DAN NORCINI'S THURSDAY COMMENT ON JIM SINCLAIR'S TRACK RECORD

JSMineset’s Track Record

Posted: Dec 30 2010     By: Dan Norcini      Post Edited: December 30, 2010 at 2:48 pm
Filed under: Trader Dan Norcini

Dear Friends,
Most of the emails I have received the past couple of weeks that are related to Jim’s prediction of $1,650 gold in January of 2011 have been gracious and have expressed heartfelt appreciation for Jim’s steady hand of guidance over the past 7 or so years. The deep admiration for Jim’s selfless giving of his years of experience in the financial realm, has shown through so many of these emails. It truly is an uplifting experience to read them. For those of you who have taken the time to do so, my sincere and heartfelt thanks.

Sadly, there are some who instead of focusing on the nearly flawless track record that Jim has secured over these past years in providing general price levels that would act as signposts along the way of this now decade long bull market in gold, have chosen to carp and criticize because gold is not within a $100 or so of Jim’s price prediction for next month. To those of you who are so small minded and so ungrateful for the many benefits that have been freely given to you by my dear friend, I can only say that perhaps you would be best served by going elsewhere for your regular reading on the state of the gold market. It is evident that some of you are far wiser than the rest of us and are much more in tune with the gold market than Jim can ever possibly hope to be.

I would also suggest that since the world is in such need of your acumen and wisdom, you start up your own web site and provide your commentary to all free of charge, all the while maintaining the cost of servicing that web site out of your own financial resources.
The rest of us mere mortals, whom will benefit from such knowledge that drips from your lips like ripe pomegranates, will then have the luxury of watching you put your money where your mouth is, AHEAD OF THE FACT.

Here is the truth – those of us who are professional traders make our living IN THE MARKET, not OFF OF THE MARKET. We have to possess the courage of our convictions and put our money on the line every single day. Sometimes we get it right; sometimes we don’t. The key to measuring success in this business however is not how we make out  on each individual trade but rather how we do on our collective trades. If we are right more often than wrong, we succeed and thrive. If not, we are soon gone and looking for a different profession. Those of you back seat drivers who are only brave enough to call a market after the fact would do well to remember that before becoming too full of yourselves.

Here is wishing all our readers, even the jerks, a Happy, Safe and Prosperous New Year. Thank you for the many kind words of encouragement and appreciation that we have received over the past year. I do not know what the year that lies ahead holds for all of us, but one thing I am certain of, the policies being advocated by the current Federal Reserve, and those being followed by the ECB and the BOJ for that matter, will not end well for anyone. If printing money into existence was the path to lasting prosperity, nations far wiser and of more duration than ours, would have long ago discovered it. History, unfortunately, is not on the side of such things.

GT sez:  BRAVO!

NEW YEAR CME HOLIDAY SCHEDULE

http://www.cmegroup.com/tools-information/holiday-calendar/files/2011-new-years.pdf

DAN NORCINI'S TUESDAY COMMENTS WITH CHART

http://jsmineset.com/wp-content/uploads/2010/12/December2810Gold.pdf

Trader Dan Comments On Soaring Commodity Prices and Plunging Bond Prices

Trader Dan Comments On Soaring Commodity Prices and Plunging Bond Prices

Posted: Dec 28 2010     By: Dan Norcini      Post Edited: December 28, 2010 at 2:03 pm
Filed under: Trader Dan Norcini

Dear Friends,
Thanks to our diligent internet news sleuth, JB Slear, the following story is brought your way.
Tie this story about the fall in US home prices together with what is happening in the commodity sector and the long bond to see where this is headed.

Home prices are falling for one reason – lack of demand coupled with a growing supply due to the wave of foreclosure properties which are adding additional supply to the market.
The market interpreted today’s data release as evidence that the Fed’s $600 billion + QE policy would not be ending anytime soon. That brought another surge of fund related buying into the commodity sector with the result that the CCI (Continuous Commodity Index) has now kissed its former all time high made back in the summer of 2008 long goodbye. It shot above 622 and appears to be accelerating, even at the end of the year when we would normally expect to see profit taking in the sector by longs who have profited immensely in 2010.

I find it astonishing that fresh money is being committed to the sector as the calendar year winds down. This is highly unusual as this time of year is historically known as the time for book squaring. What it is telling us is that fund managers have no intention at this point of abandoning a strategy that has paid handsome dividends to them and will undoubtedly be looking to up their ante at the beginning of the New Year. Look for fresh highs early next year in the sector based on what is occurring in some of the various commodities. Sugar, after putting in a 30+ year high, has shot to yet another fresh high in today’s session. Soybeans registered a 26 month high. Ditto for corn. Copper is now trading at $4.30 a pound! Crude oil continues to hold above $90.

The bond market, after being fiddled with by the monetary authorities in the hopes of hoodwinking the public into believing that inflation pressures are subdued, promptly fell apart plunging a full point as participants are watching with great alarm the surge in the CCI.

This combination, soaring commodity prices which are certain to erode consumer disposable income, and plunging bond prices which are a prelude to higher long term interest rates, are certain to make it even more difficult for would-be home buyers to enter a real estate market already being plagued by a lack of demand. Throw in a good dose of higher gasoline prices at the pump and it becomes all too obvious what we can look forward to in the coming year. I guess we have all been naughty over the past year because it appears that Santa Ben and his band of elves at the Fed have brought us all a gigantic lump of coal.

CME Christmas Holiday Schedule

http://www.cmegroup.com/tools-information/holiday-calendar/files/2010-christmas.pdf

DAN NORCINI'S WEDNESDAY COMMENTS WITH CHARTS

Trader Dan Comments On Today’s Commodity Market Action

Posted: Dec 22 2010     By: Dan Norcini      Post Edited: December 22, 2010 at 5:47 pm
Filed under: Trader Dan Norcini

Dear Friends,
Observing the price action in the commodity markets today has given me great reason for concern for that which I feared seems to have occurred, namely, the crude oil market has broken out to the upside. I suppose it was just a matter of time based on the orgy of fund buying across the commodity sector but I was secretly hoping that we might avoid such a close mainly to prevent what now seems to be a certain price rise for the cost of energy. Heretofore, the soaring CCI (Continuous Commodity Index) has been moving higher mainly based on food and metal costs. Now we have the trifecta where the three main segments of that index are moving higher in tandem. Actually, given the extent of the price run in the food and metals sector, the energy sector has a lot of ground to make up.

Yesterday crude put in its best close in 26 months. Today it has closed above what has become both technical and psychological chart resistance at the $90 level. Should it end this trading week above $90, holiday trading conditions or no holiday trading conditions, it will put in its best weekly close since October 2008. Moving forward into the New Year, it looks most probable that it is going to make a run at $100.

My fear mentioned above is that in addition to consumers soon to get walloped with sticker shock at the grocery stores within the space of a few months as the price rise works its way through the distribution channels, they were also going to get hit with rising gasoline and energy costs, a double whammy for their pocketbooks at the time that many can ill afford it. There are so many struggling families dealing with lost incomes and underemployment for those fortunate enough to have found work, that any further price pressures on the energy front would act to take some of them over the edge financially. Many are having to cut expenses drastically in an attempt to stay in their homes. How soaring food and energy costs are supposed to benefit the economy escapes me.

The ivory tower types of the monetary realm are completely disconnected from the havoc and harm that they have caused so many with their incredibly short-sighted and foolhardy monetary policies. The Federal Reserve is presiding over the deliberate and planned unleashing of the inflation genie without the least bit of concern as to how that is going to affect the average middle class American. Words cannot express the contempt and disdain I have for this group of elitists. Keep in mind how this entire debacle began and the “medicine” that has been brought forth to supposedly cure it. If this is the cure, they are only succeeding in slowly killing the patient.

There does not seem to be any end in sight to the continued money creation efforts of the Fed so all that we can do is attempt to protect ourselves and our loved ones from their depredations upon our life savings. The bond market, while currently being artificially propped up by these snake oil salesmen, looks heavy, even in spite of the massive buys it is seeing as the Fed makes the purchases that are part of its QE (money printing) program. Once that market breaks down in earnest, it will not take much to see a cascade of selling erupt as bond holders head to the exits. I suspect that the Chinese are more than seriously concerned about their national wealth, a large part of which still remains trapped in these worthless IOU’s called Treasury Debt.
Long term rates could then rise quite rapidly as bondholders experience a selling panic and feverishly attempt to avoid being the last man standing in what might well become a sort of perverse game of musical chairs. Their actions will create a cycle in which selling intensifies. The resulting rise in longer term interest rates will work to continue depress the Real estate sector not to mention hit thousands of homeowners trapped in adjustable rate mortgages which will then reset to a rate that may force even more of them out of their homes. Quite frankly, I see nothing on the horizon preventing this from occurring at this point because the Fed cannot create enough money to buy up all the outstanding Treasury debt that is going to be unloaded. Oh they conceivably could I suppose but at what cost to the Dollar!

Jim has said it more than once over the last few years that these derivative creators and vile peddlers have destroyed us all in their greed. Many of you have not understood what he has been saying or perhaps felt that it was an overreaction. Rest assured, the fallout from this sordid mess is now rapidly descending upon us.
(emphasis by GT)

The Fed created this travesty under the tenure of Mr. Greenspan who never saw a potential problem on the horizon without throwing money at it. For that, he was stupidly hailed as “The Maestro”. His madness, of lowering interest rates to ridiculously low levels, gave rise to the hedge fund industry and its attempts to then find yield in any sector that it could. The wave of speculative frenzy unleashed then crashed into one sector after another only abating when the derivative market blew all to hell which was inevitable. Enter Mr. Bernanke, who then revitalized the beast of speculative frenzy by one upping his predecessor. Much like Beowolf’s golden horn raised the dragon, Bernanke’s QE idiocy fan the fires of leveraged insanity as he practically begged the hedge funds to buy commodities to induce inflation and ward of his ridiculous fear of deflation. The results are now obvious. Nice going guys – you can sit in your ivory tower and quietly study the effects of your brain child while Middle America slowly dies of price asphyxiation. A pox on your entire house.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December2210Crude.pdf
http://jsmineset.com/wp-content/uploads/2010/12/clip_image00219.jpg

Gold/Bonds Ratio Chart From Trader Dan Norcini

Gold/Bonds Ratio Chart From Trader Dan Norcini

Posted: Dec 18 2010     By: Dan Norcini      Post Edited: December 18, 2010 at 7:08 pm
Filed under: Trader Dan Norcini

Dear Friends,
This is the chart I referenced in my radio interview of this week.

There are several things to note in this chart. First is the direction of the ratio – a strong, sharp, sustained thrust higher which has shattered a level not seen in 30+ years. That tells us that Gold has become the definitive safe haven and that bonds are rapidly falling out of favor compared to the security of the metal. For this ratio to reverse, it would take much higher rates of return to draw capital back into bonds and out of the metal. Where that rate might be is anyone’s guess but suffice it to say, it would be considerably higher than today’s levels. This event would first however wreak havoc on the real estate sector as it would shove interest rates to a level that would prevent many would-be buyers from obtaining loans.

It is good to remember that it took double digit interest rates back in 1980 to finally break the back of the inflation monster. Think about where rates are today and you can see that the Fed has no intention whatsoever of even remotely trying to rein in this wild horse. Even if they did, the current state of the “recovery” would prevent them from so doing.

The second thing to note about the ratio is the SPEED at which it has turned and moved higher. It is accelerating and that tells us that the shift from deflationary fears to inflationary fears is entering high gear among the general investing public. In short, inflation psychology is taking hold and taking hold quickly. You may be hearing all sorts of blather from talking heads and pundits on financial LA-LA Land TV about how tame inflation is but the fact is that this ratio is shouting loudly that all such drivel is BS. The charts do not lie and you can count on them giving you a much clearer picture of where investor psychology is moving long before the talking heads catch on.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/Gold-Bond-ratio-chart-12-17-2010.pdf

Bond Chart From Trader Dan

http://jsmineset.com/wp-content/uploads/2010/12/December1710Bonds.pdf

Continuous Commodity Index Chart From Trader Dan

Continuous Commodity Index Chart From Trader Dan

Posted: Dec 17 2010     By: Dan Norcini      Post Edited: December 17, 2010 at 5:29 pm
Filed under: Trader Dan Norcini

Dear CIGAs,
Based on a few emails that I am receiving that are related to my comments on the CCI chart, I thought it best to respond here so as not to have to field so many individual answers as my time is limited.

Some are misinterpreting my comments about the commodity sector being in a bubble as if I am saying gold is in a bubble. It is not. What I am saying is that I believe, based on what I can see of the normal fundamental supply/demand situation, that hedge fund buying in the commodity sector has pushed several of these individual commodity markets into bubbles.
Let’s start with what my view of a bubble is. It is an event created by an infusion of SPECULATIVE money that is not tied directly to actual changes in the real physical supply/demand equation of a commodity or asset. Bubbles are very difficult to recognize for just about all of us until after the fact but one thing is common to them all – they are all the result of a huge inflow of hot money chasing the “investment du jour”; one that has been hyped as a “no lose investment”.

The result is that buyers pay ever higher and higher prices for a product or asset with little if no concern what its fair value might actually be. In the process a sort of mania develops in which there is no fear of prices ever moving lower. The only direction that the bulk of people think the market is going to move is higher. Caution is lost in such a situation with greed taking over as those on the long side of the market become extremely confident that prices will work in only one direction – higher.

Without citing any of the commodity markets specifically because I do not want to have some blindly selling, let me just say that when commodity type funds or hedge funds buy commodities as an investment, they generally do not pick and choose markets. They buy an ENTIRE BASKET OF COMMODITIES based on the composition of the particular commodity index that they are tracking. What this translates to in an example might be a firm looking to invest $50 million of client money, will spread that $50 million across every commodity futures market that comprise the index they are using as a benchmark. SOME of these commodity markets will indeed justify the buys; others, whose fundamentals are not overly bullish, will nonetheless also move higher as this speculative investment flows into them as well.

Granted, investment demand is part of the supply/demand equation in any commodity and must be factored in when price discovery is occurring, but the nature of these flows is that they are extremely fickle, and can evaporate almost instantaneously should any sort of external development occur which might be viewed as hostile to the environment which is leading to the surge in demand from this particular corner.

Do you recall how sharply many of the commodity markets dropped when news came out that China was hiking interest rates a piddly ¼% in an attempt to get inflation under control? One would have thought that Armageddon had been unleashed on the commodity sector judging from the speed at which money flew out of the complex. Of course, those slides in price have been erased but the fact is these flows are very, very transient at times. In those markets in which demand for the underlying commodity is based mainly on these investment flows, price can collapse in a hurry once the support coming from such flows is gone or evaporates.
This brings us back to what Jim has been warning about for some time now, as has Monty and myself – namely – currency induced cost push inflation is going to occur. The Fact that the CCI is soaring and is within a whisker of taking out its all time high made back in the summer of 2008 when the sector was in a bubble just prior to the unfolding of the credit crisis, is evidence that this currency related event is indeed occurring precisely as Jim said it would. Hedge funds are buying hard assets as protection against a general global trend of currency devaluation. Regardless of whether or not the fundamentals justify these high prices for some commodities, they are all generally rising as these hot money flows rush into the sector.

It is my contention that SOME OF THESE commodities are now in bubble territory as a result.
Does that imply that prices are now going to collapse? Hardly! No one can predict with any degree of certainty WHEN a bubble might pop and prices drop. The market will follow the path of least resistance, which is higher, until some external event triggers a sell off that then feeds on itself as the hot money flees the investment altogether. That can take price to levels unheard of and certainly not supported by any real world supply/demand equation.

All I am saying with today’s comments on the CCI chart is that I would prefer to see the bubble pop and prices drop rather than have to live through an event which some seem to be hastening, if only to see the price of their gold and silver move higher, namely hyperinflation. I am on then record here as saying I do not want to have to live through such a thing. It is more horrific than many can imagine and if given the choice would prefer to see a sound currency, a sound economy and a sound fiscal structure for our nation’s government. Given the fact that there seems to be little chance for two of these and maybe, truth be told, all three, prudence dictates that we prepare for the worst and hope for the best.

While some commodities are in a bubble, gold is not. It is a currency.
Behind the price of the soaring commodity complex is the story of the debauchment of fiat currencies. That is why gold is shining and will continue to shine. The Fed wanted to create inflation – they have gotten their wish.

Hopefully, this clarifies things a bit.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/December1710CCI.pdf

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

http://jsmineset.com/wp-content/uploads/2010/12/December1710Gold.pdf

DAN NORCINI'S THURSDAY COMMENTS WITH GOLD CHART

http://jsmineset.com/wp-content/uploads/2010/12/December1610Gold.pdf

DAN NORCINI'S WEDNESDAY COMMENTS WITH CHART

Hourly Action In Gold From Trader Dan

Posted: Dec 15 2010     By: Dan Norcini      Post Edited: December 15, 2010 at 2:40 pm
Filed under: Trader Dan Norcini

Dear CIGAs,
Price action in both gold and silver is indicative of the beginnings of holiday trade as players begin squaring books ahead of the year’s end and move to the sidelines in anticipation of taking some time off. Potential exists for some rather strange moves in price. Try not to read too much into it as both longs and shorts exit the market only to return at the start of the New Year’s first full trading week. Pit locals LOVE this time of year as it gives them a chance at picking the pockets of both longs and shorts as they can use the thin trading conditions to go after both upside and downside stops. A lot of them put their kids through college based on the money they secure during holiday trading conditions. Stops are easy money for them although occasionally one or two fund traders will hang around long enough to mess with their plans.
Technically, gold needs two consecutive closes above $1400 to kick it up towards $1420. Downside support exists near the $1375 level with bears hoping to break it down below there and push it towards $1355 or so. Look for dip buyers to be active should that occur.

Silver needs to secure at least one PIT SESSION CLOSE over $30 to give it a shot at taking out the recent peak near $30.75. As stated in previous posts and in my recent radio interviews, silver is not acting like a massive short squeeze is occurring. We will know it from the price action when that occurs. Right now, it is not. The current state of the silver market is one of resting below a critical resistance level.  There is good buying showing up on dips towards $28.50. Silver shorts would dearly love to take out $28 but so far the quality of the buying that has been occurring is thwarting them from so doing.

The HUI is stuck in the same situation as both metals. The recent top near 600 is strong resistance with sellers digging in their heels up there but buyers appear active on forays towards the 560 level. The end result is a sort of range trade or consolidation period.

The big story, bigger than the action in both the metal’s pits, is what continues to occur in the long bond market. It simply cannot seem to get any traction to the upside whatsoever. A market that acts like this is telling us that sellers are eager to unload bonds for whatever reason. More and more the focus of the bond market is the supply of these things versus the waning demand. When you get a day in which the equity markets fade lower and the bonds cannot hold their gains even with that sort of supportive backdrop, it is quite telling. It is saying that bond owners believe that the risk/reward for holding bonds is moving against them.

There can be several reasons for this psyche. First – fears of inflation which erodes the value of bonds. Second – fears of repayment of the principal. That may not be as much of a problem when it comes to US Treasuries in particular (they can always conjure more into existence to pay off existing ones!), but there are more than a few municipals that are looking increasingly dubious. Throw in a good dose of debt woes from sovereign nations over in Euroland and many bond holders are getting nervous about these IOU’s in general, particularly when they see riots tied to austerity measures that might work to bring some of these spendthrift nations back towards some semblance of fiscal health. Some might be thinking to let’s just get out of them completely and look for somewhere else to park our money given the strong potential for monetary and political leaders to take the path of easier resistance of just issuing more debt rather than face down a crowd of angry rioters. Thirdly – growing suspicions that China is unloading Treasuries and looking to use its massive reserves to secure sources of raw materials and precious metals. “Why be the last man holding the bag” if the big buyer is stealthily selling them. Fourthly – the Bernanke-led Fed announced that they continue with their QE program because the unemployment numbers remained too high and inflation was too tame. Any bond holder hearing that would be nuts to hold those paper promises in his or her’s hand.  Lastly – some are looking at the agreement coming out of the lame duck session of Congress and see another bloated spending bill resulting in a further worsening of the US fiscal condition. Whatever the reasons, and there might be others, ( I Have a suspicions that the big banks did not like the profit potential from the narrow yield curve), bonds are a technical train wreck on the charts that looks to have more carnage inflicted upon it judging from the eagerness of sellers.

See yesterday’s bond chart for support levels. Should 119 give way, there does not appear to be much in the way of preventing a fall towards 115.

That brings us to the Dollar – it is going to be moving higher or lower based on the day to day focus of the Forex markets. On days in which Europe’s woes gain ascendancy, the Dollar will move higher. On days in which the focus turns to the US’s own set of economic or monetary woes, the Euro will move higher and the Dollar will sink. Neither of these two currencies are worth the rag paper that they are printed on so it has really become a lesser of two evils situation. “Would you prefer arsenic or strychnine with that sir?” Until yields rise high enough to compensate holders of debt denominated in either currency for the risk associated with holding them, gold and silver, and copper, platinum and palladium for that matter, will stay strong in price. All of these metals are currently serving as stores of value or stores of wealth and until something changes along those lines, it is difficult to see why those looking for such havens would shun them.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/December1510Gold.pdf

DAN NORCINI'S TUESDAY COMMENTS WITH CHARTS

Implications Of The Long Bond Price Collapse

Posted: Dec 14 2010     By: Dan Norcini      Post Edited: December 14, 2010 at 12:25 pm
Filed under: Trader Dan Norcini

Dear Friends,
We have been alerting you to the breakdown in the US long bond over the last several weeks and have noted that its collapse in price has serious implications for all of us.

Judging solely by the price action in both the Ten year and the long bond, the Fed’s QE program, which was designed to hold down long term interest rates and thus spur lending particularly in an attempt to generate activity in the real estate sector, has proven to be an abject failure. Rates have gone up, not down. Combine that with a surfeit of houses due to the wave of foreclosures and it is difficult to see this distressed sector turning around any time soon.

What appears to have taken place is that the focus on the long end of the curve has shifted firmly towards the inflationary aspects of all this Quantitative Easing. In effect, the market has thumbed its nose at the policy boys of the FOMC and completely short-circuited the entire effort.
The long holdout on the FOMC, Governor Hoenig seems to have gotten it right as he has been sounding the alarm about the potential for strong inflationary pressures arising from this foolishness. The Fed has gotten the stock market reinflated and shoved the price of many commodities into the stratosphere, but that has come at a very real cost to all of us. The bond market is saying loud and clear – “you want inflation – fine – we’ll just get rid of our bonds”.
The simple fact is that the soaring CCI (Continuous Commodity Index) now has fully captured the attention of the bond market and unless the easy money policy is withdrawn (fat chance), they are going to begin the long anticipated, but seemingly never arriving, wave of selling which many of us have feared.

There are several dangers in all of this. The first is obvious – rising interest rates will have the opposite effect on consumer spending that the framers of the QE policy intended. The plan was to artificially force down longer term rates through the purchase of Treasuries which would spur bank lending and consumer and business borrowing. How that is supposed to be accomplished with rates going in the opposite direction, escapes me.

The next is every bit as real but perhaps not as obvious to the average consumer who is too busy with life to closely follow the implications of this like some of us screen watchers and that is the cost of borrowing for the US government.

Long term rates are rising even on the 5 year which means that the US is going to have to borrow more and more on a short term basis in order to fund its ballooning budget deficit and its rising entitlement costs if it wants to keep its borrowing costs low. That may work for a while but the fact is that a nation so deeply indebted as ours has become is now at the mercy of market forces that could drastically force up yields meaning the cost of carrying this mountain of debt grows larger with the passing of each month. In other words, our creditors are going to be demanding more money to carry us. I do not see how that benefits us in the long term in any form, fashion or shape whatsoever.

The speed at which the bond market is breaking down is startling. The problem with markets which begin to act like this is that oftentimes that selling begins to feed on itself and a frenzy to unload commences. It may or may not happen to the bonds but the risk is there. Quite frankly, there is only one line of support I can see on the price charts near the 119 level that is standing between the long bond and a drop below 115. If it gets down into that region, things are going to get dicey.

Lastly, note the ratio chart of gold to bonds that we have been sending up from time to time. Note how that ratio has soared in favor of gold. A rising ratio signifies that the market is anticipating a wave of inflationary pressures.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December1410LongBonds.pdf
http://jsmineset.com/wp-content/uploads/2010/12/Gold-Bond-ratio-12-13-2010.pdf

DAN NORCINI'S MONDAY COMMENTS WITH CHARTS

CCI, Copper and S&P 500 Commentary From Trader Dan

Posted: Dec 13 2010     By: Dan Norcini      Post Edited: December 13, 2010 at 3:19 pm
Filed under: Trader Dan Norcini

Dear Friends,
Please take the time to carefully examine the following charts and when you do, realize that the commodity sector has now completely erased all of the losses it incurred beginning back in the summer of 2008 when Lehman Brothers collapsed and started the domino effect of a derivative chain meltdown.

The Fed has gotten exactly what it has wished for – deflation is dead and buried but in the process, they have now set the stage not only for an outbreak of inflationary pressures which are going to boggle the mind, but one that can very easily end up in runaway hyperinflation.
Note that the CCI (Continuous Commodity Index) has run to its current level WITHOUT the participation of crude oil which at the time it made its all time high back in 2008 was trading close to $150. It is currently below $90. That is what is terrifying. We are in effect looking at the prices of food and metals in this CCI doing all the heavy lifting in the commodity sector. Heaven help us if energy prices, particularly natural gas which has been extremely cheap, take off.
Note also the separate chart of copper which is now within a whisker of taking out the 2008 high in price.

You will also note that the S&P 500 has effectively retraced all of its losses since Lehman collapsed as well.

What the Fed has accomplished is to push the price of paper assets higher and inflate the commodity sector while the employment picture remains bleak and wages remain stagnant. Oh, and don’t forget, long term interest rates are now rising even as the housing market remains mired in foreclosures and delinquencies.

While the hedge fund world is partying today because China did not hike interest rates again, I suspect that their partying is going to be short-lived. The Bernanke-led Fed has unleashed the inflation monster upon China and if China does not move to try to quell it, they are going to be amazed at how rapidly prices are going to rise in their land. Food inflation in China is a serious political issue and the authorities are going to attempt to nip it, if they can. Short term they can knock prices down but unless the world produces some bumper crops in this next crop year, the trend in food prices is higher. We have a storm brewing globally folks.

Please know that the price of certain commodities is not moving higher because of supply/demand factors. If that were the case, copper would be much lower. Prices are moving higher because speculative hot money flows, created by the Fed and the Western Banking world QE programs, is indiscriminately mangling a host of various commodities. Commodities are now officially back in bubble territory but as long as the easy money flows, they will track higher. It is investment demand, rather hot money flow demand, that is pushing copper higher for example, not demand from the construction end of things. Wall Street in its greed has created a whole cornucopia of ETF’s that are commodity related and that is where much of the demand is coming from.

The nature of these flows is that they are extremely fickle and quite vulnerable to any news or action on the part of monetary authorities to go after the speculators. I am not sure that there is much any of them can do as long as we have free money available for leveraged plays so while the party goes on, enjoy it. Just be careful. Too much of this demand is artificial.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December1310CCI.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310Copper.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December1310SP500.pdf

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

http://jsmineset.com/wp-content/uploads/2010/12/ComexGoldDec10-2010.pdf

DAN NORCINI'S WEDNESDAY COMMENTS WITH CHARTS

Hourly Action in Metals From Trader Dan

Posted: Dec 08 2010     By: Jim Sinclair      Post Edited: December 8, 2010 at 4:24 pm
Filed under: Trader Dan Norcini

Dear friends,
We have some short term technical damage done to the gold chart but the primary long term uptrend remains intact. Traders with a short term perspective will act accordingly while longer term oriented investors will also take note and look to establish positions in the direction of the primary trend.

The HUI experienced a bearish engulfing pattern on its daily chart yesterday and that is leading to follow through selling today in the mining shares. Watch the support levels closely and see how the shares act as they move into this region especially if you are acquiring for the long term. The HUI has remained above the 40 and 50 day moving averages since August of this year on an end of trading session basis. Should it move down into this region again and refuse to breakdown, you will know what to do.

There is a band of congestion support in silver coming in near the 26.75 – 26.45 level. From a technical perspective we would not want to see it violate 25 to the downside.
Good technical action in the grey metal would be for it to hold above the recent breakout level near 27.90 and work sideways for a week or so.
The trend is your friend in the metals.

The bond market has gotten beaten with an ugly stick today. I am sure that is not making the Fed officials very happy especially considering the huge sums of money that they have spent in artificially trying to push rates lower on the long end of the curve.
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/ComexGoldDec8-2010.pdf
http://jsmineset.com/wp-content/uploads/2010/12/HuiDailyChart1.pdf

DAN NORCINI'S TUESDAY GOLD CHART WITH COMMENTS

http://jsmineset.com/wp-content/uploads/2010/12/ComexGold12-7-2010.pdf

DAN NORCINI'S MONDAY COMMENTS WITH GOLD CHART

Hourly Action In Metals From Trader Dan

Posted: Dec 06 2010     By: Dan Norcini      Post Edited: December 6, 2010 at 2:50 pm
Filed under: Trader Dan Norcini

Silver was the star of the precious metals complex today as it shot higher in the face of a stronger Dollar and a mixed performance by the overall commodity sector. Its strength helped to pull gold higher particularly when it cleared $30 for the first time since many moons ago.
I have been receiving emails from some detailing the efforts to squeeze Morgan. If you track the daily open interest figures without looking at the larger picture, it can be oftentimes a bit unclear as to what is going on, mainly because the actions of spreaders can cloud the short term picture. It is revealing, however, when you look at the weekly silver chart and compare that to the COT chart over the same timeframe.

The big commercial-end user- producer class peaked its net short position in early September as did the net long position of the managed money (hedge funds). Since that time silver has rallied nearly $9 excluding the last few trading days (Monday included). Yet the net short position of the big commercial class has been steadily dropping while the net long position of the managed money class has been moving lower. Only in the last two weeks has this process been halted with a reversal in the size of both the net short commercial position and the net long managed money position. Ditto for the other class known as the Swap Dealers.

Apparently there has already been some sizeable short covering occurring in the Comex silver market that only recently has come to an end as the three groups mentioned above have gone back to their normal status quo. One group of buyers has been operating somewhat under the radar screen and that is the class known as the other reportables. These are large traders such as private individuals or locals or sometimes CTAs. They have been steadily buying since $22 and as of yet show no sign that they have had enough. While not the largest force to contend with in the market, they are also not to be ignored. Those who trade in reportable size in any market are generally not your typical, uninformed speculator but are those who tend to know their market fairly well. After all, large private traders are not risking client money – they are risking their own and that makes for no tolerance towards ignorance.

Oddly enough, it is not the small speculators who are in there buying. They have been steadily selling out the last few weeks even though overall as a group they remain as net longs.
What appears to have happened is that some of the large shorts apparently did not decide to roll to March on out shortly after they began exiting in front of the delivery process for the now-expired September contract. They seem to also have been hesitant to carry some of their December silver short positions. They might have opted to get out of the December earlier than normal to avoid some delivery pressures and then sat on the sidelines waiting for price to move higher before plying their craft of establishing new shorts once again. It also helps them avoid having to deliver if they avoid the front month.  If that is the case, it explains the air pockets above the market which thus far have allowed Silver to shoot higher so rapidly.

What I am particularly interested in seeing now is whether they will attempt to rebuild the size of that short position or will look for ways to draw it down further. Based on what I can see of the last few days worth of open interest, they are adding to, not drawing down shorts. How this plays out is going to be extremely entertaining especially now that the metal has pushed to the $30 level. For guys who think watching prices change second by second is exciting this is all rather novel. For normal folks, what this simply means is that we have already seen what silver can do when it is experiencing some significant short covering. If it gets another round of this… well you can fill in the blanks based on what has been occurring. One thing is certain – more than a few call option writers have gotten slammed.

I mention all this because it is having an effect on the gold market. There are some guys playing the silver/gold spread and leaning on gold a bit as they load up on silver. Even at that, gold is still moving higher but it cannot yet clear its former all time high in US Dollar terms and move past that. It has however bettered its all time high in terms of both the British Pound and the Euro and continues moving strongly upward in terms of the world’s major currencies including the Yen where it is at another fresh 27 year high lacking only a relatively small gain before it posts a 29 year high. Once again gold is sending signals that there is a great deal of nervousness towards paper currencies globally.

It needs to clear resistance above $1420 to push on up towards $1440. There are a few bearish divergence signs but that is normal after a period of consolidation after which a market shoots rapidly to a new high. Bearish divergence signs mean nothing if they are not accompanied by a breakdown in price below a support level. This gold has not done. That being said, gold needs to continue to push higher in US Dollar terms to keep the technically-driven momentum funds from casting away their fleeting allegiance to the yellow metal. Initial support lies down near $1384-$1380 followed by better support close to $1,365.

The Dollar is higher today – YAWN!  The Euro is lower – YAWN again. Big deal. It has become a game of what is worth less than the competitor. Both of them stink as does the Yen which more and more investors are wising up to and is the reason behind the strong climb higher in gold.

Bonds are higher today because Bernanke is worried about the economy. What a shock! Who would have ever dreamed that? Sure sounds like a great reason to buy more paper IOU’s especially given the fact that Ben said he could always buy even more of them if QE3 were needed.

Crude oil looked like it was going to make a run past $90 at one point in the session today but it faded from its best levels and is down a bit as I write this. It still looks to me like it has intentions on that level, however. We’ll see.

The HUI is outperforming the broader S&P 500 but it needs to get through 590 and leave that in the past for another leg higher. Trapped shorts are praying for a double top but would need a close way down below 530 to have a realistic shot at that.

Wheat keeps moving higher with weakness in corn and the beans pulling it back a tad. Palladium was down today but is trading above $750 which is amazing considering the fact that it was trading at $424 at the end of June this very year.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/DanComexDec6-2010.jpg

DAN NORCINI'S FRIDAY COMMENTS WITH GOLD CHART

Hourly Action In Gold From Trader Dan

Posted: Dec 03 2010     By: Dan Norcini      Post Edited: December 3, 2010 at 2:15 pm
Filed under: Trader Dan Norcini

The payrolls number that was released this morning served as the initial catalyst that sent the US Dollar sharply lower and generated a wave of fund-related buying into the commodity complex once again.

It would appear that the market focus of today shifted off of the woes in Europe with its sovereign debt crisis and back onto the abysmal state of the US economy. Same story – no jobs. The market is sending a signal to the clueless Administration and current Congressional makeup (which will be changing next month) that its policies are utterly wrongheaded. They are too wedded to ideology however to take the steps necessary to bring about an improvement. Combine that with what seems an almost hopeless paralysis to deal with the worsening US fiscal condition and the Dollar was taken out to the woodshed where it had the stuffing beaten out of it. Please see the price chart I sent up earlier to detail the breakdown from a technical perspective.

The fact that the US Dollar was knocked lower only after just seeing the Euro getting slammed earlier this week, is underscoring just how awful the health of both fiat currencies has become. Traders were running into the Dollar early this week out of fears concerning the Euro and its long term stability. Today they are running back into the Euro mainly because they are running back out of the Dollar. What a terrible, horrific mess. The monetary authorities have disgraced themselves but that assumes that such people have a functioning conscience. Their problem is that they have the interests of the big banks at heart first and foremost and the long term interests of the nation second if at all. It also does not help matters any that the political leadership refuses to stop spending money that they do not have.

The results are predictable – gold is seeing a huge influx of money from those looking to protect themselves from the monetary authorities of the West. Early this week it made a new all time high in both terms of the Euro and the British Pound and today it came within $15 or so of taking out its lifetime high in US Dollar terms.

I should also note here that crude oil is threatening to breakout to the upside on its daily chart as it set a new yearly high in today’s trading session. If its strength continues and it clears the $90 level, gold is going to take out its all time high in US Dollar terms very easily. I have written about this many times here on the site and remarked about it during radio interviews, but it is a sad fact that if the energy markets break out to the upside, the already hard-pressed middle class is going to get slammed with the double whammy of both rising food prices and rising energy prices. The boys who concoct their doctored CPI  numbers will try their magic on convincing us that inflation is tame and that price pressures are subdued but the charts do not lie and they are telling us that disposable income is going to go more and more to securing the essentials of life. Translation – watch for consumer discretionary spending to nosedive as more of the family budget goes to food and energy and wages remain flat or stagnant.

Back to gold – the fact that it was able to push through round number psychological resistance at $1400 on its third try this week is friendly to the bullish cause as it sets up a test above the $1420 level of the all time high. If that gives way, gold then targets $1440.

Silver is in its own world right now and is very strong on the charts but I want to see a good, solid close above $29.50 to set it up for a push towards $30.

The HUI is within striking distance of its recent high near 588. Technically it looks strong on the charts although bulls will need to push it past 590 to negate any bearish divergence signals that are appearing.

Keep an eye on wheat prices as it has been on an upward tear this week and is working on targeting $7.50. It is moving higher on fears concerning the Australian crop now. Wheat is an essential food and its price action dictates to a large extent the price direction in the rest of the grain complex. It has been dragging corn prices higher. Unless we get a huge bumper crop next year of both wheat and corn, I am afraid that the days of relatively cheap grains are behind us and that the world has entered an era in which the grains, and the soybeans for that matter, have now achieved permanently higher near plateau levels. The implications are higher meat and poultry costs for us all.

What a terror these monetary authorities have unleashed upon us all. Keep in mind this all started when they began to bail out their pals at the damn big banks who created the derivative monster to enrich themselves. History will look back at this era and will spare it no amount of harsh criticism for what began the downfall of the global monetary system.
Bonds are experiencing some pre-weekend short covering as bears ring the cash register for what has been a good week for them. Even at that, they are basically flat and not getting much in the way of upside traction. The technical damage to the charts has been extensive with this week’s breakdown so unless bond bulls can take prices back up beyond 129, the path of least resistance looks lower.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2010/12/ComexGoldDec3-10.jpg

Long Bond And Crude Charts From Trader Dan

Long Bond And Crude Charts From Trader Dan

Posted: Dec 01 2010     By: Dan Norcini      Post Edited: December 1, 2010 at 5:39 pm
Filed under: Trader Dan Norcini

Dear CIGAs,
The US long bond market has been rocked back and forth by opposing forces but since breaking down through an important layer of chart support three weeks ago, they have tried, but have been unable to climb back above that level near 129^15. Today’s breach of additional downside chart support opens up the potential for a move towards the 121 region.

This chart action confirms what Monty and Tony have stated in today’s investment letter where they commented that it would not be long because of the focus on the inflationary implications associated with the Fed’s QE and now the same policy being implemented by the ECB.

“Money printing” is going to result in the inevitable currency induced inflationary pressures which are already being seen in the food sector and soon to be seen in the energy sector.

Bonds are reacting to this unprecedented wave of liquidity creation by ignoring the short term benefits that accrue to Treasuries when the Fed purchases them when engaging it one of its round of QE and are instead looking past that to the inflationary aspects of this policy.

Please review the Gold/Bond ratio chart that was posted last evening where you will observe how gold is already anticipating this wave of inflationary pressures and in particular how it is becoming the “go to” asset of choice for many seeking shelter from the depredations of the Western Central Banks as they move in to practice their craft of debauching their respective currencies.

Jim has already remarked about the character of the price action in the gold market as it pauses near a round number ($1400) to collect itself for the next leg higher. It could very well be that a weekly close in crude oil above 90 will be the catalyst that kicks gold above $1400 and keeps it there. Remember, each step higher in a bull market consists of a push to a new high, followed by a period of consolidation and then a push past that previous high that STAYS ABOVE THAT LEVEL as it consolidates once again.

Food has already moved higher; energy is the only thing that has not really taken off to the upside. Keep in mind that those nations who sell crude oil are going to be carefully monitoring the price action of the currencies in which they are getting paid. They will not continue to indefinitely accept deteriorating paper currencies in exchange for a limited resource but will move to push price higher by curtailing production levels if in their judgment that is the best way to keep from getting the short end of the bargain.

Bernanke is more than likely going to get his wish but at what cost for the rest of us?
DAN'S CHARTS:
http://jsmineset.com/wp-content/uploads/2010/12/December0110LongBond.pdf
http://jsmineset.com/wp-content/uploads/2010/12/December0110Crude.pdf