Monday, February 7, 2011


Trader Dan's Market Views









Saturday, February 5, 2011

DAN NORCINI: Long Bonds Break To The Downside

Posted: Feb 05 2011     By: Dan Norcini      Post Edited: February 5, 2011 at 12:52 am
Filed under: Trader Dan Norcini
Dear CIGAs,
The big development in today’s market session was the breakdown in the long bond. As you can see from the chart below bonds have been carving out a 5 week old sideways trading pattern bounded by approximately 122 on the topside and 119 on the downside. All sharp sell offs down to the latter level had met with buying that brought them back up to the top of the range where sellers once again surfaced. This impasse continued for more than a month with buyers looking to the Fed’s entrance into the market during its timed purchases of longer dated Treasuries in association with its QE2 program. Sellers were looking at surging commodity prices and other signs of upticks in manufacturing activity and retails sales numbers which suggested that the constant pump priming was producing some impact on the overall sluggish economy.

A thing to bear in mind from a technical aspect is that the longer a market runs in a sideways pattern, the more significant the breakout tends to be when once it occurs, no matter whether that be to the upside or to the downside. In the case of the bonds, the breakdown was to the downside. I should also note that volume on the sharp move lower was very heavy, always a good sign that the move is legitimate.

Follow through early next week will be important to see that this was not a one day wonder and that it is indeed the beginning of a major trending move.

If it is, what is so remarkable is that it is occurring in the face of total planned Treasury purchases of some $600 billion as announced by the Fed back in November. The entire purpose of that program has been to move long term rates lower and help with the dismal housing market and real estate sector which needs the low rates to boost  demand so as to mop up the huge overhang of houses and properties hanging over this sector of the economy. With today’s breakdown of the 5 year on out to the long end, interest rates are headed in a direction completely opposite than what the Fed has been intending!

Thursday, February 3, 2011


Posted: Feb 03 2011     By: Dan Norcini      Post Edited: February 3, 2011 at 2:06 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Apparently the catalyst for the strong move higher in gold today was a speech given by Chairman Bernanke in front of the National Press Club this morning. Basically he repeated what we have been saying for what seems like an eternity now – in spite of all the QE and gazillions in liquidity created by those programs, job growth remains anemic:

“It will be several years before the unemployment rate has returned to a more normal level,”
Traders rightly interpreted that to mean QE is still on for the immediate future.

Here is an excerpt from Bloomberg on the story detailing Bernanke’s comments. Click here to read the entire story
Little Alarm
Fed policy makers are showing little alarm over the rise in food and energy prices. The central bank’s Jan. 26 statement acknowledged rising commodity prices while saying that longer- term inflation expectations were stable and “underlying inflation” was still on the decline.
While prices of some “highly visible” items such as gasoline have “significantly” increased recently, “overall inflation remains quite low” and wage growth has slowed, Bernanke said. “These downward trends in wage and price inflation are not surprising, given the substantial slack in the economy,” Bernanke said.
I am not sure what planet Ben is on but maybe he should take a quick peek at the CCI chart (Continuous Commodity Index) and say that with a straight face. He may be “showing little alarm” but rest assured many of us are showing a great deal of alarm including every person in the US that has an unfortunate habit called eating. This is not to even make mention of the fact that we have governments being toppled on account of soaring food prices. In spite of all the years of watching Central Bankers spin, dodge, weave, obfuscate and outright deceive, I still marvel at their temerity when dealing with the fruits of their own creation.

Back to gold however – an important occurrence took place yesterday.

Open interest finally stopped declining according to the data released by the exchange this morning. Although the increase was minimal, it stopped going down and that is what is so significant. It sure looks as if the wholesale long side liquidation has come to an end. Based on the price action today, that appears to have now been confirmed. Keep in mind we are down to levels of overall hedge fund net long-side exposure last seen when gold was trading at $920. There is no froth whatsoever left in the gold market and without that froth, there is insufficient selling available to take the market lower. That requires more long liquidation and the shorts are not getting any more of it.

Three things occurred technically with today’s nice upside move. The first is that gold has broken out of the coiling pattern shown on the chart to the upside, a bullish development. Secondly, it has now gotten firmly back above the 10 day moving average. As a matter of fact, it ran exactly to the 20 day moving average which served as today’s high. Thirdly, it has also managed to push through a horizontal resistance level near $1350.

The next test for the gold bulls will be whether or not they can recapture $1365. If the bulls can close the market near today’s level or higher tomorrow, they will have pulled off quite a feat for they will have prevented confirming a head and shoulders top pattern on the weekly chart and have sprung a major bear trap.

Further helping matters along is the fact that the HUI went against the tide of a flat to weaker general equities market and moved strongly higher. While it is only Thursday, the developing weekly chart pattern shows a picture of an index that has run towards the 40 week moving average and had a strong bounce up and away from that level. If the HUI could extend today’s gains in tomorrow’s session and close above 530, it would have generated a very nice upside reversal pattern on that chart.

On the daily chart the index has pushed through both the 10 day and the 20 day moving averages and has now turned the shorter 10 day upwards after a decline in that average that has lasted for a solid month. That turns the short term chart pattern back to friendly once again. Now, for the intermediate to turn friendly, the HUI needs to clear the downtrending 40 and 50 day moving averages coming in near 541 and 545 respectively.

The Dollar was higher today which seemed to engender some broader selling in some of the commodity markets. Not sure what all that was about but for the time being it looks more like a bounce in a bear market  with the dollar perhaps trying to put in a short term bottom here. We’ll keep an eye on that.

Bonds moved lower which is a bit of a surprise to me given the general overall tenor of Bernanke’s speech, which I certainly did not view as all that bullish for the economy. As is the case yesterday, they are flirting dangerously close with an important chart support level.

Tuesday, February 1, 2011


Posted: Feb 01 2011     By: Dan Norcini      Post Edited: February 1, 2011 at 3:19 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
It looks as if the Dollar’s implosion was just too much for the gold market to ignore today. Earlier in the session, it came under selling pressure as the growth trades were jammed on and gold was once again jettisoned in favor of an now almost panic type of buying occurring in the equity markets. However, with the HUI refusing to break down and moving up alongside the rest of the equity world, once the Dollar began increasing its downward speed, buying began to surface in gold that took it through $1336 where it then gained further upside traction moving up towards $1345 and yesterday’s session high.

The metal continues to have trouble clearing the downtrending 10 day moving average, which is the bare minimum required before the bulls can feel a bit more confident that the bottom in this latest reaction has been forged, but the longer it can stabilize in this general region, the faster it will be able to manage this simply because of the manner in which that average is calculated. Shortly after the close of pit session trading, the usual attack on the metal occurred which took it down below $1340.

I am watching Euro gold as the last few days have seen it stabilizing near the €962 level. Yen priced gold has also been stabilizing near the 1090 level the last few days. Yen priced gold has me interested because of last week’s downgrade of Japanese debt by the rating agency S&P.
I should note here that the fund long side liquidation continues apparently unabated as we witnessed another big drop in the total number of contracts outstanding in gold during yesterday’s price retreat. The total open interest remaining in gold is now down to 463,700 contracts. To put things into a bit of perspective, the peak in open interest was 650,764 back in November of last year. Interest is down nearly 190,000 contracts in the last 9 weeks! That gold has only fallen some 6% in the face of this huge exodus of speculative money is remarkable. It tells me that the short side of the market (the bullion banks and the swap dealers) has been aggressively covering shorts at a rapid rate. As said yesterday and at the risk of beating a dead horse – the speculative long side must stop liquidating longs before this market can begin moving higher in earnest. As long as they view rallies as selling opportunities, the open interest will bleed down further.

That brings me to the non-stop party that has been occurring in the US equity markets. The S&P put in a top near 1574 at the height of the stock market bubble back in March of 2000. It then collapsed nearly 50% before recovering in late 2002 when it embarked on another run to above 1500 before it peaked near 1586 in October 2007.

From that point it then forged a double top on the long term charts as it fell through chart support centered near 1255 as the credit crisis erupted in full force upon the implosion of Lehman Brothers in the summer of 2008. Price continued falling down towards the 750 level which forced a panic in the ranks of the Federal Reserve which then announced its first QE program back in March 2009. From that point on, the index has now gone up 19 months out of the last 24 months to the point where it is now trading ABOVE the level it was last at all the way back in June 2008, just prior to its collapse due to the advent of the credit crisis.

I am not sure exactly what supposedly got “fixed” with all this money printing to so improve the economy as to justify a move in the stock market to a level higher than it was at before the inception of the credit crisis, especially with the woes remaining the housing sector and on the employment front. Another way to look at this, based just on the level of the S&P 500, is that the entire credit crisis fallout has been solved and it now has never happened! This madness just goes to prove the old adage:” You cannot fight the Fed”, especially when its primary dealers are in there using free money jamming the stock indices higher with the passing of each day.
At some point, once the panic among the more prudent money managers and the general public which has been sitting the rally out and watching from the sidelines, begins to take hold and they begin rushing into equities at full speed, Goldman and Morgan will then begin unloading all those longs that they shoved on into the hands of these latecomers to the party. That will keep the champagne corks popping and the toasts flowing as they once again pass out huge bonuses to their “skilled traders” who are only skilled because they got their hands on billions of dollars in free money courtesy of the US taxpayers, their children, and their children’s children. Isn’t America great!

In what is becoming more the norm rather than the unusual occurrence, the CCI (Continuous Commodity Index) made yet another record all time high today as the relentless rise in commodities continues. The Australian Dollar, a key commodity currency, soared back above the par level with the US Dollar today and looks like it wants to take another shot at the peak it put in at the end of last year near the 102 level. Should this currency take out its record high, it would portend further rises in the commodity sector especially in the base metals. Along that line copper finally took out that stubborn overhead resistance near the upper $4.40’s and has now gone on to make an all time record high. The cost of plumbing and electrical wire continues to soar. Say Ben, are you seeing this?

In a rather ominous development, the Dollar crashed through a strong floor of chart support near the 78 level on the USDX in today’s session plunging all the way down towards 77 before it encountered some buying. There is some support on the chart near the 76.50 level which if it cannot hold should see it move down to challenge a major chart inflection point near the 75 level. Ben and company have gotten their wish – they have succeeded in jamming the Dow and the rest of the equities markets higher but they have destroyed our birthright in the process. What makes this so dastardly is that this has been their plan all along – knock the Dollar lower but try to do in a manner that is more of a controlled descent rather than an utter collapse.
Paper asset inflation is now moving at full speed ahead and that has the less informed “analysts” praising the Fed’s actions but the fact is that if one compares the current equity market ratio to the price of gold, the market has not gone anywhere in real terms when measured against some sort of objective standard of value. Translation – the rally in the equity markets is nothing else but paper asset inflation courtesy of the Federal Reserve.
Bonds did pop higher overnight upon their initial reopening of trade but then moved lower as the equities moved higher. Once again, at the very moment of their worst levels of the trading session, even with the CCI moving higher into record territory and the equities partying like the good times are ready to roll, the bonds magically levitated off their worst levels turning what was a full point plus move lower into a modest loss for the day. The Fed’s dealers are alive and well.
What makes this such a mockery of any semblance of a free market is that at the same time the sharks are front running any Fed action on the next QE bond buy, the talking heads are telling us how wonderful the US economic improvement is becoming. The whole thing is a massive display of senselessness. If the economy was as good as the stock rally is telling us it is, then there would be NO NEED OF ANY FURTHER QE and the bond market would promptly collapse. I am afraid that those who cannot see the utter illogic of it all, are beyond hope.
Such things are lost on the trading world however as the only thing that matters in the short term is the technicals and the need to follow the momentum wherever it leads. It will stop when it just stops and until it does, the trading systems will do their thing. Still, I wonder what it must feel like to be able to turn the entire investment world into a group of lemmings or to play the part of the Pied Piper of Hamelin.

The HUI is trying to muster a close over the 517 level but thus far has not quite been able to pull it off. The majority of technical indicators are now issuing buy signals from down deeply in oversold territory. That plus the fact that the index has now managed to put in a close above the 10 day moving average which continues to flatten out should begin to attract further buying into the sector. It will now take a solid push down through the 500 level to put the recent low in danger. Good traders will have some money management levels to now work with.

Monday, January 31, 2011

Monthly Gold Charts From Trader Dan



Posted: Jan 31 2011     By: Dan Norcini      Post Edited: January 31, 2011 at 5:49 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Gold was strong upon its opening overnight in Asian trading but could not hold onto its gains as longs used the rally to lighten up further and reduce their exposure. While that is not unexpected considering the technical posture of the market, it is also disappointing that with the CCI index making yet another all time high today as commodities across the board were soaring, the yellow metal simply went nowhere.

It appears that the “growth trades” are now the new norm for the time being with gold being jettisoned in favor of equities. You’ll note that this is the reason that gold is down in unison with the Dollar as I explained in last week’s comments. The “risk trades” were still being implemented but gold was not a part of them, at least for today. There was also the usual, “buy the rumor, sell the fact” trade associated with Egypt in the sense that it did not fall apart completely over the weekend, although that is a matter of perspective. Traders were fearing a region-wide proliferation of the unrest on Friday and by today they were practically bored by it all.

We’ll have to see how the metal handles any potential retest of last week’s lows. I would actually prefer to see it move lower and then bounce away as that would more clearly denote those lows at the end of the recent price retracement but rest assured that the perma bears are attempting a push down through those levels. Whether or not it holds will depend on the willingness of longs to stop liquidating. As has been the case with this market since its decade long bull market began – the key to any upward progress is the willingness of managed money and other speculative interest to buy into it. If the specs continue dropping off of the long side, the market will move lower. Granted, they are selling into strong hands but that is little consolation for those who might be long the futures market or the ETF.

When the exchange released the Open Interest figures from Friday’s sharp price recovery and there was a sizeable reduction, I knew we were in trouble. Still, the metal has not given back all of its gains from Friday and that still gives the bulls the opportunity to hold it here if they will simply stop running.

Demand for the metal is incredibly strong on the physical side of things and if the specs would stop disgorging their longs, the market could base here. We do know however that the bullion banks are buying like crazy as price descends.

With the managed money side of things down to long side levels last seen when gold was trading at $920, there is not sufficient fresh selling to break the market down below $1300. That requires a spec rout and liquidation selling. We will have to see if those left in the market on the long side have the financial wherewithal to stand pat.

The Dollar chart looks beyond awful right now with failure to hold today’s low setting the market up for a move down towards 77.20. Dollar bulls need to at the very least take out today’s high to stick a short term bottom in near 77.80.

Bonds have broken back down once again (no surprise) giving up all of Friday’s Egyptian turmoil-based gains plus some. They continue to tread water with Fed buying under the market preventing a deeper sell off. Watch for them to immediately pop higher on the reopen of electronic trade early this evening.

As mentioned earlier, the CCI went on to set another all time record high in today’s session as Bernanke’s “the only thing we really need to fear about inflation is the unreasonable fear of inflation”, took yet another round house kick upside the head. Crude oil shot up to a fresh yearly high just shy of $93 as that market is attempting to forge a solid close above $92 on the charts. If it does, it is going to move towards $95. Brent crude, which is arguably a better representative of crude prices globally shot up to $101.67 and as I write this is trading above the $100 bbl mark. But I am not the least bit concerned about these rising food and energy prices because Ben Kenobi has told me that the Force is strong with him and he can sweep it all away by merely waving his hand. Gold is probably the Darth Vader of the Federal Reserve universe so this time I am rooting for the dark side. A rising commodity index that is firing on all three cylinders, base metals, energy and food, is not conducive to continued selling pressure on the precious metals side of the sector. I suspect that the Jedi at the Federal Reserve are tremendously disconcerted over getting zapped by some lightning coming out of gold.

The HUI was caught between a rising equities market and falling gold prices today but managed to hang in there fairly well. Obviously, it would have been beneficial to the cause of the precious metals for the thing to have gained on the day but it is still holding above 500 at this point. We need to see it get a close above 517 ( a strong close) to turn things solidly around. I should point out that its reluctance to stay below 500 is resulting in the 10 day moving average beginning to flatten out although it is still moving lower. We will be keeping close tabs on this index.

Friday, January 28, 2011

Trader Dan Comments On This Week’s COT Report

Posted: Jan 28 2011     By: Dan Norcini      Post Edited: January 28, 2011 at 6:43 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Some comments on the Commitments of Traders report of this week.
Today’s report, detailing the activity of traders through Tuesday, shows a continuation of the recent pattern of speculative long side liquidation in the gold market and a continued drawdown in the net short position of the bullion banks and the swap dealers (sometimes the same entity).
Hedge funds are now down to the lowest net long position since May 5, 2009 when gold was trading near $920. There is a continued come down also in both the “Other reportables” camp and the small speculator or general public (Nonreportables) in terms of their net long exposure. Clearly speculator interest in gold has waned and quite rapidly at that I might add.

That process will need to come to a halt to put an end to the move lower in gold and allow prices to stabilize. We might have seen this occur today but cannot be sure until we get the open interest readings from the exchange Monday morning of next week.  A great deal will now depend on developments in Egypt and in the mid-East in general over the weekend.
When a market is trading below its major moving averages, as gold is currently, there is a strong tendency for longs to use rallies to reduce their long side exposure.

To prevent this from occurring, price must at least recapture the downtrending 10 day moving average which comes in very close to today’s session high near $1350. That the bulls were able to get price to close above that critical support level of $1320 at the week’s end is no mean feat.

About that sharp drop off in the open interest as was reported this week and which drew considerable attention. It did come out of the managed money camp ( I had thought some of it might also show up in the “Other Reportables” camp) and in particular in the spreads put on by that group of traders. The number of their spreads fell a huge 65,755 contracts. I am still wondering how in the world a money manager could put on a spread trade and lose the amount of money that was reported to have been lost in the story that came out about this overnight. As a large spread trader myself in various markets, I can tell you that takes some real doing to accomplish a loss of that magnitude. You have to completely disregard sound money management techniques and become totally undisciplined. These markets take no prisoners today – something all would-be and active traders would do well to remember.

Overall, the COT report is pretty much what we have come to expect in this market during times of lower prices in gold. While I would have preferred to see the general public net long position come in lower than the actual numbers, it is the hedge funds (Managed Money) that still hold the key to this market and they are still ditching longs. Once that process halts, the market bottoms. It is that simple.


Posted: Jan 28 2011     By: Dan Norcini      Post Edited: January 28, 2011 at 2:38 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Last evening during the Asian trading session, front month gold dipped into the $1310 region where it uncovered considerable buying interest. The buying was large enough to absorb the selling pressure that carried over from the poor performance of yesterday’s trading session. Once gold was able to punch through the $1317 level, there was additional buying that came in which looked like a combination of shorts booking profits as well as some bottom picking. That buying took it up through $1320 which then began sparking short covering. Their forced exit provided further upward progress which then enticed additional buying as locals began looking gunning for the stops above $1330. Around 10:00am Central time, they reached $1330 but were unable to get to the stops. Apparently however some additional recruits came in and on the second approach they took it out. That forced another wave of short covering taking prices to $1340 with more short covering taking the metal up towards $1350.

There is no doubt that some of the buying in gold is tied to events in Egypt and across some of the other nations in the Middle East. There are many nervous investors who are eying that tinderbox of never ending troubles and are concerned about these demonstrations spreading and moving into the OPEC nations. That is the reason crude oil was up nearly $4.00 a barrel at one point.

It seems to me that the catalyst for the huge amount of unrest in the region of the world was the surge in food prices. One of the things that the wheat market has been watching and anticipating has been Egyptian wheat purchases. They are one of our largest buyers of wheat and there was talk that began last week and continued earlier this week that Egypt was going to be forced into buying a good deal more US wheat in an attempt to make sure that there was sufficient supply for one thing and that they could snag it before its price moved even higher. Their leaders no doubt saw what happened to the government of Tunisia and wanted to nip any potential problem in the bud. Apparently things moved too quickly for them. Regardless, we have been warning that this outbreak of the inflation virus, a virus I might add which has been fed, nourished, propagated and even lovingly caressed by the US Federal Reserve, was going to result in global instability as its effects were primarily being seen in the cost of food. Rising food prices in the undeveloped world are NOT INGREDIENTS for peaceful society.

Truthfully, it has happened even more quickly than I had considered it would. I was looking more towards the spring of this year as the price rises work through the global distribution channels. A question for Ben and the boyz at the Fed, (Governor Hoenig exempted), “How do you like your handiwork now?” Is it any wonder that the Chinese are so rightfully disdainful of what the Fed is doing.

I will repeat – the Federal Reserve of the US is exporting runaway inflation across the entire globe with its reckless policy of QE. Bernanke has hubristically asserted in his interview on “60 minutes” late last year that “this fear of inflation is overstated”. We need to record this for history to make certain that it is not forgotten or dismissed. Try telling that to the leaders of the nations across the globe who are now dealing with riots and anarchy in their streets. I am sure that they will take comfort from Ben’s words.

Some may think I am leveling a bit of an exorbitant charge but one has only to look at price charts of the grains in particular to see that they all bottomed exactly during the month when QE was first announced back in 2009 with many of them accelerating sharply higher when QE2 was then successively announced last year. It did not help matters any that the weather caused sharp falloffs in the supply equation at the exact same time that speculative hot money was entering these markets in a quest for tangibles to protect against the deleterious impact of the inevitable currency devaluation resulting from QE. The deadly cocktail has led to an explosion in price for the basics of life.

When the price of wheat effectively doubles in 7 months, corn increases over 90% and soybeans surge more than 55% over the same time span, the quaint notion that the fear of inflation is overstated is stupendous for its sheer brazen audacity in the face of glaring truth.
When you tie this surge in food prices to the potential spike higher in crude oil prices if this unrest in the Middle East takes on additional life, it is not difficult to see why the shorts in gold are getting out.

In the past, moves higher in the gold price that were associated with political turmoil have tended to be rather short lived but this unrest is occurring against a backdrop of huge amounts of excess liquidity that continues being pumped into the system in an effort to keep it moving ahead; not to mention food prices are not going to drop sharply anytime soon. Talk continues to surface that the Fed will soon begin to withdraw this liquidity as the economy “improves” but the facts are that without these continued injections, there is too much debt in the system which will act as an anchor on any so-called “growth”. In my mind it is akin to injecting a nitrogen and trace mineral enriched solution directly into the root zone of a plant that is potted in a mere one inch of soil. What you create is a monstrosity that cannot be supported and will tip over without getting some support from elsewhere.

Changing the subject a bit…

I am very impressed with the action of the HUI. As noted yesterday it refused to follow gold much lower even as the metal took out support near $1320. Even though it was down on the day, it remained well above Wednesday’s low. Today’s good showing gives further credence to the idea that it has been sold out and has put in a bottom near the 500 level. The trading session is net yet over as I write these comments but its ability to push past 517 has just about all of the short term technical indicators generating buy signals from deeply oversold levels. I want to see it close above that level (517) as it would shore up the weekly chart seeing that it spiked down towards the 50 week moving average and held. To really cement the bullish cause, it would need to get a weekly close above 530. We’ll see what happens on the close today.

Some of you have written to ask me about the current correlation between Gold and the Dollar. As you know, gold has been almost tracking the Dollar in the same direction of late. The greenback moves lower; so does Gold. The Dollar moves higher; so does Gold. This is obviously a change from its historic pattern and one that has to a large extent marked a large portion of this decade long bull market.

What I believe is currently at work is a temporary phase during which as fears regarding the overall state of the US economy subside and talk increases of an improvement, the Dollar comes into focus as a result of the massive structural problems overhanging the US economy. That leads to selling in the Dollar as there is no need of it as any sort of safe haven. You will note that as the equities charge higher, the dollar continues moving lower breaking major downside chart support level in the process. That same sentiment that the economy is improving and growth is returning have been leading to selling gold as investors move out of the metal in favor of equities and the “growth trade”. So essentially we have the “risk trade” being moderated somewhat towards the “growth trade”. That is the reason why we can see copper higher while gold moves lower.

Such thinking is more short term oriented in nature and is hoping to catch some profits playing the liquidity game using the Fed as a backstop.  Those who macroeconomic view looks past the short term stimulative effects of the liquidity injections will understand that the root causes of our economic woes have not been dealt with and will come back to bite us all down the road. Once one understands that the goal of the Fed is an attempted slow devaluation of the Dollar, they will gravitate towards gold once again and the inverse link between it and the greenback will become more the norm. Even at that, gold can move higher on its own merits as the integrity of many of the world’s fiat currencies continue to be called into question.

Today you will note that the Dollar is higher as it gains as a safe haven play. Bonds too are higher (the Fed loves to see this). You will also note that a mere day after S&P downgraded Japanese sovereign debt to “AA-‘, the Yen is sharply higher as it too reverts back to its “safe haven” status. For the life of me I do not understand how any rational human being can see the Yen as a safe haven with their Debt to GDP ration approaching the 200% level but there is nothing rational about our modern markets.

Equities have actually moved lower today. I have taken a photograph of their price chart to record it for history since one begins to wonder if this “anomaly” will ever duplicate itself ever again. After all, we live during an era in which the official monetary policy is to create a perpetually rising stock market as a way to generate rising consumer confidence to fuel the giant spending machine. How can it be that the stock market does not know this and dares to move lower in the face of unrest in the middle East? Maybe Goldman and Morgan had their electricity fail them as they moved to windwills for their power source to curry favor with the administration and the snowstorm knocked out the turbines. Their traders probably are unable to slam their usual buy orders into the S&P futures pit. Perhaps after the snowstorms subside….. Hey guys – get a generator if you want to get this thing right.

A last note – Eric King and I did our regular weekly metals wrap yesterday instead of today so when you do tune in, we will not be commenting on today’s price action in gold. I hope that this summary will make up for that. Also, if I see anything significant in the COT report today, I will post it up later. Like many of you I am anxious to see how the internals changed with these big drawdowns in the total OI. I am thinking that it is going to show up particularly in the “Other reportables” category.

Enjoy your weekend – who knows what we will wake up to Monday morning. A weekend of turmoil in the Mid East can lead to just about anything.

Thursday, January 27, 2011

S&P Downgrades Japan’s Sovereign Debt by Dan Norcini

Posted: Jan 27 2011     By: Dan Norcini      Post Edited: January 27, 2011 at 1:10 pm
Filed under: Trader Dan Norcini
Dear Friends,
This morning news came down the wires that the rating agency S&P had downgraded Japan’s sovereign debt from ‘AA’ to ‘AA-‘. This is no small development.  The reality is that Japan’s finances are in even worse shape than those of the US when its overall indebtedness is compared as a percentage of GDP. Japan is approaching a debt to GDP ratio of nearly 200%! Yes, you read that correctly. The only nation in the entire world that is higher is Zimbabwe. In effect, it would take the sum total of all economic activity generated in Japan over a two year period to eliminate the nation’s debt. Think about that!

What this means is that the rating agencies, who are watching these sovereign debt woes which have struck various countries in the EU, are concerned about the same problem beginning to surface in other quarters around the globe. Quite simply they are looking at the huge deficits being run by many nations in the West (and Japan). In other words – TOO MUCH DEBT!

That led to selling in the long end of the US yield curve this morning as bond traders are starting to be more than a bit fearful that the same thing is going to happen to the US’s ‘AAA’ rating at some point in the future if the US does not get its financial house in order. They are watching massive amounts of QE2 and another ballooning of the federal budget deficit and are selling even as the Fed attempts to jam the market higher with its purchases. AT this point, the only thing holding the long end of the curve is the Fed. How long can that last especially without affecting the Dollar?

More and more we see the integrity of sovereign debt being brought into doubt which leads to the question among many investors; “what is a safe haven that is actually safe?” Who wants to take the chance of holding a nation’s bonds if overnight they face the real risk of being downgraded?

The real world impact of this is that nations whose debt gets downgraded will have to offer potential investors a higher rate of return to compensate them for the increased risk of holding their debt. For nations already hopelessly in debt, that means borrowing costs begin to rise forcing them to borrow even more money just to keep their heads above water. The whole thing becomes a vicious cycle with rising interest rates compounding the problem.

The US has been able to sneak by and thus far avoid a rating agency’s downgrade partly because its borrowing costs are so low. Should these agencies begin to train their sights on the US and give closer scrutiny to its miserable financial condition, there is a chance that a downgrade could follow. Such a development, were it to indeed occur, would force the US to offer higher rates of return on its debt. That of course would raise its borrowing costs at a time when it can least afford it not to mention short circuiting the QE policy which is deliberately designed to lower borrowing costs.

This is why the take down in gold, after yesterday’s nice performance, is so remarkable for its perverseness and why long term oriented holders of the metal should not be the least bit concerned as to the antics taking place in the paper market. Sovereign debt woes are not behind us – the problem lies squarely ahead of us and no amount of wishful thinking is going to change that hard reality.

This being said, one of the things we now want to monitor will be the performance of gold when priced in terms of the Yen.



Wednesday, January 26, 2011

CCI Chart From Trader Dan with comments



Posted: Jan 26 2011     By: Dan Norcini      Post Edited: January 26, 2011 at 2:38 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Widespread buying across the entire commodity complex was the order of the day today with the foods leading the charge higher once again. The grains were very strong with wheat charging above $8.60 as it reached its highest level since August 2008. Cotton prices continue to trade just off a 140 year high. Sugar and coffee were both sharply higher today as were the meats. Platinum, palladium and copper were all higher today as well and even crude was able to move north.

That buying lifted gold from off its worst levels as it once again moved down towards support near $1320 and held. Instead of the move lower attracting strong selling, it instead attracted a decent amount of buying. The buying was not enough to push it up significantly on the day but it was enough to reject the lower support level which is a friendly development on the price chart. Momentum to the downside is drying up for now in gold.

It also did not hurt matters any that the HUI was finally higher as that index looks to be sold out for now. They are a decent amount of buyers who are willing to buy the shares down near these levels as from a money management perspective, they have a rather small and well defined downside risk should the trade go south.

One day does not generally flip a market that quickly so how the market acts the rest of this week will be very telling. Still bulls have to be encouraged by the day’s action as the technical indicators are so deeply oversold on the HUI that any signs of stability will turn them to issuing buy signals rather quickly. If nothing else, it will force the bears who have made some pretty good profits on the way down to snatch them before they disappear.

The HUI will need to get above 516 – 517 or so to give us some signs that the low of yesterday is the bottom in this latest reaction. That, or another move lower which can hold above 490 before rebounding will be a good sign.

We will need to watch two things from this point today – first is how the Fed statement on policy is received by the markets at large. Second, whether some of the very big buyers of the physical metal are now going to decide that this is a level to commit to purchases in size. Those guys are trying to read the charts to a certain extent as well in an attempt to determine whether the spec long side liquidation has run its course  and whether they should commit in larger size to planned purchases of the metal. It is only natural for buyers waiting in the wings to see if they can get something cheaper. If they feel that the reaction low is in, they will step in. As long as they believe that there is some further threat of fund long side liquidation, they will be hesitant to come into the market in force.

Monday’s open interest plunge apparently has caught the attention of a large number of these potential and actual buyers as well. The data released by the exchange this morning showed an increase in open interest indicating that we had a decent number of fresh shorts move in yesterday who were hoping for a downside break of $1320 and were salivating at the number of sell stops that were lurking there. The fact that price has not been able to reach those has likely caused some of these fresh shorts to cover.

Gold needs to get back above $1340 in short order to give the bulls a bit more breathing room however as it is not out of woods just yet. Bears are hoping for something in the way of news releases or economic data that will allow them to take out $1320.

Remember that huge rally in the bonds yesterday on the long end? It all disappeared today as this YO-YO continues. It is no longer a market but a gigantic, expensive yo-yo. Bond bears are watching the CCI and thinking in terms of inflation while the Fed comes in and monkeys with long term rates as part of their QE2 program. Up and down, up and down, with rallies being sold and dips being bought. It will continue until we get a convincing breakout one way or the other.

The S&P keeps heading higher as inflation is now fully entrenched in paper assets. Compared to real money – gold – the equity markets are going nowhere as one studies the Dow/Gold ratio or the S&P/Gold ratio. As far as I am concerned there is no difference between what is happening to the US stock markets as there was with Zimbabwe. The path of least resistance continues to be higher as there is so much funny money available courtesy of the Fed, that it is almost impossible for anyone to be short. That is exactly what they want anyhow. The Fed does not want even the slightest whiff of deflation and no doubt their henchmen are ecstatic at the huge rally that they have engineered in the US equity markets. Jam the equity markets higher and consumers see their 401K’s moving up in value and off to the retail outlets and malls they shall run, is the game plan by these scheming financial flim-flam artists.

The Dollar continues its recent bout of weakness as it took out support near 78 on the USDX but like yesterday it has managed to pop back above that critical level. It is trading nearly in identical fashion with gold although today did seem to me to show a bit more of the old link between an inverse move in the Dollar compared to gold. The Dollar chart really concerns me because as of now, there are no signs of bullish divergence in the indicators or anything else that might signal that the move lower is coming to an end. I am watching it carefully to see when it will uncover a definite, defined support level. It looks as it is trying to hold here near 78 but we shall see.

Tuesday, January 25, 2011


Posted: Jan 25 2011     By: Dan Norcini      Post Edited: January 25, 2011 at 1:43 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Selling pressure on gold began immediately after the close of pit session trading yesterday and that selling continued into the overnight hours and then into today’s New York session. In the process, support near the critical $1320 level was tested and held. However, bulls are by no means yet out of the woods as the market still looks heavy right now. It is going to have to climb back above $1345 for starters to give the bulls some relief.

If $1320 were to give way on good volume, get ready for a bit longer protraction in this latest price retracement as that would turn the daily chart quite negative and even dent the bullish aspect of the heretofore armored weekly chart. The weekly is very close to forming a rounded top pattern which would imply a move as low as $1285 before we might see some concerted buying.

We will have to see when the overall spec long side liquidation winds down before we can stabilize. The faster they get out the better. Yesterday we had a massive drop in Open Interest of nearly 82,000 contracts spread across the entirety of the futures board as far out as December 2015. That is simply phenomenal for its sheer size. One has to wonder at this point how much more downside the market is going to be able to generate if those specs who are going to run have now already done so. At first glance I thought the numbers were erroneous!
What I am interested in watching is the extent to which these specs can ditch their longs and whether gold can hold its chart support levels. Rallies are going to be sold as long as price is below the important moving average levels but apparently there is a massive amount of short covering occurring into this long side liquidation as well. Remember a lot of these shorts have been underwater since August of last year. Some who might have been able to hold on in spite of the paper losses are viewing the massive spec selling as a gift into which they can buy and get flat or at the very least reduce some of their exposure to the short side.

Also, Gold is moving from weak hands into strong hands in this leg down. None of the issues that have given rise to the economic turmoil that has led the metals higher have been substantially dealt with. Instead they have been plastered over with money printing, the problems being essentially kicked down the road to be handled later. The hope is that “growth” will take care of the larger issues at hand. That is wishful thinking but for the time being, the Central Banks appear to be winning the battle based on the all the cork popping and toasting that is no doubt going on over in Davos. As said many times in my comments, if lasting prosperity could be built upon a foundation of spiraling debt, other generations far wiser and more frugal than this would have been long ago implemented it. Need more prosperity – just print more money. A massive federal debt of over $14 trillion, the highest in percentage terms of GDP since WWII; states, counties and municipalities in danger of bankruptcy or in serious budget deficits; hundreds of thousands of underwater mortgages, etc, is a problem that is not going to go away merely because electronic digits were transferred to the balance sheets of some entities by the charlatans at the Federal Reserve.

There is also a further inclination to sell commodities in general which is hurting silver in particular as copper and crude oil are both weak, a development which tends to bring the overall sector into disfavor for the time being. That is a complete 180 degree flip from recent weeks when the “improving economy” theme led to ideas that commodity prices were going to move higher as demand globally soared and “risk” trades were jammed on. My how fickle these lovers have become!

When one sees the grains, all of which have a very bullish set of fundamentals also experiencing selling, you can rest assured that it is hedge fund algorithm selling which is occurring. Wheat, which at the immediate moment has the most bullish set of fundamentals going for it was even dragged lower early in the session. Even cotton, which went on overnight to make yet another 140 year high in price, did not escape the selling as it moved over 500 points off its best level after posting that astonishing figure. About the only commodity that I can see that did not move lower today were the hogs, which keep moving steadily higher as the cost for a nice pork chop or some slices of bacon keep heading up and up and up.

The HUI, while weaker today is not utterly collapsing as it moves closer towards a critical support level near the 481 region. Considering the extent of the weakness in the bullion and the overall weakness in stocks today, it is no surprise that it is lower. Gold stocks however continue to get cheaper and cheaper with longer term oriented investors checking their powder to make sure it is dry. Watch for a move down into a new low for this leg followed by a higher close the same day for signs that the selling has been exhausted.

Now that consumer confidence is moving higher and the economy is improving bonds are moving higher. Yes, you read that correctly – higher. Nothing like official sector manipulation of interest rates in the name of sound economic management by the Central Bank to keep the markets running smoothly. One would think that with all the fears of QE being withdrawn by the Fed, (which is what is leading to selling in the commodity complex), that the bond market would be anticipating the same and would be moving lower since that is the sole factor that has been propping the market up. What do we get instead – more of the same QE as the Fed continues its purchases. Either the bond market has gotten it all wrong and the QE is going to continue indefinitely or the commodity sector has gotten it all wrong with that side of things expecting the QE to disappear. And one wonders why there is such stupidly insane volatility in all of our markets these days. If you want to find the chief culprit behind that, look no further than the boy wonders at the Fed, the source of all market mischief and mayhem.

Let’s see what kind of action we get in the Asian markets for gold overnight. I would not be surprised to learn that some of the bigger Asian Central Banks are also closely eying the gold chart in anticipation of a foray into the buy side. During times like these, try to remember the recent talk from some highly placed officials concerning gold’s re-entry into the monetary system. Such comments are not idle chatter but reflect the thinking taking place behind the scenes from many quarters. The nation with the most gold will end up making the rules – none of that is going to be lost on Asia, whose gold holdings as a percentage of their official reserves are pathetically low. Russia is well aware of this and that is why we got the news yesterday that they are going to continue to shore up their official gold holdings. Others nations from that side of the globe will do likewise.

Saturday, January 22, 2011

Trader Dan Comments On This Week’s COT Report

Posted: Jan 21 2011     By: Dan Norcini      Post Edited: January 21, 2011 at 10:54 pm
Filed under: Trader Dan Norcini

Dear Friends,
This week’s analysis of the Commitments of Traders reports is a continuation of the recent pattern we have seen with Managed Money continuing its exodus from the long side of the gold market as well as some fresh selling from that category with new short positions being established. This category does not have a good track record of making much money while attempting to play the downside in gold. They have a habit of selling bottoms.

They are now at levels last seen in May 2009, 20 months ago when it comes to long side exposure. For comparative purposes, gold was trading at $920 when they were last at this level.

The commercial class continues to cover shorts into long side liquidation further reducing their overall exposure to the short side. Ditto for the swap dealers which for gold are basically the commercials under a different guise.

The general public, having bought the top, continues to exit and is coming down to more reasonable levels as suggested would need to occur in last week’s report at this site. We might need to bleed out another 10,000 of those longs in this camp before we set a bottom. A lot of them were probably caught today and Thursday after the battering gold took so their numbers are lower than today’s report suggests seeing it only covered the action through Tuesday of this week.

The “Other Reportables” camp still seems to me to be a bit heavy on gold exposure but their number of longs is slowly moving lower as some in their camp take out some fresh short positions. Maybe another 10,000 – 15,000 shift needs to occur here.

All in all, the report confirms the same old familiar pattern that we have seen in this market for nearly ten years now during each episode of price weakness.

Managed Money is still the big force in our markets today so until they cease liquidating longs we can head lower but once this camp levels off and returns to the long side, the next leg higher will commence. I like the fact that their numbers are so low on the long side yet gold is holding at a relatively high level, down only some 6% or so from off its recent peak even as their overall net long exposure has been cut nearly 100,000 contracts from September of last year.

Trader Dan Comment’s On Greenspan’s Gold Standard

Posted: Jan 22 2011     By: Dan Norcini      Post Edited: January 22, 2011 at 12:16 am
Filed under: Trader Dan Norcini

I want to go on record with comments about Alan Greenspan’s remarks about a gold standard that hit the news today. That this man, who has rightly been criticized for speaking in riddles so that his hearers could take from his comments that which they wanted to hear him say, has now apparently changed his tune once again and yet can do so without the least bit of remorse is infuriating to me. He basked in the accolades of his peers in the financial community being acclaimed, “The Maestro”, because of his supposed ability to deal with financial crises and keep the US economy humming along in spite of it all come hell or high water. Yet we all know that his manner of so doing was to ramp up the printing presses and have them running at warp speed, flooding the system with liquidity at the first sign of any potential danger signs. Whether it was Mexico, or Russia, or Y2K, or the breaking of the tech stock bubble , his solution was always the same, lower interest rates and increase liquidity.

It was under his watch that the stock market bubble burst at the beginning of the last decade which up until it did, he praised as the outcome of increases in productivity. It was he that praised the gigantic derivatives market as another arrow in the quiver of productivity until we all watched it disintegrate into a heap of goo as Lehman Brothers went under, setting off a cascade of defaults and credit deleveraging, the effects of which are still being felt today.
It was his policy of keeping interest rates artificially low that blew one bubble after another which moved from one sector to another, first in stocks, then in housing and then finally in commodities until they all burst in succession.

Yet, now that he is out of his office and no longer has to be the politician and the Central Banker, he can call for a return to some mechanism to hinder his successor from the creation of unlimited amounts of fiat currency in order to prevent the “deleterious” effects of inflation, as he terms it. Why did he not use his pulpit during his tenure to advocate such a thing as a return to some sort of gold standard or currency board? He shares as much blame as any for the condition of the US Dollar and the horrific mess that has been created by Federal Reserve policies over the last decade. While Chairman Bernanke is engaging in Quantitative Easing, he is only following the policies of his predecessor to their logical conclusion.

Here are the former Chairman’s own words in Congressional Testimony taken in July, 2005 in response to a question and some comments posed by Congressman Ron Paul. Note his remarks about returning to a gold standard a mere 6 years ago and contrast those with his recent comments of today. Note also the absurd comment in the last sentence that Central Bankers had been acting responsibly:
“But as I’ve testified here before to a similar question, central bankers began to realize in the late 1970s how deleterious a factor the inflation was.
And, indeed, since the late ’70s, central bankers generally have behaved as though we were on the gold standard.
And, indeed, the extent of liquidity contraction that has occurred as a consequence of the various different efforts on the part of monetary authorities is a clear indication that we recognize that excessive creation of liquidity creates inflation which, in turn, undermines economic growth.”
So that the question is: Would there be any advantage, at this particular stage, in going back to the gold standard?

And the answer is: I don’t think so, because we’re acting as though we were there.
“Would it have been a question at least open in 1981, as you put it? And the answer is yes.
Remember, the gold price was $800 an ounce. We were dealing with extraordinary imbalances, interest rates were up sharply, the system looked to be highly unstable ­ and we needed to do something.
Now, we did something. The United States ­ Paul Volcker, as you may recall, in 1979 came into office and put a very severe clamp on the expansion of credit, and that led to a long sequence of events here, which we are benefiting from up to this date.
So I think central banking, I believe, has learned the dangers of fiat money, and I think, as a consequence of that, we’ve behaved as though there are, indeed, real reserves underneath the system.”
Alan Greenspan today:
"We have at this particular stage a fiat money which is essentially money printed by a government and it’s usually a central bank which is authorized to do so. Some mechanism has got to be in place that restricts the amount of money which is produced, either a gold standard or a currency board, because unless you do that all of history suggest that inflation will take hold with very deleterious effects on economic activity… There are numbers of us, myself included, who strongly believe that we did very well in the 1870 to 1914 period with an international gold standard."
Alan Greenspan 40 years ago:

"In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. … This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property
rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard."

Friday, January 21, 2011


Posted: Jan 21 2011     By: Dan Norcini      Post Edited: January 21, 2011 at 2:09 pm
Filed under: Trader Dan Norcini
Dear Friends;
Please note the CCI chart and the US Dollar chart as the CCI has plowed into new all time record highs today once again and looks to be setting a new all time record high weekly close as well. The grains and softs are leading the way with wheat now firmly above $8.00 and pushing towards $8.50 with corn shrugging over a bearish technical sign from Wednesday and going on to set a fresh 30 month high in price. Coffee, sugar and cocoa are all strong and lumber is at limit up. One thing is certain – there is yet no letup in the inexorable rise in food prices.

Platinum and palladium are higher today and copper thus far has held support near $4.20 and moved back up once again.

The strength in the base metals suggests that silver should stabilize soon with gold in a following role to it for the time being.

Crude, while weak today, is holding near $89 and natural gas is higher. Unleaded gasoline is up 4 cents a gallon here near midday.

Also note that it is no coincidence that the Dollar has succumbed to further selling pressure today as fears regarding European sovereign debt woes have taken a back seat to the long term, deeply entrenched structural problems in the US concerning its enormous indebtedness and further QE.

One last thing – note the game being played with the bond market by the Fed as I commented on yesterday. There was ZERO downside price action in the reopen of trading for bonds early in the evening yesterday after they were crushed during the session. Upon the reopen they immediately popped higher, saw NO FOLLOW THROUGH selling of any kind (not normal), and are up more than half a point today even as the commodity sector is showing fresh signs of strength and the equity markets are also strong.  In short, the officially sanctioned rigging of the US bond market continues.

No doubt China is taking notice while the US calls it out for currency manipulation.

Thursday, January 20, 2011


Posted: Jan 20 2011     By: Dan Norcini      Post Edited: January 20, 2011 at 2:53 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Weakness in gold and silver were blamed on several factors as trade moved into New York this morning.

Overnight Brazil hiked its core interest rate by 50 basis points and there was additional chatter of further interest rate hikes in China to combat surging inflation pressures on the heels of some data out of that quarter suggesting previous hikes in both interest rates and reserve ratio requirements are not having much effect on taming price rises. That led to a general reduction of the “risk trades” and selling in commodities as a whole. Witness the case of the two markets I like to track in the sector, copper and crude, which were both sharply lower, crude oil failing to hold support at $90 and copper getting spanked for more than 10 cents. Even corn, which has a strongly bullish set of fundamentals did not escape the selling barrage when it opened for trading in the pit this morning although it did finally absorb the algorithm selling before moving higher again. At least fundamentals are still ruling in a few of our markets. Ditto for wheat which is now trading above the $8.00 level as I prepare these comments. Food prices continue to rise – period.

There was also an unemployment number which came in lower than some were expecting leading some to talk up the prospects of the US economy which brought some strength into the US Dollar. The Dollar also was the recipient of a sharp selloff in the Yen and the commodity based currencies which moved lower as the risk trades were dumped. (Bonds were also sold down).

There was also the rather strange report out of the CME Group that the mini gold contract was to be delisted. This is the 33 ounce contract not the micro gold contract. This abrupt announcement, without any explanation, (there was a blurb on their website) had many traders wondering what was going on and why. Some sold first and waited for an explanation later. I am still going to try to see if I can find out what the reason behind that sudden announcement was.
All of the above combined with a rather big onslaught of selling in gold and especially in silver which took out a critical support level on its daily chart.

Gold dropped as low as $1342 on its chart, a level which it must now hold to prevent a deeper correction down towards the $1320 level. The daily chart pattern has taken on a decidedly negative aspect with today’s sharp move lower. Perhaps a bit of saving grace for the metal is that the funds have been liquidating longs for some time now and have greatly reduced long side exposure back to levels last seen when gold was trading closer to $920 or so. That will help some but if for some reason the price level were to break down through $1320, a very substantial long side selling rout would take place that would damage investor sentiment towards gold in the immediate term. We’ll have to see where and when this selling barrage finds a respite. Bears were attempting to force it down through $1340 throughout the session but after the initial drop down towards that level, were unable to do so. Volume was very heavy today suggesting a great deal of emotional based selling. It is going to take some time to therefore repair the damage to the bullish psyche. Even with today’s sell off in gold, it is only down about 6% off its recent peak. Considering the fact that it has moved up 24% since July of last year, that is really insignificant.

Euro gold dipped under the 1,000 Euro mark for the first time since November of last year at today’s PM Fix. It would need to hold above €950 to prevent a wave of deeper selling on that side of the globe as that would do some damage to the gold chart when viewed in terms of the Euro.

On the weekly chart, gold is forming what can be viewed as a potential rounded top formation with support evident near the $1320 level. That is why this level is important for the metal to hold to prevent a deeper setback towards $1285 – $1280. It will take a closing push past $1370 to now turn the tide in favor of the bulls with $1380 to uncover buy stops from fresh shorts.
Silver’s breach of $28, a critical chart support level, casts a negative pall over that market. It had been uncovering some decent buying support near the 50 day moving average but that simply evaporated in the general rout among the metals today. Tightness in the physical market is apparently no match for the paper market. Used to be that in the childhood game of rock, paper, scissors, that paper covered rock so I suppose the same applies with the Comex paper market. It now needs to hold $27 or it will drop to $26.40 or so with the potential for $25 in the cards should it fail to stabilize near that level.

The HUI gapped lower today and now looks like it might want to head down towards the 490 level. It is extremely oversold on the daily technical charts and looks to be approaching levels that should put a halt to the severe selling. The region near 480, the 50 week moving average, should stabilize the sector, as it has proved to be a good level since July 2009 at containing all downward thrusts in price. Bottom pickers will probably begin nibbling soon.

Bonds were absolutely crushed today falling nearly two full points again in yet again a repeat of the pattern that we have now been spectator to for the last month. They are unloaded whenever it appears that the global economy is entering a period of rising interest rates only to be artificially manipulated higher by the Fed’s QE purchases which then cause an almost immediate rebound from off the lows as bond traders anticipate the next entry by the Fed into the bond market. As said many times over the last month, the market is a joke with everyone on the planet being able to see the game being played by the Fed. Specs came in and sell them lower only to then have a certain crowd jump in and bid them right back up in front of the Fed with more specs then waiting to unload their freshly purchased bonds into the hands of the Fed and then repeat. Lather, rinse, repeat. I am going to watch and see if the bonds immediately move higher on the reopen of trading early this evening. That has been the pattern and will reveal that the crowd is once again expecting them to come in and put another floor under the market.

It will continue to work until it doesn’t.  Heaven help us all if 118^20 gives way on big volume. Then again, with a total commitment of $600 billion in freshly created “money” to be thrown at the market, it is difficult to imagine that. For now we play the game with the rest of the crowd and do the bidding of our monetary masters. This is what particularly galls me whenever I read comments from public US officials who have the temerity to lecture the Chinese on the level of the yuan.

The Dollar was resuscitated right on schedule today as it is attempting to recapture important chart support near the 79 level on its daily price chart. Technicals are pointing lower however. What is amazing is that one can lay a chart of gold over the chart of the Dollar and the two markets have had nearly identical chart patterns since November of last year. I am not sure what to make of this just yet. One would expect a breach of support in the Dollar to garner buying interest in gold but that has not been the case for the last two months.

Wednesday, January 19, 2011

Trader Dan Comments On Today’s Sobering Dollar Action

Posted: Jan 19 2011     By: Dan Norcini      Post Edited: January 19, 2011 at 5:26 pm
Filed under: Trader Dan Norcini
Dear Friends,
I am posting two charts today of the US Dollar – one in the form of the USDX which is what I typically detail; the other is the Broad Dollar Index which I continue to track but have not posted in some time now as I have been waiting for a larger pattern to unfold.

The Broad Dollar Index is as its name aptly describes it, a broad measure of the Dollar against a much larger basket of currencies that the USDX and in my opinion provides a bit better measurement of the Dollar’s standing on the global stage than the narrower USDX.

Both charts are showing a breakdown of support levels which while significant still need some additional confirmation on a weekly basis.

The Broad Dollar Index chart is of great concern as it has failed to recapture a broken support level and looks to be set for a downside test of the next important level of chart support. That particular level near 97.50 is the last line between it and a potential move towards the 2008 low made just prior to the eruption of the credit crisis and which was also a 13 year low. I do not even want to contemplate what will happen should that level give way.

What appears to be happening in the Forex markets at the present time is that as fears or concerns regarding the condition of European sovereign debt issues fade, the Dollar is encountering selling pressure as its perceived “safe haven” status becomes less desirable with traders focusing on structural problems in the US. Those problems were brought to the forefront of traders’ minds with the release of today’s pitiful housing starts number which came in lower than many analysts were expecting.

It also did not help matters that our “friends” at Goldman did not impress the markets with their earnings numbers.

It seems to me that at least for today, traders were looking at housing numbers, poor bank earnings, poor employment numbers and of course the ever present mind boggling amounts of QE and just decided that they wanted no part of the Dollar. If this psyche continues to take deeper hold, the greenback could find itself being jilted by its recent lovers and back on the skids once again.

Such an occurrence would engender further algorithm related buying of commodities, which, while corn and beans were noticeably weak today (  wheat pushed through the $8.00 level before closing just below it) as was copper and even crude, would continue to feed into the inflation psychology which is gaining traction. I noticed that in spite of weakness across a decent number of commodity markets today, the CCI, Continuous Commodity Index, pushed up to yet another all time high before moving a tad lower off of that level.

I should also note that while lumber prices were a tad lower today off the poor housing number, they are still well off their lows made last year. Even this market is apparently not immune from the “buy commodites” strategy being employed by the hedge funds.

Gold and silver are both still range bound. I will continue to monitor both markets for evidence that is changing.

The HUI is lower once again, this time from spillover weakness in the broader S&P and lack of strong upside in the metals. The charts are showing it in a oversold position but thus far it cannot seem to muster the strength necessary to flip some of those indicators into generating buy signals. It would not take much to do so however as some of the indicators I track are at the lowest level since February of 2010.

Saturday, January 15, 2011

Trader Dan Comments On This Week’s COT Report

Posted: Jan 15 2011     By: Dan Norcini      Post Edited: January 15, 2011 at 8:14 pm
Filed under: Trader Dan Norcini
Dear Friends,
The weekly Commitment of Traders Report released yesterday (Friday) has a detail that I believe merits bringing to your attention.

Managed Money, which is basically the hedge funds, is now down to the lowest level of net long positions held since July 2009. They are now down nearly 86,000 net longs from the point at which gold made its recent record high. It should be noted that the COT report only covers through the Tuesday of the current week and therefore does not catch any developments in the markets that occur Wednesday through the close of trading on Friday. On Tuesday, gold closed at $1384. By Friday it has dropped over $30 from that level as additional fund long liquidation was underway. The point is that the net long position of these hedge funds has undoubtedly dropped to an even lower level.

In spite of the relatively low level of fund long side exposure, gold is sitting a mere $70 off its all time high. That bodes well for gold moving forward as any “froth” that might have been in the gold market from the hedge fund community has been to a great extent wrung out.

The general public, the small specs, who generally tend to buy at tops and sell at bottoms, is still relatively high on long side exposure but I suspect a larger number of them have been flushed out in Friday’s steep drop. They do not generally have pockets deep enough to sustain drops of large magnitude and are most often the recipients of “courtesy calls” from the margin clerks.
The other reportables, which includes the CTA’s and large local and private traders are a bit extended to the long side yet so we will have to see whether or not the shorts can try to further flush this camp. They have generally been averaging a net long side exposure of near 40,000 contracts. As of Tuesday they were near 57,000 which was also probably further reduced in the subsequent price action of Thursday and Friday. We might need to see this camp bleed down a bit more before feeling confident enough that the liquidation from their quarter has been exhausted.

All in all, while the COT report is not bullish, it certainly cannot be considered bearish and might even be called a tad friendly particularly based on the now greatly reduced long side exposure of managed money accounts, which are the real drivers of today’s commodity markets. When this camp begins to return to the gold market in size is when we will see the next leg higher commence.

By the way, the last time that the Managed Money was at this level of net long side exposure, the price of gold was trading at $922.

Friday, January 14, 2011


Posted: Jan 14 2011     By: Dan Norcini      Post Edited: January 14, 2011 at 2:09 pm
Filed under: Trader Dan Norcini
Dear CIGAs,
Once again we have a front row seat in the battle between China and the US when it comes to the Federal Reserve’s global inflationary policy, aka, Quantitative Easing 2.

With the Fed persisting on conjuring “wealth” into existence and working to manipulate and deliberately distort the long end of the yield curve, China is fighting to contain the effects of excess liquidity coming its way. It is almost as if Bernanke has uttered the command to: “Release the Kraken”, in this case the terrible Titan being the inflation monster.

The Chinese authorities have good reason to fear the rise of this beast as it, perhaps above all things at the current moment, has the single greatest potential to create unrest and social disorder in their nation. The Fed has been exporting inflation around the globe and nowhere is that showing up more forcefully than in the rising cost of food. Yes, basic material costs are soaring in China but the authorities can live with that – it is food that worries them seeing that the average Chinese worker spends a much larger percentage of their overall income on food than do their counterparts here in the US.

In yet another attempt to try to rein in price rises, the Chinese raised bank reserve ratios to try to slow down growth somewhat and perhaps pull back some of the fuel that might be contributing to the problems that they are dealing with. Of course, once the news hit the wires, out came the hedge fund algorithms, terrified to death that the world economy was now going to collapse, with the result that commodity sector was hit with massive selling all across the board. Down went gold and down went silver and down went the CCI.

Personally, while I understand what the Chinese authorities are attempting to do, I do not think that they are going to be a match for Ben who can manufacture more Dollars faster than Agent Smith could replicate himself in the Matrix. The Chinese are going to need their own version of Neo to combat Ben’s printing press; either that or they are going to have to upwardly revalue the yuan at a faster pace – something that the US schemers have no doubt long intended as part of their QE plan. I am sure Chuckie Schumer will be happy as he has been a one note Johnnie when it comes to blaming China for the US economic woes. “it’s all that currency manipulation by China”. Yeah sure – the US monetary authorities are pristinely pure having never even considered manipulating the US markets.

The move lower in gold takes it back down to the lower portion of the trading range that has contained it for most of this month now with important chart support near $1350 serving to hold it for now. There are plenty of bottom pickers active near this level but the key is whether the funds will sit tight or decide to liquidate some of their longs. Should they do so, price will fall to $1345 which is near the 100 day moving average and has been a level which tends to attract buying from those with a longer term investment view. A breach of that level would be much to the bears’ delight as that would set it up for a drop down towards $1325 – $1320. Asia of course would also be delighted as it would become picnic time for them, with the table being set by hedge fund algorithm selling.

First order of business for the bulls will be get price back above $1365 if they can hold it above $1350. Next they would need to regain $1380 to reaffirm a trading range market.
Along this line I am watching the Euro gold price to see if it can hold its ground above the €1000 level. If so, (the PM Fix today was €1021), that should also shore up the Dollar price of gold. Europe has been the epicenter of a great deal of economic fears so how the price of gold reacts in terms of the Euro will give us a clue as to how the investment world is thinking about the overall health or lack thereof of the wider global economy. Keep in mind what I have written so many times over the past years – the problem with most gold analysts here in the US is that they are too US Dollar gold price focused. All such Elliot Wave claptrap projections based only on the US Dollar price are worthless because gold is an international commodity, or perhaps even more appropriately, international currency.

Silver lost chart support at $28.50 but so far is holding more important support near the $28 level. Silver bulls would not want to see the metal close below that level as it would drop it back down towards $27 where I would suspect we will see very substantial buying emerge. Long term oriented investors would welcome such an occurrence should it indeed take place. The tightness in the physical market suggests that this is once again more of a paper trade thing related to the Comex that we are seeing and not a true reflection of the underlying physical market.

The HUI – what else can be said about the price chart except it stinks but then again, what is new about that during times of gold and silver weakness. It looks like it might want to drift down towards 500 if it violates this week’s low early next week. The 200 day moving average comes in close to that level and should prove to be a solid level of chart support as it has tended to hold dips in price over the last year and a half or so. Also, 500 was tough resistance on the way up back in late spring of 2010. It held on a dip September and October of last year so unless we have some sort of change in the fundamentals for gold and silver that I am currently unawares of, I would expect it to hold.  The weekly chart shows an uptrend that is still intact but I would feel more comfortable if it would at least recapture 530. It will need to climb back above 550 to get me excited again.

I should note here that the two other commodity markets that I like to monitor as a gauge of investor sentiment toward the overall complex are acting quite resilient today in spite of the near sector wide selling barrage. Copper is actually higher and once again challenging that tough $4.40 level, a push through which will let it challenge its recent highs, and crude oil is hanging tough moving more than $1.00 off its worst level of the session and still maintaining a foothold above $90. That bodes well for the overall complex and should help both the gold and silver markets, particularly silver should they continue to hold relatively firm. There is some weakness in the grains but I do not expect that to last long as the fundamentals are too strongly bullish there and the market must insure adequate acreage for the upcoming planting season not to mention ration demand for corn and beans, both of which are running quite low in terms of supply of old crop.

In short, we are back to watching the sentiment shift from “all clear ahead on the economy”, to “there are still a lot of trouble areas and rough patches on the seas”. As one side or the other rises or falls, the effects on the commodity sector and thus gold and silver will vary accordingly. The long term trends remain intact – it is still the short term stuff that gives us all something to yak about. Besides, there really is nothing else important to do in life than to sit around for hours each day and watch prices change now is there?

Bonds? Back to being a yo-yo market again and look to stay that way unless we get some sort of economic news that would tip sentiment one way or the other.

The S&P (by the way, this is the one market where one never hears the term “overbought” applied to it) is yet again making another new yearly high as they have set the stage for the public to go running pell mell into stocks so that all the big banks can find someone to sell all those shares to they have been buying for the last year.

Monday is a holiday here in the US or the way I prefer to call it, a much needed respite from having to endure watching the idiocy of hedge fund algorithms careening through our markets.