Filed under: Trader Dan Norcini
Dear Friends,
Yesterday’s violent sell off across the commodity sector unsettled more than a few investors/traders on account of its ferocity and extent (not a single commodity escaped the selling). As can be expected during such bouts of intense selling, there was follow through selling overnight and into the early hours of North American trading. Some of this was margin call related – other was tied to fresh shorting and further long liquidation.
When the ADP job numbers were released around 7:00 AM Central Time, the bond market rapidly began to descend while the Dollar shot sharply higher, especially against the Japanese Yen. About the same time a key commodity market, copper, began rising off its overnight lows. As copper continued moving higher one could observe the bids entering all across the entire commodity sector, including both gold and silver. The grains, sugar, crude oil and livestock sector also began seeing fund related buying surface. This buying seemed to feed into the gold market, in spite of the strength in the Dollar, and enabled it to climb off its worst levels.
The result was to take gold away from a critical support level near $1365 on the downside and thus spare it any further carnage for the time being as some weaker shorts decided that there was not much sense in trying to push it with that kind of buying present. The bulls have bought themselves some time now to attempt to repair some of the technical damage done to the shorter-term oriented charts. Their first goal will be to take price back above $1380 and hold it there for a pit session close. The temptation will be to sell rallies since the short term moving averages are now trending lower. We will have to wait and see whether or not the bulls can push price high enough to turn those averages up once again.
It sure would not hurt matters if the HUI were to stop moving lower. I will feel better about it if it can close above yesterday’s high at 561.
Silver found support near critical $28.50, which it needed to do in order to prevent a deeper move lower but it needs to recapture the $30 level once again to give some technical chart assurance to the bulls. The bounce is constructive and if it leads to a ranging trade above today’s low, the bulls will have gained the advantage. It is essential that the longs hold the $28.50 level on any closing print.
I think it important to note once again the breakdown in the bond market. It has been falling apart only to be jammed higher by the Fed when they implement their purchases as part of the ongoing QE2 program but it seems to me that the legs down have more conviction to them than do the artificially contrived rallies. They will need to close conclusively below the mid December 2010 double bottom near 118^21 to give us a better indication of whether or not the Fed is going to singlehandedly be able to hold up a market that looks as if it wants to go lower. The ADP job numbers may be suspect but the bond market decided to take them at face value confirming at least in my mind, that the bonds are looking for reasons to move lower. That being the case, it is going to be quite the experience observing how the Fed is going to be successful in its quest to drive long term interest rates lower.
I should also note that crude oil did not stay down very long below $89 before popping higher. That, along with copper, will be key to seeing how the broader commodity complex is going to fare moving forward. It needs a close above $91.50 to push higher and set up a test of the high it posted this Monday near $92.50.
The Dollar (USDX) needs to push past 82 to get anything going on the upside. It does not appear to want to move lower right now as chatter about an improvement in the US economy coupled with lingering concerns about the welfare of several of the various European nations is giving buyers of the Euro pause to question their convictions. Quite frankly, seeing this Dollar strength being accompanied by another rush of money into the commodity sector is quite remarkable, given how sensitive those algorithms are to the well being or woes of the greenback.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January0511Gold.pdf
Yesterday’s violent sell off across the commodity sector unsettled more than a few investors/traders on account of its ferocity and extent (not a single commodity escaped the selling). As can be expected during such bouts of intense selling, there was follow through selling overnight and into the early hours of North American trading. Some of this was margin call related – other was tied to fresh shorting and further long liquidation.
When the ADP job numbers were released around 7:00 AM Central Time, the bond market rapidly began to descend while the Dollar shot sharply higher, especially against the Japanese Yen. About the same time a key commodity market, copper, began rising off its overnight lows. As copper continued moving higher one could observe the bids entering all across the entire commodity sector, including both gold and silver. The grains, sugar, crude oil and livestock sector also began seeing fund related buying surface. This buying seemed to feed into the gold market, in spite of the strength in the Dollar, and enabled it to climb off its worst levels.
The result was to take gold away from a critical support level near $1365 on the downside and thus spare it any further carnage for the time being as some weaker shorts decided that there was not much sense in trying to push it with that kind of buying present. The bulls have bought themselves some time now to attempt to repair some of the technical damage done to the shorter-term oriented charts. Their first goal will be to take price back above $1380 and hold it there for a pit session close. The temptation will be to sell rallies since the short term moving averages are now trending lower. We will have to wait and see whether or not the bulls can push price high enough to turn those averages up once again.
It sure would not hurt matters if the HUI were to stop moving lower. I will feel better about it if it can close above yesterday’s high at 561.
Silver found support near critical $28.50, which it needed to do in order to prevent a deeper move lower but it needs to recapture the $30 level once again to give some technical chart assurance to the bulls. The bounce is constructive and if it leads to a ranging trade above today’s low, the bulls will have gained the advantage. It is essential that the longs hold the $28.50 level on any closing print.
I think it important to note once again the breakdown in the bond market. It has been falling apart only to be jammed higher by the Fed when they implement their purchases as part of the ongoing QE2 program but it seems to me that the legs down have more conviction to them than do the artificially contrived rallies. They will need to close conclusively below the mid December 2010 double bottom near 118^21 to give us a better indication of whether or not the Fed is going to singlehandedly be able to hold up a market that looks as if it wants to go lower. The ADP job numbers may be suspect but the bond market decided to take them at face value confirming at least in my mind, that the bonds are looking for reasons to move lower. That being the case, it is going to be quite the experience observing how the Fed is going to be successful in its quest to drive long term interest rates lower.
I should also note that crude oil did not stay down very long below $89 before popping higher. That, along with copper, will be key to seeing how the broader commodity complex is going to fare moving forward. It needs a close above $91.50 to push higher and set up a test of the high it posted this Monday near $92.50.
The Dollar (USDX) needs to push past 82 to get anything going on the upside. It does not appear to want to move lower right now as chatter about an improvement in the US economy coupled with lingering concerns about the welfare of several of the various European nations is giving buyers of the Euro pause to question their convictions. Quite frankly, seeing this Dollar strength being accompanied by another rush of money into the commodity sector is quite remarkable, given how sensitive those algorithms are to the well being or woes of the greenback.
DAN'S CHART:
http://jsmineset.com/wp-content/uploads/2011/01/January0511Gold.pdf
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