"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, June 13, 2014

Commodities Getting Some Money Flows

Trying to keep track of the vagaries of these markets in this goofy era is becoming a near exercise in futility. Sentiment flops back and forth faster than the lead in some basketball games changes hands.

Take Copper as an example - yesterday it was fearful of the impact of high energy prices on global growth so down it went. Today, or I should say overnight, there was news out of China that Industrial Production there rose 8.8% in May from a year earlier. During the month of April, it rose 8.7%.

Some immediately seized on that number and jumped into the copper market in a buying mood. Forget the fact that that was last month's number and that futures markets are generally regarded as "FUTURES" markets, not "PAST TENSE" markets. Forgotten in the increase of 1/10 of a percent were the issues with the double and triple counting of Copper in Chinese warehouses for loan purposes and the current debacle in Iraq.

But it was not only copper that was bid higher today. I am not really sure what the heck was going on but for a good part of the session, one has hard-pressed to find a single commodity futures market in the red. Money was coming into nearly every one of them for some odd reason. Why I say, "odd", was because the US Dollar was actually higher today, unlike yesterday when it was not a beneficiary of any safe haven play. Today it was. Go figure.

Regardless, take a look at what this surge in energy prices, courtesy of ISIS in Iraq, has done to the GSCI.

It has pushed the index up towards the top of a mini-range near 662-663 which has held it for the last three months. If the market was worried about higher energy prices slowing global growth yesterday, which it was, today it could care less. "She loves me; She loves me not". These markets are turning an entire generation of traders into 3 minute bar chart junkies.

One could say that there might be some sector rotation out of equities and into commodities, but, if traders really are worried about higher crude oil prices cutting global growth estimates, the last thing one would want to do would be to pour money into growth sensitive commodities. Bonds, yes - commodities?

This is further proof in my mind that today's markets, dominated as they are by unthinking computers, more often than not have the attention span of a dwarf gnat.

You see extreme shifts in sentiment within hours instead of within weeks or months. All it takes is a few big buy or sell orders to get the ball rolling and the computers take over and that is all that matters in that market for the rest of the day.

As an example - we received the USDA Supply and Demand reports this Wednesday revealing a larger global supply of soybeans than the market was anticipating. Also, abundant rainfall and good growing weather induced USDA to up the yield per acre number above most analyst expectations. So, on Wednesday and Thursday the beans, ( both old and new crop) were reacting to a bearish report and bearish weather. Today, someone got the ball rolling to the upside again leaving the pit reporter scratching his head trying to come up with a reason for the move higher. The best the poor fellow could do was to say that the "weather has been so good no one believes it will continue and thus people started buying".  See what I mean?

Kick in a few big buy or sell orders in these computerized markets and you can pretty much take any market anywhere  you want it to go at any time. And notice - this is not being done by players involved with the feds - it is just the nature of the modern market. The key to successful trading used to be understanding the fundamental behind the markets in which one plies their business - not any more - the key has become anticipating what hedge fund computers are going to do and WHEN they are going to do it. Get that right, and you can make a tidy sum even if you happen to be completely ignorant of the difference between a sheaf of wheat and an ear of corn or a pod full of beans. Hedge funds ARE THE MARKET. Don't forget that.

I would not mind it all that much because at one time the large funds ( not hedge funds in general) were run by some knowledgeable guys who intimately knew the markets in which they traded as far as the fundamental factors went. I know - I used to trade against and with them. Today's hedge fund managers are mostly clueless. Take away their mechanical thinking device ( aka computer) and they are helplessly ignorant of anything remotely resembling a fundamental. What is the sad reality is that they could care less about it! Who needs any fundamental knowledge when computers are running the show based on the last price print.

I am noticing here later in the session that gold has now moved into positive territory as have the mining share indices. This reminds me a lot of the recent Ukraine situation during which traders were afraid to be short ahead of the weekend not knowing what might transpire. In the event of Iraq, traders are becoming increasingly worried that this ISIS group is going to take Baghdad. If things go from a disaster over there to an even worse disaster, no one wants to be short.

Gold is knocking right on the door of chart resistance near $1280. As a matter of fact, it has reached initial resistance near $1277. If gold can push past $1280 and hold those gains, it looks to me like it is going to make a run towards $1295 and possibly $1300.

If the Bears are going to be able to prevent a large shorter squeeze from taking place, they will need to hold the line right here; right now. If not, they will be forced out allowing the market to run to the resistance area noted above.

That this is taking place in gold, and in the rest of the commodity sector for that matter, while the Dollar is actually firm, is noteworthy. The Dollar looked as if it was ready to rock and roll to the upside as it was into that resistance zone near 80.70-80.80 but then Iraq struck and down it went once again. Of course, as it went down, the Euro was moving higher but that reversed today with the Euro moving away from the 1.360 level and hovering almost smack dab in the middle between 1.360 and 1.350 which is a key support level.

Feeder cattle, ( fats as well ) are both very strong and that is helping to keep the commodity indices higher. Feeders are soaring into stratospheric levels with floor traders all aghast that they can possibly move to these levels. Funds are pushing everything on the other side of the market out of their way as their buying orgy continues. These things are becoming dangerous if you ask me however.

Shorting them has turned out to be disastrous for the general public which was holding almost the entirety of the short interest in this market. Hedge funds know that and are bleeding them into submission.

Unleaded gasoline has moved a bit lower this afternoon but still remains above the $3.00 mark. Better go fill up your truck this weekend before they raise the price at the pump next week ( if they did not do so already).

I will get some COT stuff up later as my schedule permits.