“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


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Wednesday, November 26, 2014

US Dollar Relieving Overbought Condition

(Please note that this article is taken from www.traderdan.com).

It is no secret that the currency flavor of the year has been the US Dollar. King Dollar has reigned supreme over the Forex markets especially since this summer when it began a torrid bull move higher breaking out above 81 and making a run to near 87 before it caught its breath and backed down a bit. It decided to run some more, this time to 88.50 before again pausing.
 
Right now, the currency markets are rather subdued thanks to the US holiday ( don't blink however because it all might change!). There has been some movement in the major crosses but not that much to speak of in terms of anything significant. It seems that for the moment, traders are content to let the various pairs meander in some tight ranges.

Chart20141126174513

In looking over the chart of the US Dollar Index (USDX), the currency unit seems to be consolidating in a tight range between 88.50 on the top and 87.50-87.25 or so on the bottom.
 
I have drawn in a shaded rectangle to denote the region where it is encountering some buying.

If you look down at the indicator on the lower plot, you will see the RSI or Relative Strength Indicator, an old but helpful measure of buying or selling internals. Note that since the strong bull trend started in July, the RSI has ranged exactly where it ought to range for a market in a bullish posture - it has not dipped below the 40 level ( see the lower dashed line).

Chart20141126174513

To show the strength of this move, look at how long the RSI has remained above the 80 level, which is considered overbought.

The recent leg higher has produced a negative divergence ( higher high on price not confirmed by a higher high on the RSI) but the market thus far is unconcerned about this, so we will also remain unconcerned. We know this because the lower part of the range remains intact.

Chart20141126174513

The market appears to be working off the overbought condition by moving sideways, allowing the RSI to fall towards the 40 level ( see the shaded rectangle on the RSI insert). The longer the Dollar can move sideways with the price remaining above the support zone on its plot AND the RSI remains above the 40 level ( and the rectangle), the more the odds increase that this is just another pause before the next leg higher in the US Dollar. Traders will want to monitor this closely the next week or so.

If the Dollar were to fall through its support, we would not want to see the RSI fall below 40. That would introduce some doubt as to the staying power of the current leg higher and would bode for a deeper correction. Let's keep an eye on this.

Those who are actively working gold, especially, will want to monitor this most closely.

Monday, November 24, 2014

A Special Announcement


Dear Readers;

 
When I first began this site, more than three years ago, I did so for two reasons.  First, I wanted to use it to both freely express my own personal views of the markets, without feeling constrained by the fact that I was a guest at the sites of others. Secondly, I wished to convey some of the knowledge I had gained from trading for many years to those who were attempting to learn how to understand and look inside the markets for themselves.

 Regarding the latter of these, when I first started trading, I had no mentor, and no one I could look to in order to make sense out of what was happening. You talk about confusion and bewilderment! The sums of money I lost in gaining my experience were quite large to be honest.  One could say that I paid dearly for my education at the School of Hard Knocks! Along that line there is an old joke in our profession:

 
“How do make a small fortune trading commodities?”

 
“Simple – start with a large fortune first!”

 
Some might think it rather quaint but in response to many emails I received back then from those who had read my writings, I was convinced that it might be a good thing to actually try helping these many wonderful folks learn how to make some informed trading/investment decisions on their own and thus rid themselves of dependency on others when it came to making wise choices into which to put their precious wealth.

 After so many years of doing this, I think I might have succeeded in a small way based on some of the responses I have received from this, my current site. The old adage comes to mind: “Give a man a fish and feed him for a day. Teach a man how to fish and feed him for a lifetime”.

 
That being said, the amount of time and effort that this site takes from me can be overwhelming at times. I mentioned this a while ago when seeking the comments of some of my readers about trying to actually cut back or opening the site to accepting Donations or possibly going to per click advertising.

 After much hesitation and with the friendly encouragement/ arm twisting from some of you kind readers, I decided to go with the Donation button.

 I wish to publicly express how grateful I am too all of my readers who were gracious enough to reciprocate and make a kind donation. I understand how valuable that your money is to you and the fact that you have felt moved to freely contribute something towards my efforts, speaks volumes to me about your generosity of spirit and your thoughtfulness. From the bottom of my heart, “Thank You!” You will never know how incredibly encouraging your gifts were – especially when at times it seemed the vast majority of emails in my box were vile, insulting and rude ( coming from members of the gold cult – as we have come to expect).

 As those of you know who have read here for any length of time, I make my living entirely in the markets as a trader. Nothing I have ever written in public, or spoken in an audio interview, has ever netted me a cent as I did it willingly and without charge. There does come a time however that the Scripture: “A laborer is worthy of his hire” becomes apropos. In discussions with my wife and some friends, I believe that this is that time.

 I want to therefore announce that I will be starting a fee-paid site, Trader Dan’s World. Before some of you completely panic, I will be keeping the free site up and running so that the posting community can continue to have a place in which to swap notes and such. I intend to post one or two articles there during the week. That will allow for the current posting regulars to continue to interact; however, the new site will contain the bulk of my work.

 The truth is that I have grown rather fond of some of my regular posters and although I have never met them, feel like I know them rather well as individuals because of the length of time that we have spent reading one another’s comments. I do hope some of you will be moved to come on over to the new site and give it a try.

 I fully understand that for this decision, I will catch some grief from some of the gold bugs, especially those who love to somehow manage to accuse me of always having some sort of agenda ( what that is escapes me but I trust that these all-knowing and all-wise individuals, who somehow know me better than I know myself, will be more than happy to enlighten me as to exactly what that might be). Suffice it to say, that one of the pure delights in having a fee paid site that I hope to enjoy is to finally rid myself of having to deal in any form with such people. And I must also say that having to put up with their non-stop attacks and insults, merely for calling the market as I saw it in the charts, was ONE of the factors that went into my decision to move to this fee-paid site.

 I suppose if they wish to continue their verbal assaults, they will have to fork over some cash for the privilege of so doing! Then again, considering the fact that none of them had the common trading sense to recognize a bear market and protect the value of their metals during a period of lower prices, I suspect that they are too busy nursing their many financial wounds to have any surplus cash available with which to contribute to my fee-paid site for the opportunity of continuing to insult their host. Let them grumble, murmur and complain therefore. I think the rest of us understand their kind!

 A quick word about the new site – I intend to focus on more markets that just gold or mining shares. I have been introducing other markets here at my site for those who are interested in looking at some of the other futures markets. Believe it or not, there is an entire universe of commodity markets which can be traded and which offer profit potential for those who like doing something besides watching gold prices all day long. As some of you know by now, my special areas of expertise lie in the agricultural markets, the livestock and grain markets. Those are the markets that I cut my trading teeth on and the ones that I spend the most time dealing with during the normal trading day.

 There are currency markets, and energy markets, as well as the bond market and of course the equity markets, that are all potential topics of articles that I will post and analyze from time to time. One thing that I can tell you, is that I will continue to call these markets as I see them, with no apologies for so doing. As I have said many, many times now, the business of a trader is to profit. Successful traders profit; those who fail make excuses. It is indeed that simple!

 As a way of introduction, we are going to provide a one month free trial period for my current readers so that they dip their toes into the water and check it out. I am excited about the forum that we will be setting up as well as some of the social media inputs. We plan on the site being an ongoing work in progress, making improvements and changes to it as needed or suggested. Also, I am trying to work up something extra for all those who made Donations to this site as an extra way of saying “THANK YOU”.

 In closing, I would like to thank all of my readers who have come here to read my thoughts over the years. It is an honor to have one’s views respected by a wide audience but it is also an honor that brings with it the responsibility to be truthful and to be honest. I have tried to take that charge seriously and I trust that you as my readers have seen this in my writings.

Sincerely,

Dan Norcini

“Trader Dan”

 

Friday, November 21, 2014

Corn Comments

Trading the grains the last two months has been akin to "Ted and Bill's Excellent Adventure". We have seen hedge funds pour money into the corn and bean markets in spite of the fact that we are dealing with record crops heading into the end of harvest season. The speed at which they have switched sides in these markets, going from big NET shorts to big NET longs has been breathtaking. The end result has been that speculative buying has caused farmers to become stubbornly bullish refusing to let go of their freshly harvested crops as they look for even higher prices.

The move higher was led by the meal, which dragged the beans higher and that in turn pulled corn higher. Of course, it does not hurt the bullish cause when China comes in and gorges on US beans. Grain traders are essentially watching to see when they will start cancelling US bean orders and move to sourcing elsewhere.

In the interim, hot money flows have forced a substantial amount of short covering as there was simply not enough commercially-related hedge pressure to absorb the buying from panicked shorts and bottom-picking bulls. Throw on top of that the usual index fund buying and you can see the result - corn prices have come well off of their late September lows.



The question now becomes - what next? Farmers have been holding back newly harvested grain in those nice shiny new grain silos that they were able to afford when corn prices were above $7.00 and bean prices were in the teens. that has keep the price relatively supported. But while US farmers are the best in the world when growing food they are oftentimes rather poor when it comes to marketing (pricing) it. No matter how one measures it, there is a HUGE amount of grain out there in the nation at this time. Farmers seem to forget this.

They get bulled up at precisely the wrong time and depressed at the wrong time. It is human nature and good business sense to want to obtain the highest price possible for one's goods - the problem occurs when farmers start thinking like speculators instead of business men. Specs take on risk in the hope of making gains - sound business policy involved AVOIDING or MINIMIZING risk as much as possible.

Farmers who are watching prices at the Board working higher and thinking: "I am not selling anything as prices are going higher" are essentially gambling with their farm's income. It makes sense, considering the soaring US Dollar (which is making US corn extremely expensive compared to corn from other source nations ) and the fact of the massive harvest and the fact that this rally has been primarily driven by short-covering (see below) to start taking advantage of this rally to price some of that newly harvested grain.

If a farmer is inclined to try holding out for even better prices, they are betting that weather problems are going to hit S. America or some other extraneous event (like the binge buying related to a modest Chinese interest rate reduction) will provide even better prices at which they can sell later on, but what if none of that happens? What guarantee do they have that weather will not be benign in the southern hemisphere? They are essentially rolling the dice and hoping and that is not a sound risk management plan. It is one thing to hold off some grain for "gambling stocks" but an altogether completely different ( and foolish in my view) thing to not price any grain at all.

That being said, take a look at the chart and notice the move off of the lows. This shows closing prices only so it does not reflect the fact that the front month contract touched $3.89 last week.


Now look at the Commitment of Traders report through this Tuesday where I have broken out the large speculative component and charted their long and short positions.



I have posted this chart up previously but wish to do so once more to make a point - notice that the number of long positions in this category have not varied by a substantial amount since late July/early August.

But look at the red line showing the short positions and note how incredibly volatile it has been. Shooting sharply higher as prices fell and then dropping off equally sharply as prices rose. What this tells us is that it is large spec activity that has been behind the move lower in corn since May of this year and the move higher in corn since October. A goodly portion of the short positions they put on over a 5 month period since late May, have now been taken right back off since October.

The question that should be asked by any farmer is simple - once these big specs are finished covering shorts ( buying back those short positions and closing them out) just who is it that is going to pay these kinds of prices for corn given the massive size of the crop out there?

Today might have been a sign that this short covering has run its course - it is hard to say given the horrific volatility in these markets of late - given the sharp drop heading into the closing minute of trade today. If it is, and again, it is not yet clear, farmers who failed to price any grain during this recent rally are going to end up kicking themselves for not doing so especially considering the amount of revenue that they might have passed up by not pricing any of their grain.

We might have to wait until after the first of the new year before we really see some heavier grain movement off of the farms, as there might be some farmers holding off selling for tax reasons. That being said, there is no guarantee of this rally lasting that long, especially with the US Dollar hitting a 51 month high today.

US corn, driven higher in price by speculative short covering, and a soaring US Dollar, are not the ingredients that go into the recipe for making US origin corn cost competitive on the global market.





Dollar Comments

I am going to keep these comments short mainly because I am utterly exhausted after the roller coaster ride from this week's markets.

The one thing that stands out, now that the dust has settled, is the action in the US Dollar.



One look at the chart and you can easily see the desired currency of choice among global investors. For all its problems, and there are many, the US Dollar remains the "Go-To" currency. The reason I say this is very simple - The Dollar put in the highest WEEKLY CLOSE in 51 months! It is also less than a full point away from taking out the peak made in June 2010. If it does, it is headed to 90.




Now, there are two things that were at work today which created the "Madhouse" that the commodity futures markets became.

The first was the expected inflationary outcome from a Chinese rate cut/ECB monetary stimulus measure. The latter was a deflationary outcome from the soaring Dollar and bond markets.

Interest rates are going down, not up. Many look at this as spurring more borrowing, more lending, more consuming and thus more economic growth. That group bought everything in sight today. The speed at which they did so was terrifying. I chose that word to describe it to see what a tsunami of hot money flows can do to markets when it invades them.

The flip side was another set of traders looking at the strength in the Dollar and drawing the connection between it and a general deflationary wave engulfing the commodity complex. They were big sellers.

The first group won out when the dust settled but you could see some impact from the latter during the session in the grains, and in gold. Gold had regained the "12" handle and then when the latter group came in and start selling, it promptly flopped and lost it. By the time trading ended in the pit, it managed a good close but failed to close above $1200.

Corn did something similar. It went flying higher with shorts being obliterated by the wave of hot money coming into it but in the final minute of trade, it surrendered all of the gains and closed lower.

Soybeans managed to close higher, which is even more bizarre as they had started off with a bang much like corn but during the middle of the session lost every single bit of their gains, went negative and then completely reversed and surged higher again to go out near their highs.

The thinking behind the bean move was that increased credit availability in China will mean more bean purchases from the US's largest foreign bean buyer. Frankly I don't see that connection but the people with the most money decided that was the reason to buy them and there was no one large enough by the time of the end of the session to take them on.

I can see what is taking place in the bonds and frankly, I think the group worried about inflation is greatly overlooking something but based on the bizarre and huge price swings that are being produced by all these infernal Central Bank actions, as well as Chinese actions, I honestly have no idea where all this is headed. Guess what - based on the type of trading we are seeing, no one else does either.

Here is the bond chart in closing. Note the general direction that they have been heading - UP...

 
 
Here is the yield on the Ten Year Treasury - same thing, except in reverse (yields move inversely to price) - it is moving lower reflecting the lower growth.
 
 
 
Lastly, here is a glimpse of the platinum chart - a metal that much like copper, tends to reflect sentiment towards global growth. It had a big up day today as the China news had industrial metal buyers giddy for some reason. It looks as if it might try to make a run towards $1280. If the inflation guys are correct, it will easily better that. If not, back down it will go.



What a week - there are times when I love these markets and then there was this past week, when Charlton Heston's classic line from the original "Planet of the Apes" is exactly how I feel.

My thoughts on today's action

See the link... no other comment offered could say it any better.

https://www.youtube.com/watch?v=VFCM6TZgTMI

Euro plunge below 1.2400 reversed the money flows from the "Buy China" interest rate cut to "Sell out because of the Strong Dollar".

Where the hell this ends today is anyone's guess.

Central Bankers and other foreign government officials have essentially destroyed the integrity of the entire financial system with their constant meddling.

China News, ECB Roil Commodity Markets

I will get more up on this later as I am extremely busy this AM... Overnight news that China was lowering interest rates, (its first in two years) and the ECB is planning on further stimulus measures, has sent massive hot money flows back into the commodity sector.

The grains are seeing big buying, as are silver and copper. Silver loves positive Chinese news as does copper, as does platinum as does palladium, etc.

Gold is also moving as it has recaptured the "12" handle.

When you think of commodities, you think of China, as it is the nation that has the insatiable demand for tangibles. If the lower interest rates spur economic activity, the thinking is more commodities will be consumed. Index funds are now pressing the shorts relentlessly.

The Euro has collapsed sharply lower sending the Dollar soaring. Normally gold has been following the Euro of late but with everyone getting bulled up on account of China, commodities are moving higher nonetheless.

Look at the Aussie - the currency loves anything potentially China positive.

Let's see if this is a flash in the pan, a one day wonder, or the start of something more. Equities will now be unstoppable. I told you silver guys that you had better start rooting for surging stocks and stop trying to find reasons for stocks to go lower. Silver needs inflationary growth, not deflationary collapses if it is to thrive.



Wednesday, November 19, 2014

TIPS Spread Echoes FOMC Minutes

I mentioned in an earlier post today that the FOMC essentially downplayed inflation fears in the minutes released today. That seemed to be one of the big factors involved in the sharp move lower in gold after it had spiked higher and moved back not only to the unchanged level but had tacked on some mediocre gains as well. That was all abruptly reversed after the market had some time to chew over the minutes.

Along that line, here is an updated chart of the TIPS spread comparing the price of gold to the movements in the spread. I want to point out that the most recent spread fell to more than a 3 year low this week! Clearly, the market has no concerns whatsoever about any budding inflationary fears. Such a thing is not good news for gold bulls.


When I look at this chart, I am struck by how closely the gold price has tracked this simple spread since September 2011. There were only two brief intervals when the spread went one way and the gold price went the other and that was Q4 2012 and briefly again in Q4 2013. It will be interesting to see if something changes in this current year as we are in Q4 and the two lines are tracking very closely to one another.


Gold is going to be especially dependent therefore on very strong offtake from India to keep it supported. I just do not see a fundamental driver right now that would entice Western-based investment demand to ramp up in a large way at the moment.

The metal is going to continue taking its cues from the Foreign Exchange markets therefore. Strong support has emerged at and below $1180 in the past week. That needs to continue or else bears are going to pounce once again with the FOMC minutes giving them some more confidence after the recent torrid rallies had dealt a big blow to it.

It seems to me that bulls have been pinning their hopes on the Swiss Gold Referendum Vote and a Dovish Vote. Scratch the latter after today's FOMC minute release. The former is still unclear.


Fed Downplays Inflation Worries

Going over these FOMC statements is akin to the ancient art of divining the future by the examination of animal entrails. I can see the conversation:

Demetrius: "I see what appears to be a twisted piece of gut. That is a sign from the gods that the future is twisted and unclear. Perhaps we should wait before going to war".

Apollos: " I see the same thing but tells me that our enemies will lie twisted and ruined on the ground. We should to war immediately".


Lydia: " I see a big fat worm. That tells me that this animal is so screwed up on the inside that we should not believe a single thing this entrail reading crap tells us".

The takeaway I get however has to do with inflation. We have been saying here for some time now, much to the chagrin of some of the gold perma bulls, that the market is not the least bit worried about inflation at the moment. That sentiment has been reflected in the flat to lower TIPS spread as well as the sinking commodity indices. Also, the concern of both the ECB and the Bank of Japan as been the LACK of INFLATION and what they like to euphemistically term, 'disinflation'.

Today our Fed said essentially the same thing if I am reading the entrails correctly.

Here is a short excerpt from the statement:

"... inflation edging lower in near term partly due to decline in oil prices..."

There are several other interesting things in the statement but that one seems to have caught the attention of investors/traders. Simply put - if the Fed is not worried about inflation than neither are we going to worry about is how the market seems to have reacted to things.

Another thing was the Fed's remarks on the recent "mid-October turbulence in financial markets". The Fed essentially glossed over that by stating that they saw the impact of those recent "world developments as likely quite limited".

Gold, which has been all over the place in today's session, seemed to finally digest the statement by heading lower. If there is no inflationary concerns and the Fed seems undeterred by any of the recent financial issues buffeting the global economy, traders viewed the statement as "hawkish" or perhaps a better way of saying it, "not dovish".

Like I said when I started this set of comments - deciphering these pronouncements from on high sure is an enormous waste of time but the fact is that the markets respond to them so one might as well at least try to get the flavor of the moment.

Gold has fallen to just above that key $1180 level a second time in today's session. Bulls are trying to hold it there but the mining shares falling out of bed have pretty much undercut any attempt to push it up and away from there at the moment. Maybe that will change before the session is out - give it 5 minutes!