"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, 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.