"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, July 5, 2013

Long Bond Chart Breakdown Continues

The multi-decade bull market in US bonds is clearly over and with it comes an entirely new set of issues that the US government is going to eventually be forced to come to grips with. A monumental federal debt requires LOW interest rates to deal with the mathematics that can quickly make it completely unmanageable. Those days are now behind us.

Take a look at the following chart and you will see what I mean. I had expected that the long bond would find some buying support emerge near the intersection of TWO CRITICAL REGIONS. The first of these was a band of horizontal chart support near the 135 region. The second just so happens to be that region is also the 50% Fibonacci Retracement level of the rally off the secondary low in early 2011 to the peak last fall.

Guess what? The bond market collapsed through that level as if it did not even exist. Next stop looks to be the 61.8% Fibonacci retracement level down near 131 now that the bonds have CLOSED BELOW the 200 week moving average.

Safe havens bonds are now firmly out of favor with the view that tapering of the bond buying program of the Fed (QE4) will now begin as early as September of this year. Rising interest rates are working to bring the US Dollar into increasing favor among global investors as most countries out there with major currencies are no where near to a period of rising interest rates.

It does appear that we are going to be entering a period of rising stocks, rising interest rates and a rising Dollar, all at the same time.

Pretty remarkable isn't it considering that trillions of those self-same dollars have been created by the Fed over the last few years? It just goes to show that demand for the US currency is phenomenal mainly because demand for the other major currencies is rotten!

Gold Undercut by Jobs Number

Never mind the growing number of part time jobs, nor the rise in the unemployment rate, all the market looked at was the headline number of 195,000 jobs created compared to expectations of 165,000 and it was pretty much baked-into-the-cake that the tapering was going to begin in September of this year.

That pulled the rug out from under both gold and the bond market as those markets plunged. Rising interest rates in what most investors believe is a NON-INFLATIONARY environment is serving to lure short sellers into gold and forcing an exodus among recent bottom pickers and even some long-time bulls.

As stated many times recently, gold is in a intermediate term bear market and as such, rallies are going to be sold by speculative forces until such time as the technical chart pattern changes.

I wish to remind readers of this site not to be sucked into taking aggressive long positions in anything gold right now unless you have deep pockets and can absorb further losses while you wait for the deflation/inflation psychology to shift. Trying to buy into a market like this right now is attempting to catch a falling knife - you are going to end up getting hurt.

One of the most important thing to learn if you are trading futures is that LEVERAGE can destroy you. Far too many of these self-appointed experts in gold, whether they be "analysts" recommending long positions based on their improper reading of that Commitment of Traders reports, or those who have gold to sell, simply do not recognize that the chart pattern in gold has shifted on an intermediate and shorter term time basis. When they glibly recommend long positions in gold, they are setting you up to get hurt badly when the trend reasserts itself as it is currently doing today.

If you are trading on the shortest of time frames (day trading) that is one thing as there will always be short term tradable bottoms as well as tops. However, to take a position in the gold futures market without a technical chart confirmation that the trend is changed is the same as having a financial death wish. Remember that....

Currently gold is holding above psychological chart support at the $1200 level which is near the cost of production. That level needs to hold or it will revisit the recent low near $1180. I have noted the extremely high volume day with ellipses. That area should attract buying if the bottom is actually in. We will see what happens.

The mining shares are also falling lower today which is serving to bring additional sellers into the Comex. Throw in the fact that the US Dollar is absolutely SOARING and proving to be the King of the Hill among currencies, gold has its work cut out for it if it is going to start any sort of SUSTAINABLE rally to the upside. For right now, gold will have to clear and STAY ABOVE $1250 - $1260, preferably on a weekly chart, to denote a more lasting bottom.