very often. The interesting thing to note about this, that a normal "correction" could be expected to take such a market down to the middle line of the bands which is sitting near $336. That is some $54 below the settlement price of today! Tell me that this market has not gone bonkers! WOW... is that enough volatility for you?

There is no telling what we are going to get Friday so hang onto your hats. This has become one EXTREMELY DANGEROUS and UNSTABLE MARKET.

Lastly, the moo-moos did it again! What did they do? They set yet another all time high.

Take a look-see:

Take a bow October Cattle - you go off the Board tomorrow as one in the record books! I doubt I will ever see your likes again old friend! My oh my - what a move in the cattle -

The overall US economy may not be that strong but the boys in cattle country are living like kings for the moment. Hey, they deserve their day in the sun however as many of them were hit very hard back a couple of years back when back to back drought years across cattle country, first in the Southern Plains, and then in some places across the Midwest, forced many of them to liquidate their herds incurring serious losses. The combination of scorched pastures and high priced corn was simply too much. Those who survived are now enjoying the feast years but a reminder might be in order - the seven skinny cows in Joseph's dream recorded in the book of Genesis devoured the seven fat cows! Nothing ever lasts, especially in the livestock business.

Weekly Gold close setting up to be Important

In looking over this intermediate term chart, and surveying its current bear market, I have noticed that since its peak near $1900 some three years ago, the metal has only ONCE managed to CLOSE out the week BELOW $1200. See the arrow.....

The close this week will therefore be critical in determining whether or not we are going to be more downside follow through and another test of the key $1180 level or if we are going to sit and grind sideways for a while longer yet.

Based on what I am seeing in the gold mining universe, I would say the odds favor a close below this level but I am not dogmatic about it. As noted yesterday in my comments on the gold shares, based on the ratio of the HUI to Gold, either gold remains OVERVALUED in relation to the shares or the shares remain undervalued in relation to the price of the metal.

I still am leaning towards the metal remaining overvalued especially as there as of yet seems to be no sign that the bloodletting in that sector is through. There remains a lot of die-hard gold bugs who are enduring some tremendous paper losses in their mining share portfolios. Look at the HUI - it is mere about 10% away from hitting the 2008 low! That is six years of whatever gains anyone might have had in that sector that have gone up in smoke. What is such a tragedy is every single bit of it could have easily been avoided. All that was necessary was to tune out the assorted hucksters, charlatans, stock peddlers, etc and just read the chart.

I do think that if we get that weekly close below $1200, the bears are going to be emboldened to go after that triple bottom ( which rarely hold ) near $1180. There is a MOUNTAIN of sell stops sitting there. They know it and can smell them.

Silver Collapses to 56 Month Low

One look at this chart says it all....

If the metal cannot bounce from its current level, the next level of chart support does not show up until near $15.00

Falling GLD Inventories - A Warning Sign Ignored by Gold Bulls

We have been painstakingly detailed in providing very regular updates and charts for the readers of this site of the reported holdings in the big gold ETF, GLD, for some time now. The reason for this is clear - like it or not, approve of the ETF or not, it is a proxy for Western-based investment demand for the yellow metal.

The FACT is that reported holdings have been plummeting lower even since peaking out two years ago. Yesterday saw yet another reduction in those holdings with the total tonnage now at a measly 742 tons. I saw "measly" because the trust is now at reported levels last seen in the first week of October 2008! Let that sink in a bit.

As the holdings have dropped, so too has the gold price, right along with the share price of the gold miners. There is nothing mysterious about this. It has been there right in front of everyone's eyes who were open enough to recognize the obvious.

What is so tragic about this is the number of innocent people who have lent their ear to the numerous peddlers of nonsense out there who assured them that this drop was ultimately bullish for the metal because, as they assured them, "the gold is being drained to go East". Whether it goes East, or North, or South or the earth's core, is irrelevant. It is being sold here in the West as money managers will not buy gold unless they see a very good chance of it moving sharply higher in price. It throws off no yield and therefore, any gains must come from capital appreciation.

In an environment in which most commodities are falling in price, and one in which the Dollar is holding up fairly well,  and one in which inflation fears are nowhere in sight, there is not enough Western-based investment interest in the metal to push the price higher. The East can buy all the gold that they want but without an accompanying demand surge in the West, the best the Eastern-based buying can do is to slow the descent of the metal or keep it from plunging even more sharply than it otherwise might have done. It takes hot money flows from the West to generate a bull market in gold, or in any other market for that matter and the simple truth is that those money flows are MIA when it comes to all things gold for the moment.

Gold has fallen below chart support near $1210 and is now trading below psychological support at $1200. Once more it appears the bears want to go down and test that now triple bottom support at $1180 to see if they can crack it this time around.

Note ( this is for you Hubert!) gold did fall to the lower Bollinger Band after falling below the median line yesterday. The bands are widening out suggesting that there is more to come yet to this move lower. Also note that the ADX line is beginning to slightly rise hinting that a trending move is the works. I do want to point out however that the ADX is well below the 20 level at this point so unless $1180 is clearly taken out, the market is officially still in a broad range trade with $1180 the bottom of that range.

If $1180 goes, look for $1150 in short order as a massive amount of hedge fund long positions will ALL BE UNDERWATER. With silver getting obliterated and with the mining shares disappearing from off the face of the earth, a lot of longs are in trouble.

Maybe the bulls can stave off any further downside but they had better flex what is left of their dwindling muscle very soon.

Wednesday, October 29, 2014

Hawkish Sounding Fed ends QE

Well, we got it. By, "it", I am referring to the final end of the tapering process that the Fed began so long ago I cannot even remember but will conclude at the end of this month.

Throw on top of that some happy talk about the US economy, in particular the job market (where that came from is unclear) by referring to "solid job gains", and that is all it took to send the US Dollar sharply higher on the crosses. Of course they had to throw in that falling unemployment rate but we all know the reason for the lower number is because the labor participation rate continues to decline. Where they also came up with the phrase, "that labor market slack is gradually diminishing" escapes me as well especially when we stop counting the folks out of work!

Perhaps, if you mean by "gradually diminishing", the sort of speed that one can observe when watching a blade of grass grow, then I will happily grant them that. We all know that is a bunch of hooey for if that was true, WAGES would be RISING, and not flat/stagnant as they currently are.

That was the major phrase however that got the currency markets all roiled as that phrase was not in the previous releases. As a matter of fact, I seem to distinctly recall the Fed being on record as being concerned about that labor market slack being substantial.

Hey - its election time; what more can I say. The Fed boss has to keep her boss, happy, if you know what I mean.

TAlk about overdoing it however. Where I come from, the idea that there is "underlying strength in the economy to support ongoing progress towards maximum employment in the context of price stability" is something we feed to mushrooms.

Are they kidding me?

Regardless, the talk in the market as a result turned to that interest rate hike thing once more. As before there was nothing in this month's release that would give any concrete evidence of a set date for an actual hike. What we got was the same as before - the Fed promised to keep interest rates low for " a considerable time". Where have we heard that before?

By the way, regular readers of this site are aware of that TIPS spread chart that I post regularly comparing the change in the spread to the price of gold and using it as a type of forecasting tool for the price of gold. The Fed noted falling inflation expectations as indicated by that spread. They also noted the move lower in energy prices but oddly enough came up with the idea that they did not expect downward pressure on inflation to last.

Where did they get that insightful view from? It sure as hell has not been from watching the CRB index or the Goldman Sachs Commodity Index or the Velocity of Money or any other such actual useful data. I guess they just said it because it sounded good! Seriously, I see no data that gives the slightest reason at this point to believe that the downward pressures on inflation is to be of short duration.

Then again, maybe they have been watching the slaughter in the grain markets and that has gotten them all revved up about food inflation.

This missive will be short for the moment as I am utterly exhausted from trading in the grains, which have become about as bizarre as I have ever seen them.

Meal once again led the entire grain floor sharply higher and for now, it looks as if one set of shorts is getting slaughtered each and every day at this point. Margin clerks are having their hands full forcing specs out of those positions and a veritable bloodbath is taking place.

At some point the temporary supply deficit in meal will be eliminated and then we will go from nothing to a glut. I am not sure how long it will take to fill the pipeline again but when it goes, it will go with horrible ferocity.

While this will not endear me to gold bulls, gold was flattened on the FOMC news and is currently down over 1%. The HUI is a bloodbath having fallen 3.25% at this time while the junior-laden GDXJ is being soaked, down 5.55% at this moment.

I honestly believe we going to see some junior miners disappear before this is all done. Be careful what you buy out there if you want to be a "hero contrarian" and start buying junior miners.

Take a look at this ratio chart briefly comparing the HUI to the price of gold and creating a ratio. It hit a level that was last seen - are you sitting down as you read this - December 2000! That is FOURTEEN YEARS AGO.

I said this before in a recent post and will say it again now, either the price of gold is too high and needs to fall further or the mining stocks are undervalued against the price of gold and need to move higher. Based on what I am seeing today, I see nothing to persuade me any differently. I still think gold is heading lower. Either that or some of these mining companies are history.

Notice on the gold chart that the metal has fallen to the support zone marked near the $1220-$1210 level. It is currently BELOW that level. the way it is trading at the moment ( and of course this could change) it does look as it a test of $1200 is coming. The reason I say that is because the price has fallen well below the middle line of the Bollinger Band indicator with the lower band sitting near $1197.

The ADX is still choppy suggesting that this move is a move back to the bottom of a wide range that has been in place for nearly a month now. However the clear break to the upside of the -DMI (red line) shows near term momentum with the bears.

To get out of the mess that they now find themselves in, the bulls are going to have to clear that downtrending 50 day moving average again. That is way up there near $1240 at the moment.

Incidentally, it does look as if Mr. "gold will be well north of $2000 before the end of this year and silver north of $50" has struck out once again. I am not trying to rub salt into a wound  - I am merely repeating something I have said here repeatedly in an attempt to teach and WARN readers - DO NOT FOLLOW ANYONE who claims to know in advance where a market is going. Here is the truth - THEY DO NOT KNOW in spite of their hubristic and reckless claims to the contrary.

Proof is in the price chart for the metals but I can say the same thing about these grains. Most of us who trade the grains for a living all had ideas where we thought the grains were heading. Most of us were also wrong!

I will try to get some stuff up later on the bean meal and the grain markets. The action in there has taken on a life of its own and a full-out money game is now what is occurring. Panic buying - despair- forced short covering due to margin calls - blown to pieces and to hell in a handbasket hedges are being obliterated. You name it - it is taking place in there.

I can tell you one thing - there are some very angry traders out there right now and some very angry hedgers at what has transpired. This is what happens when techicals take over a market and then take on their own life. Fundamentals are essentially irrelevant when positions are getting blown to hell. About the only thing that matters right now is who has the beans?