"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


Thursday, June 12, 2014

Crude goes One way; Copper goes the Other

I hope you enjoy paying high prices at the gasoline pump because they are back on their way once more.

Take a look at the following chart and you will see what I mean. This resurgence, ( completely avoidable) has sent crude oil prices soaring and that means that the products are following right behind.

I have noted an area of resistance on the chart near $3.10 - $3.11, which if bettered, will send gasoline to a test of last July's high just above $3.15.

Here is the issue before us - rising energy prices often confuse traders because many have come to regard them as evidence of inflationary pressures. The problem in this economy is that it is so weak, so fragile, that rising energy prices will act in the exact opposite fashion - they will serve to depress growth and drive the price of key commodities lower.

Here is an updated chart of our pal, "Dr. Copper".

Can you see what it is saying? I have made some notations on the chart detailing the fundamental news that has been the driver of each move lower recently.

Today's Iraq news was interpreted as bearish for global growth because of the surge in energy prices and the "tax effect" it will have on growth in general. 

The move lower in copper was affirmed by the sharp drop in interest rates as the yield on the Ten Year fell  below 2.6% after it had been managing a slow but steady climb out of the ceiling near the 2.40% level late last month.

Stocks in general also responded to the Iraq developments by selling off. All three indices that I follow, the Dow, the S&P 500 and the Russell 2000 were down around .6%.

The HUI was one of the exceptions as the gold sector had a nice day.

The index broke above the resistance level near 218-220 and has now extended into the former range trade that was marked by a top near 228-230 and the bottom near 218-220. Let's see if this index can push up to the top of that former range and possibly breach it or if it stalls out and retreats lower. Near term momentum is now with the bulls and as long as the ISIS is on the move and succeeding, gold and these shares should find some decent buying support.

I want to continue to keep a close eye on the Copper market. If that thing breaks down, it could spell some real trouble coming our way. Higher energy prices could very well squash any nascent recovery dead in its tracks.

By the way, this is just one reason in my mind that should convince American citizens that it remains imperative we fully develop our own bounteous supply of domestic energy sources. That includes building that Keystone pipeline to bring Canadian crude ( our stable friend and neighbor to the North) down to our refineries along the Gulf Coast. Frankly I am weary of having the price of gasoline held hostage by events that transpire in that most volatile and backwards regions on the planet ( the Middle East). Far too many who live there are caught in some sort of time warp and seem to revel living in 8th century AD conditions and thinking. One has to pity some of the younger folk there in particular who have seen the freedoms that the West currently enjoys and might not ever live long enough to experience them. What a tragic waste of human potential.

Iraq Cities Fall to Terror Groups - Oil soars

Watching this disaster unfold before our eyes makes me sick beyond words can express. To realize how many of our men and women gave their lives or were horribly wounded and left crippled and shattered to secure the cities that have now been handed back on a platter to the terror groups looking to form their long cherished Islamic Caliphate, fills me with disgust and contempt towards an administration that has no comprehension how reckless its foreign policy is.
Better yet, it has no foreign policy whatsoever. Since when does one secure a country and then abandon it without having any sort of Forces Agreement in place?

Our top military generals who understood the region and were involved in the war effort there, all warned that this is exactly what would happen. They were ignominiously ignored by an administration that has snatched one defeat out of the jaws of victory after another.

Now what? I remember seeing those Iraqi citizens with their ink-stained fingers voting for their leaders. Now some of them are being beheaded.

Look, whatever your view towards the Iraq war might have been, it is now a fact that our troops have seen their blood, sweat, tears and sacrifice thrown away and spat upon by their commander in chief. Imagine if this is what we had done after WWII? I was watching one soldier's interview last evening who had fought in battles to secure these exact cities say he now understood something of what the troops who had fought in Vietnam felt when they watched the helicopters leaving Saigon.

Crude oil is rightfully now pricing in a disruption to world oil supplies as a result of the barbarians on the move. 

 Gold is rising higher as fear now settles in upon the world once again over the possibility of the major oil regions in the South of Iraq eventually falling under their control. One owns gold for these very reasons but if I hear a single gold perma-bull crowing about their yellow metal god rising and rejoicing on that account, I think I will spit out of disdain. The more I try to put myself in the place of those soldiers whose deaths have been so cheapened by this administration, the more I want to weep for my nation.

What a wretched and yet completely avoidable disaster. I feel like I am watching a slow motion train wreck of my beloved country unfolding before my eyes. In every area of the US, we are witnessing a disintegration of all that we hold dear. I am not sure what is worse - that this is happening so blatantly or the fact that nearly 50% of the US citizenry is completely ignorant of the demise of the nation. While they sit and watch their damned reality TV shows their nation is falling apart.

From a technical chart standpoint, crude oil has broken out above key chart resistance near $105 and is currently at a nine month high! Look for this market to be well supported as long as the Iraq oil fields and production are vulnerable. Who knows where this market might run at this point? It is now at the mercy of events on the ground in Iraq. As of yet, I have read of no planned response to the ISIS advance. Maybe our current administration will wait until Baghdad falls and then come up with something, whatever that might be.

In contradistinction to the trumped up sensationalism that was reported on the perma gold bull sites when it came to Ukraine, anything that impacts the world oil markets is a much more serious concern. Notice how bonds are being bid higher, equities are falling and crude is soaring. Markets really do worry about anything that deals with a major oil producing region because crude oil is the life-blood of the world's economic engine.

Copper is sinking lower on the news as it fears higher oil prices potentially choking further an already sluggish global economy. We were reminded of this with total's retail sales and the jobless numbers. Both served to reinforce the notion of an economy that remains fragile. Then one throws on top of that the potential for higher oil/energy prices, and it is not hard to understand the "oil tax" effect on growth.

Silver is following gold today instead of copper and has managed to best some selling near the $19.25 level that was holding it in check. With hedge funds on the net short side of the silver market, there is definitely some short covering occurring with this Iraq development.

Gold has easily punched through $1270 as the bears run for cover on this news. Now the big question is whether or not the bulls can take it up through $1280 and hold it there. If they can, we have something going.

I will get a chart of gold up later today _ I want to see how it handles itself later in the session and want to watch the mining shares to see if they can take out any key chart resistance levels. Letting the dust settle somewhat after these news events rock markets is sometimes the best thing to do before formulating a trading response. One can move in and out very quickly to take advantage of some short term price spikes or drops, but making a longer term strategic decision around something so volatile as this is unwise. Be careful that you do not build too large of a position in anything. Besides, it does not take much to make some nice short term gains when markets move this much anyway as a little can go a long way.