"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

Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET



Friday, October 31, 2014

HUI / Gold Ratio hits lowest level ever recorded (UPDATED with Gold Chart)

I have been detailing this ratio chart quick often of late as I am of the opinion that the gold shares still lead the price of the metal. My concern for the outright price of gold has been noted as this plunging ratio has been a very good indicator for the future direction of the gold price thus far.

Much is made by the same culprits as usual about big sell orders on the Comex, takedown of this, takedown of that, the usual, blah, blah and more blah, as an attempt to buttress the notion that this fall in the price of gold has been orchestrated by the powers that be to discredit the metal.

The problem with this theory in this environment is that the MINING SHARES have been LEADING the metal lower. Gold is merely following what the miners have been very effectively signaling now for some time since this ratio began declining.

I cannot tell you how disconcerting it is to read the same discredited individuals ( who will not do us all a favor and simply go away) pedaling yet another "special insider claim" that they are privy to the origin of the sellers that "have hit gold with big sell orders eating through all the bids". What else is to be expected when large speculators are entering a market on the sell side or bailing out from off the long side, as their positions grow increasingly underwater? Tiny offers? Small lot sell orders? That is not the nature of today's computer-driven markets and anyone who trades for a living knows this quite well.

Those who continually attempt to make some sort of big deal about big sell orders as  IF they are coming from the powers that be are nothing but pompous windbags spouting hot air that deludes only the unsuspecting and na├»ve.

Also, are we to assume that some nefarious evil agent has been working over the share of each and every mining company PRIOR to then going in and "taking down the gold price"? If the mining shares lead the way down in gold, then to be consistent with the latest gold perma-bull spin, someone would, by necessity, have had to first orchestrate a takedown of the mining companies that comprise all of the gold stock indices, not to mention have been selling all of that gold that has been withdrawn from GLD.

Here is the simple truth - the Dollar has been surging against its competitors; Central Banks have signaled their intention to either keep interest rates low or to provide stimulus or both; and commodity prices in general are falling. In that environment, one in which inflation is not a concern, stocks remain the GO TO asset class. Until that changes, gold is not going to attract sufficient capital flows from serious money managers and hedge funds to keep it levitated. Since the path of least resistance in the metal is therefore lower, that is exactly where it is going. There is no mystery whatsoever to any of this nor is there any conspiracy to force the price lower. Specs simply are not interested in an asset that pays no yield and which requires an overall economic environment in which its price is more likely to head higher.

Along this line, take a look at the HUI/Gold ratio chart once again. the only reason I note it once more is because something historic occurred with it today; it hit the lowest recorded level in the history of the HUI.




Again, this is HISTORIC. As such it signals either more losses lie ahead for gold or an abrupt turnaround for the mining shares. Since both the HUI and especially the GDXJ closed near their weekly lows, that does not look too likely at the moment.

In closing, let me say this... gold's downside breach of $1180 has as much technical significance as its breach of major chart support near the $1530-$1525 level in April of 2013. That too was a TRIPLE BOTTOM that failed.


Note that gold spent 18-19 months moving sideways in a broad range between roughly $1800 on the top and $1530-$1525 on the bottom. When it broke down below that range at the TRIPLE BOTTOM it proceeded to fall another $345 before bottoming out and forming the base of a new 16-17 month long sideways trade above what proved to be another TRIPLE BOTTOM at $1180 that failed today.

The question now becomes will gold do what the pattern calls for, namely eventually leg down somewhere between $300 and $345 before bottoming and carving out yet another base? That could put the metal down as far as $835 - $880 before reaching a new bottom once more.

Of course that seems inconceivable to many but back when gold was trading in the range between $1800 and $1525, it seemed inconceivable at that time that it could ever fall as low as below the $1200 level!

Please note that this is not a prediction; it is merely an observation based upon an analysis of former price action which extrapolates POTENTIAL. Much of course depends on the overall direction of the US economy and whether or not Central Bank activity proves to be insufficient to deal with the deflationary headwinds buffeting it.

One thing that inclines me to not rule out a move this low is that HUI to Gold ratio charted and commented upon above. That is so far off the mean that some sort of reversion seems as if it is necessary to correct it and bring it back more within the norm. As stated before, it can do so either by the mining shares gaining on the price of gold or the price of gold falling faster than the overall price of the shares.

One last look at the LONG TERM CHART shows some Fibonacci retracement levels sketched in to provide some shorter term targets if the selling intensifies.




The downside is now open first to near the $1150 level. Failure there targets that $1100-$1090 level.....

Hedge Funds Feasting on Small Specs in Silver

If you want to get some sort of idea how the big sharks eat the little fish alive, take a gander at the following Commitments of Traders chart for the silver market.

Here is the chart:

I dropped out both the Swap Dealer Category and the Other Large Reportables Category for the sake of keeping the chart cleaner and more readable.

The Blue line is the NET POSITION of the hedge funds. The Red line is the net position of the Small Spec or the General Public. The other line is the Commercial category.

What have the hedge funds been doing in silver for the last few months? Answer - liquidating longs and adding shorts. In other words, they have been SELLING.

What has the general public or the minnows been doing since then. Well, some longs have liquidated so there has been some selling but look at their position. They are still net long in the silver market!

What has silver done since the peak in July on this chart? Answer - it has collapsed in price from near $21.50 to today's low near $15.50. That is nearly a 30% LOSS in 4 month's time.


I cannot count the number of emails that hit my inbox from the gold cult members yapping about HIGH OPEN INTEREST in silver as if somehow that is yet one more reason to be long the precious metals. When pointing out to them that the interest is both from increasing numbers of spreads, and from speculators interested in SELLING THE METAL, I am usually greeted with derision and condescending rebuttals as if somehow I am ill-equipped to understand the esoteric secrets of the strange universe that they are privileged to inhabit.

Some love to argue even more throwing around such insightful comments as, "Mr. billionaire fund manager asserts with great confidence that sometime this year, silver goes north of $50" as if somehow that settles the matter.

And yet, look at the chart. What does it tell you? Answer, a long silver position has butchered those who were foolish enough to think that they knew more than the market especially Mr. billionaire fund manager who is now probably Mr. millionaire fund manager.



The thing about this which is even more tragic, is the sheer size and extent of the losses that this erratic metal can inflict on the account of anyone who gets on its wrong side. A $1.00 move in silver is $5,000 per single contract. Do the math and you get the idea how much money the hedge funds took out of the pockets of the inept general public who continue to listen to the siren-songs of those self-proclaimed market experts who keep pushing them to buy it in spite of the obvious.

Now, this late session bounce in silver is interesting as it indicates some decent buying came in late, very late, in the session but in looking over at the mining share indices, they stink, having barely managing any sort of significant closing bounce heading into the weekend.

That today was also the end of the month, a day on which one can expect to see a great many big price swings and a day on which some funds tend to realize some paper gains for the sake of their monthly statements, and the fact that those mining indices closed so poorly, one has to be skeptical that the bounce higher in this metal signifies the end of the downtrend. It could very well just sit down here for a while and move sideways while it consolidates its severe losses from this week.

I will be watching closely next week to see what kind of follow through to the upside, if any, we might get. The ability to push back above $16.00 is constructive but we will know whether or not it has any staying power early next week. Until then, the general public remains LONG and WRONG and is serving as fodder for the hedge fund bears who are mercilessly goring them to no end. A lot of would-be trading careers from the small public were ended this week by the devastation suffered at the hands of this most fickle of metals.

Surging US Dollar Technically Strong on the Chart

The greenback, as illustrated by the USDX, has managed to poke through the chart resistance level at 87 in today's session. The overnight, surprise action by the Bank of Japan, has given currency traders a strong reason to hammer the Yen lower and they are doing exactly that.

The Euro is holding a bit better and is only down some .7% compared to the 2.5+% beating that the yen is taking, but both majors are down against the Dollar and that has enabled the greenback to finally better that tough chart level noted.


Essentially what we have is a currency, that was trading in a very broad range for the last two years that broke out of that range to the upside in September. The reason for the breakout was simple - investors and traders are convinced that is any of the Western industrialized nations ( and I am including Japan in this group ) was going to move higher on the interest rate front, it would be the US.

This is in spite of the clear statements by the Fed that they intend to keep interest rates low for a "considerable time".

The issue however is very clear - the ECB and the Bank of Japan were NOT going to move higher on rates. Neither was Canada or Australia, not with the price of commodities moving lower. In effect, the Dollar wins by default when it comes to the currency of choice for investors and traders in such an environment.

After the upside breakout on the chart, the Dollar has spent the last month consolidating its gains building a base from which to launch the next move higher. That appears to have finally taken place today with the BOJ move the catalyst.

At this point, a weekly CLOSE above 87, sets up a likely run at 89.  As long as the Dollar is exhibiting such strength, gold has little chance of halting its slide lower.

I can add another comment to this... grain traders who are oblivious to these movements in the critical currency markets and are happily chasing grain and bean prices higher, are going to experience a lesson in global markets very soon that they will not forget.

With crusher margins at levels not seen in two months, and at levels which by any historical standard of comparison, are incredibly profitable, they will crush as many beans as they can get their hands upon and do it as fast as they possibly can. At some point, the supposed meal shortage is going to become a meal glut.



Gold Bears Nail Hedge Fund Sell Stops

We have been chronicling with some detail the regular weekly Commitment of Traders reports for some time in many of the markets that I choose to comment upon. In those comments, I have noted the positioning of some the LARGE speculative forces as being on the LONG SIDE of gold.

Here is a graphic of the condition ( or better - what WAS the condition ) of all those SPECULATIVE longs in the market.

Note the HUGE NUMBER: It currently stands at 241,792 if you include option positioning.



By the way, just for comparison's sake, the total number of SPECULATIVE SHORTS in the gold market is a trifling 134,381. As you can see, speculators have continued to be stubbornly long in the gold market despite the deteriorating chart pattern and despite the deteriorating fundamentals for gold. By the latter, I am speaking primarily of the surging US Dollar and the fact that commodity prices in general are falling right along with the TIPS spread which is indicating the sentiment that inflation is of no concern at this moment.


Here is the point in all this... an examination of the chart shows that approximately 55,000 of those new long positions put on in gold near the $1200 are all completely underwater. That is where this selling is coming from. Once the TRIPLE BOTTOM at $1180 failed ( remember the old trading adage that, "TRIPLE BOTTOMS RARELY HOLD" ), the sell stops were activated and out they came.

Bears have been licking their chops to get to those for some time now. Today, they got them. With that level being the last line of defense in the sand for the gold bulls, speculative forces are going to be aggressive in going after gold from the short side now, just like they had begun doing in the silver market for some time. The carnage might just be getting started.

Interestingly enough, at the moment I am typing these comments, gold is down 2.96% compared to the HUI being down 5.42%. Guess what - that HUI-gold ratio that I have been charting, noting that it has reached levels last seen 14 years ago in the year 2000, is still falling lower. Gold is therefore either going to continue to move lower or the HUI Is going to have to move higher. Gold is overvalued, even after its fall today, compared to the mining universe.

Either that, or as I said yesterday, many mining companies are finished.

Thursday, October 30, 2014

Bean Meal Running into Selling near $400

Those of you who follow the grains ( have there been a lot of markets to follow these days or what?) know by now the issues surrounding soymeal, which has been pulling the entirety of the grain floor higher, in spite of the fact that we are on our way to bringing in record harvests.

The sheer ferocity of this recent rally  - ( I do not even like to use the word, 'rally' when dealing with this because this is not a rally - it is an event almost akin to what some refer to as a Black Swan - it came out of nowhere catching an awful lot of people completely by surprise) - and its SPEED has been breathtaking.

Notice that the meal market has now put on, in one month's time, what it took four months to lose! And folks wonder why some of us old time traders either have no hair or have it all turning grey! 

A couple of things - there is no concrete sign as of yet that this thing is ready to move lower. It did however put us on notice that a $105/ton rally in 4 week's time might be asking too much. It seems as if there are some willing sellers up above $400.



Traders began to see that last evening and perked up somewhat with today's export numbers the assigned culprit for some profit taking. I cannot tell at this point whether or not we have had some decent farmer selling of new crop beans today and this selling is related to hedge pressure or if this is just a round of profit-taking by the funds.

I do know that a boatload of shorts were swamped, sunk, obliterated, shot through, stabbed, mugged, dismembered, chain-sawed, buried alive, and just about any other Halloween-like actions one can use to describe what is a horror show that acts as if it was choreographed just in time for Halloween tomorrow.

This is a short squeeze the likes of which one witnesses every now and then in our commodity futures markets and which leave indelible impressions upon either those who were fortunate enough to survive them and those who were less fortunate and had their dream of becoming a commodity trader meet an untimely end. I have no doubt that many traders were ruined this month and some commercial firms took some severe body blows as a result.



In looking over the ADX, the Directional Movement Indicators are showing some signs of upward fatigue. Notice in the bottom panel that the +DMI ( Positive Directional Movement Indicator) turned lower and crossed below the rising ADX line. That is a warning sign.

Again, this is not a sign that a top is in but it does put the bulls on notice that the easy money might be coming to an end. Two-sided trade might be the new order. We'll see.

The RSI, in the second panel, hit the severely overbought level near 80. I am usually not a big fan of "overbought" or "oversold" levels because markets that reach those heights or depths reach them for a reason; however, the fact that this is doing so, when the situation in regards to the meal is a temporary one, has me taking notice.

The move lower today took the reading below the overbought zone, but just barely. One could make the case that with the overbought reading corrected, this market could simply remain near current levels for some time now and undergo a correction in time and not much in price. Again, that is unclear.



Lastly, a look at the same chart this time including the Bollinger Bands. Notice that price has been well ABOVE the upper line of the band for the entirety of this week. That is not something that happens very often. The interesting thing to note about this, that a normal "correction" could be expected to take such a market down to the middle line of the bands which is sitting near $336. That is some $54 below the settlement price of today! Tell me that this market has not gone bonkers! WOW... is that enough volatility for you?

There is no telling what we are going to get Friday so hang onto your hats. This has become one EXTREMELY DANGEROUS and UNSTABLE MARKET.

Lastly, the moo-moos did it again! What did they do? They set yet another all time high.

Take a look-see:


Take a bow October Cattle - you go off the Board tomorrow as one in the record books! I doubt I will ever see your likes again old friend! My oh my - what a move in the cattle -

The overall US economy may not be that strong but the boys in cattle country are living like kings for the moment. Hey, they deserve their day in the sun however as many of them were hit very hard back a couple of years back when back to back drought years across cattle country, first in the Southern Plains, and then in some places across the Midwest, forced many of them to liquidate their herds incurring serious losses. The combination of scorched pastures and high priced corn was simply too much. Those who survived are now enjoying the feast years but a reminder might be in order - the seven skinny cows in Joseph's dream recorded in the book of Genesis devoured the seven fat cows! Nothing ever lasts, especially in the livestock business.










Weekly Gold close setting up to be Important

In looking over this intermediate term chart, and surveying its current bear market, I have noticed that since its peak near $1900 some three years ago, the metal has only ONCE managed to CLOSE out the week BELOW $1200. See the arrow.....



The close this week will therefore be critical in determining whether or not we are going to be more downside follow through and another test of the key $1180 level or if we are going to sit and grind sideways for a while longer yet.

Based on what I am seeing in the gold mining universe, I would say the odds favor a close below this level but I am not dogmatic about it. As noted yesterday in my comments on the gold shares, based on the ratio of the HUI to Gold, either gold remains OVERVALUED in relation to the shares or the shares remain undervalued in relation to the price of the metal.

I still am leaning towards the metal remaining overvalued especially as there as of yet seems to be no sign that the bloodletting in that sector is through. There remains a lot of die-hard gold bugs who are enduring some tremendous paper losses in their mining share portfolios. Look at the HUI - it is mere about 10% away from hitting the 2008 low! That is six years of whatever gains anyone might have had in that sector that have gone up in smoke. What is such a tragedy is every single bit of it could have easily been avoided. All that was necessary was to tune out the assorted hucksters, charlatans, stock peddlers, etc and just read the chart.



I do think that if we get that weekly close below $1200, the bears are going to be emboldened to go after that triple bottom ( which rarely hold ) near $1180. There is a MOUNTAIN of sell stops sitting there. They know it and can smell them.

Silver Collapses to 56 Month Low

One look at this chart says it all....

If the metal cannot bounce from its current level, the next level of chart support does not show up until near $15.00

Falling GLD Inventories - A Warning Sign Ignored by Gold Bulls

We have been painstakingly detailed in providing very regular updates and charts for the readers of this site of the reported holdings in the big gold ETF, GLD, for some time now. The reason for this is clear - like it or not, approve of the ETF or not, it is a proxy for Western-based investment demand for the yellow metal.

The FACT is that reported holdings have been plummeting lower even since peaking out two years ago. Yesterday saw yet another reduction in those holdings with the total tonnage now at a measly 742 tons. I saw "measly" because the trust is now at reported levels last seen in the first week of October 2008! Let that sink in a bit.



As the holdings have dropped, so too has the gold price, right along with the share price of the gold miners. There is nothing mysterious about this. It has been there right in front of everyone's eyes who were open enough to recognize the obvious.

What is so tragic about this is the number of innocent people who have lent their ear to the numerous peddlers of nonsense out there who assured them that this drop was ultimately bullish for the metal because, as they assured them, "the gold is being drained to go East". Whether it goes East, or North, or South or the earth's core, is irrelevant. It is being sold here in the West as money managers will not buy gold unless they see a very good chance of it moving sharply higher in price. It throws off no yield and therefore, any gains must come from capital appreciation.

In an environment in which most commodities are falling in price, and one in which the Dollar is holding up fairly well,  and one in which inflation fears are nowhere in sight, there is not enough Western-based investment interest in the metal to push the price higher. The East can buy all the gold that they want but without an accompanying demand surge in the West, the best the Eastern-based buying can do is to slow the descent of the metal or keep it from plunging even more sharply than it otherwise might have done. It takes hot money flows from the West to generate a bull market in gold, or in any other market for that matter and the simple truth is that those money flows are MIA when it comes to all things gold for the moment.

Gold has fallen below chart support near $1210 and is now trading below psychological support at $1200. Once more it appears the bears want to go down and test that now triple bottom support at $1180 to see if they can crack it this time around.



Note ( this is for you Hubert!) gold did fall to the lower Bollinger Band after falling below the median line yesterday. The bands are widening out suggesting that there is more to come yet to this move lower. Also note that the ADX line is beginning to slightly rise hinting that a trending move is the works. I do want to point out however that the ADX is well below the 20 level at this point so unless $1180 is clearly taken out, the market is officially still in a broad range trade with $1180 the bottom of that range.

If $1180 goes, look for $1150 in short order as a massive amount of hedge fund long positions will ALL BE UNDERWATER. With silver getting obliterated and with the mining shares disappearing from off the face of the earth, a lot of longs are in trouble.

Maybe the bulls can stave off any further downside but they had better flex what is left of their dwindling muscle very soon.





Wednesday, October 29, 2014

Hawkish Sounding Fed ends QE

Well, we got it. By, "it", I am referring to the final end of the tapering process that the Fed began so long ago I cannot even remember but will conclude at the end of this month.

Throw on top of that some happy talk about the US economy, in particular the job market (where that came from is unclear) by referring to "solid job gains", and that is all it took to send the US Dollar sharply higher on the crosses. Of course they had to throw in that falling unemployment rate but we all know the reason for the lower number is because the labor participation rate continues to decline. Where they also came up with the phrase, "that labor market slack is gradually diminishing" escapes me as well especially when we stop counting the folks out of work!

Perhaps, if you mean by "gradually diminishing", the sort of speed that one can observe when watching a blade of grass grow, then I will happily grant them that. We all know that is a bunch of hooey for if that was true, WAGES would be RISING, and not flat/stagnant as they currently are.

That was the major phrase however that got the currency markets all roiled as that phrase was not in the previous releases. As a matter of fact, I seem to distinctly recall the Fed being on record as being concerned about that labor market slack being substantial.

Hey - its election time; what more can I say. The Fed boss has to keep her boss, happy, if you know what I mean.

TAlk about overdoing it however. Where I come from, the idea that there is "underlying strength in the economy to support ongoing progress towards maximum employment in the context of price stability" is something we feed to mushrooms.

Are they kidding me?

Regardless, the talk in the market as a result turned to that interest rate hike thing once more. As before there was nothing in this month's release that would give any concrete evidence of a set date for an actual hike. What we got was the same as before - the Fed promised to keep interest rates low for " a considerable time". Where have we heard that before?

By the way, regular readers of this site are aware of that TIPS spread chart that I post regularly comparing the change in the spread to the price of gold and using it as a type of forecasting tool for the price of gold. The Fed noted falling inflation expectations as indicated by that spread. They also noted the move lower in energy prices but oddly enough came up with the idea that they did not expect downward pressure on inflation to last.

Where did they get that insightful view from? It sure as hell has not been from watching the CRB index or the Goldman Sachs Commodity Index or the Velocity of Money or any other such actual useful data. I guess they just said it because it sounded good! Seriously, I see no data that gives the slightest reason at this point to believe that the downward pressures on inflation is to be of short duration.

Then again, maybe they have been watching the slaughter in the grain markets and that has gotten them all revved up about food inflation.

This missive will be short for the moment as I am utterly exhausted from trading in the grains, which have become about as bizarre as I have ever seen them.

Meal once again led the entire grain floor sharply higher and for now, it looks as if one set of shorts is getting slaughtered each and every day at this point. Margin clerks are having their hands full forcing specs out of those positions and a veritable bloodbath is taking place.

At some point the temporary supply deficit in meal will be eliminated and then we will go from nothing to a glut. I am not sure how long it will take to fill the pipeline again but when it goes, it will go with horrible ferocity.

While this will not endear me to gold bulls, gold was flattened on the FOMC news and is currently down over 1%. The HUI is a bloodbath having fallen 3.25% at this time while the junior-laden GDXJ is being soaked, down 5.55% at this moment.

I honestly believe we going to see some junior miners disappear before this is all done. Be careful what you buy out there if you want to be a "hero contrarian" and start buying junior miners.

Take a look at this ratio chart briefly comparing the HUI to the price of gold and creating a ratio. It hit a level that was last seen - are you sitting down as you read this - December 2000! That is FOURTEEN YEARS AGO.



I said this before in a recent post and will say it again now, either the price of gold is too high and needs to fall further or the mining stocks are undervalued against the price of gold and need to move higher. Based on what I am seeing today, I see nothing to persuade me any differently. I still think gold is heading lower. Either that or some of these mining companies are history.

Notice on the gold chart that the metal has fallen to the support zone marked near the $1220-$1210 level. It is currently BELOW that level. the way it is trading at the moment ( and of course this could change) it does look as it a test of $1200 is coming. The reason I say that is because the price has fallen well below the middle line of the Bollinger Band indicator with the lower band sitting near $1197.



The ADX is still choppy suggesting that this move is a move back to the bottom of a wide range that has been in place for nearly a month now. However the clear break to the upside of the -DMI (red line) shows near term momentum with the bears.

To get out of the mess that they now find themselves in, the bulls are going to have to clear that downtrending 50 day moving average again. That is way up there near $1240 at the moment.

Incidentally, it does look as if Mr. "gold will be well north of $2000 before the end of this year and silver north of $50" has struck out once again. I am not trying to rub salt into a wound  - I am merely repeating something I have said here repeatedly in an attempt to teach and WARN readers - DO NOT FOLLOW ANYONE who claims to know in advance where a market is going. Here is the truth - THEY DO NOT KNOW in spite of their hubristic and reckless claims to the contrary.

Proof is in the price chart for the metals but I can say the same thing about these grains. Most of us who trade the grains for a living all had ideas where we thought the grains were heading. Most of us were also wrong!

I will try to get some stuff up later on the bean meal and the grain markets. The action in there has taken on a life of its own and a full-out money game is now what is occurring. Panic buying - despair- forced short covering due to margin calls - blown to pieces and to hell in a handbasket hedges are being obliterated. You name it - it is taking place in there.

I can tell you one thing - there are some very angry traders out there right now and some very angry hedgers at what has transpired. This is what happens when techicals take over a market and then take on their own life. Fundamentals are essentially irrelevant when positions are getting blown to hell. About the only thing that matters right now is who has the beans?








Tuesday, October 28, 2014

Consumer Confidence Reading Cheers Equity Bulls

The Conference Board released their Consumer Confidence numbers today and surprised a lot of us. The reading for October came in a 94.5, which according to Dow Jones, was the highest reading since 2007. Truth be told I find that number odd given the polling taking place ahead of next week's elections which show voters in a surly mood, the vast majority believing the country is on the wrong track. Trying to square those fairly consistent poll numbers with the Conference's Board happy face, is a feat that I must admit I have not been able to master.

Maybe the Conference Board asked about falling gasoline prices instead of overall consumer confidence? who knows.

For whatever the reason, stocks liked the number.

However, ahead of the FOMC release tomorrow, the sentiment seems to be while the Fed is going to end the QE program, it is going to stand pat on the interest rate front, essentially leaving short term ( and long term by consequence) rates near zero for some time.

Equities love that environment because quite frankly it makes them the only game in town for anyone who wants to earn more than a pittance on invested monies.

As many of you who regularly read here know by now, I have long expressed my disgust at what the Fed has done to senior citizens, those on fixed incomes and those looking for SAFE, CONSERVATIVE investment options as they approach their older years. Kiss that mostly goodbye, compliments of the Fed, which lives to service its master known as Wall Street, but more particularly, the big banks.

I do not know about some of you but I am filled with disdain when I see elderly friends and family members trying to navigate this bogged-filled financial morass that the Fed has deliberately chosen to create. Oh yes, they will tell us how such things are necessary for the sake of the overall economy. Perhaps that is true, perhaps not, but that is no consolation whatsoever to those who have earned some rest, and some peace and quiet in their golden years who are now forced into spending their afternoons sitting in front of the damned television set staring at one of the cable business channels and wondering if their money will still be there tomorrow.

Enough of my mini-rant for now... I am not going to spend any time commenting on gold since quite frankly it is a gigantic bore right now. It is waiting for the magic words from the FOMC anyway.

What is much more interesting, and much more havoc wreaking is what continues to take place in the grain markets, particularly the soybeans, which are doing things I cannot remember seeing in my trading career. By that I mean soaring in price in the face of one of the largest harvests on record.

What is driving this continues to be the meal - something I have been noting for some time here now. It still comes back to the same old, same ol' at this point - namely historically tight carryover stocks from the 2013-2104 crop year have left many end users/processors scrambling to secure enough beans to crush to meet demand for meal. Toss on top of that the fact that even some of the commercials were caught flat-footed by this squeeze and you have a perfect money flow storm. Shorts have gotten annihilated.

What is being reported is that farmers seeing the rally are becoming bulled up ( big mistake in my view) and are holding beans back hoping to get even higher prices. NOTE - it has been my experience that Farmers - as good as they are at growing crops - historically, and with great regularity, are consistently bullish at market tops and bearish at market bottoms. This is exacerbating nearby supply constraints as export commitments clash with the need for meal.

However, with the Real sinking to a six year low against the US Dollar, US meal prices, and bean prices, are no longer competitive on the global markets. I suspect we are going to soon be seeing export cancellations as a result. One cannot drive prices higher and higher and higher due to a TEMPORARY supply situation and not expect to produce an expected result - namely, high prices will ration demand. The problem is we are still sitting with a huge crop out there that needs to be moved and the last thing we are going to need is higher prices to move it!

Cash flush farmers from back in 2011-2012 farm prices used that money to build lots of shiny new, on-the-farm silos. They can hold the crop while they wait for higher prices, or so they think.

Personally I think that any farmer that is not using this meal-driven rally to price some of their new crop is nuts. The meal is pulling the entire grain floor higher but when it finally does top, and top it will, I fear that the entirety of the fund contingent which has been furiously buying, either covering existing shorts or chasing prices with new longs, are all going to head to the exits at the same time with no one to support this market on the way down.

the reason I feel so strongly about this is that this temporary tightness in the meal is not going to last indefinitely. It is a short-term phenomenon brought about by the combination of a small crop in 2013-2014 and a delay in the harvest of the 2014-2015 marketing year crop. However, based on what USDA reported yesterday - 70% of the total soybean crop has already been harvested. No matter how you cut it, slice it, dice it or scramble it, that is already a huge amount of beans. There might some areas in parts of the Eastern belt that experience some harvest delays but from what I am seeing at the moment, progress is going to continue into the weekend in general. 

Remember, there is still a lot of corn that needs to come in and find a home somewhere as well. Farmers have opted to let the corn stand and go after the beans first figuring that the sunny, though cooler and dry weather, will let it dry down some more anyway. But they are going to bring it in eventually and will need to put it somewhere. While they wait, the corn market seems to be keeping a bit of weather related premium in the corn for the moment.

Also, soymeal is not a stand alone entity - it does compete with DDG's.

My point in this is that when the grains finally exhaust this fund buying binge ( small specs have been destroyed by margin calls as well) and the bids start getting taken and absorbed as commercially-tied hedge pressure begins to ramp up in earnest, we should see some pretty severe moves in the grains.

One wild card in all this is the Brazilian weather for their planting season down there. It has been dry in some areas but timely rains are coming and look pretty good overall. That should remove some concerns associated with Brazil.

Shifting just briefly to crude oil - the black gold looks like it has found support near $80. It has made two trips down below that level on the chart in the last two weeks, but both times, it rebounded and CLOSED above $80. If, for any reason, crude oil CLOSES below $80, then look out. You would then see a very good likelihood of it falling to $77 and possibly even $75.

I am not sure how to take that to be honest. I can make the case that it would actually be friendly for the overall economy as lower energy prices always benefit consumers and some business entities. However, it could also feed into the notion that the economic strength is so weak, that more sluggish growth lies ahead. That would be negative towards more of the key commodities such as copper, which by the way, seemed to like the consumer confidence numbers or something today!

It was just a short two weeks ago that copper actually managed to close below the pivotal $3.00 mark. It did however recover the next day and managed to claw its way higher. Today, it just missed hitting $3.10. Copper looks to me to be carving out a trading range as I think one would be hard pressed to come up with a reason, or to point to any concrete data at this time, to justify any sort of sharp rally in the price of the red metal. Economic growth globally is just not strong enough.

Remember that Palladium chart I posted last week? Well, that metal has been essentially mirroring the price action in the copper. It has closed higher the last 8 days in the row, after bouncing off of the region near $740-$730. This is an industrialized metal that is very sensitive towards any slowdown in growth, much like copper, so one can read it and see that for the short term, investors seem to have put "growth" concerns on the back burner.

I guess so seeing that the VIX or Volatility Index is sinking once more. Back to "What, me worry?". We went from total fear two weeks ago to " I could care less". Astonishing - the entire business cycle has just been completed in half a month! Tell me that our financial markets have not become a nest of idiocy.













Monday, October 27, 2014

USDA Reports Good Harvest Progress made Last Week

Here are the harvest progress numbers provided by USDA this afternoon.

Corn is at 46% complete while Beans are at 70% complete.

In going through the reports, excellent progress was made in the Western region of the Corn Belt. That fits with the weather conditions which showed that big front which touched off a large amount of rainfall, moved rather quickly out of the Western region before taking its time to clear the Eastern Belt.

Let me give you a sense of the numbers to illustrate this:

Iowa is now 81% complete on bean harvest compared to last week's meager 61% and the previous year's 85%. The five year average is also at 85% so Iowa has essentially caught up with the averages and looks to be in very good shape on the beans.

Minnesota is at 94% compared to last week's 85% and the previous year's 89%. The 5-year average is 87%. Minnesota is running ahead.

N. Dakota and S. Dakota are both well ahead of last year's pace and the 5 year average.

As one moves more towards the East, we can see the impact from the storm.  Illinois is at 63% complete versus 37% last week and 83% last year. It's five year average if 77%.

Indiana is at 50% complete versus 31% last week and 76% last year. Its five year average is 75%.

Ohio is at 50% complete compared to 36% last week and 80% last year. Its five year average is 73%.

As you can see from the numbers, Harvest progress has lagged as one moves West to East. This explains the extraordinarily wide basis being seen in the meal and beans from the Eastern Belt. Processors have been scrambling to get beans over there because of the lag in getting the new crop flowing into the pipeline.

The weather however looks pretty good over in the Eastern Belt from Tuesday on through the weekend at this point with some cooler but dry conditions forecasted from what I can see at this time. There looks to be a lot of sun which should allow the harvest in that portion of the belt to begin to play catch up.

Let no one be surprised to see a sharp jump in the numbers we get next Monday. The size of these combines and the speed and accuracy at which they can operate is stunning. Look at how quickly Iowa caught up in one week's time with good weather!

At some point, once these newly harvested beans begin flowing into the pipeline, any shortage in that EAStern belt is going to be eliminated. That is when the temporary spike in meal prices - and subsequently in beans - should come to an end.

We have to keep one eye on S. American weather but right now, the rains look timely and mostly sufficient.

The corn is where harvest is lagging the most and that is perhaps the reason we are seeing more impact from this sharp rally in the meal than we might otherwise see at this stage of the season. There is nothing to indicate any damage to the crop that remains unharvest but some are sticking some premium into the corn until they see a larger % of the crop in the bin.

Farmers have been focusing on bringing the beans in and leaving the corn to dry down further.

Let's start with Iowa which is 36% complete on the harvest compared to 19% last week and 52% last year. Its five year average of 65%. Obviously it is well behind.

Minnesota, ahead on the beans, is behind on the corn with 41% complete compared to 16% last week and 44% last year. Its five year average is 63%.

N. Dakota and S. Dakota are well behind as is Nebraska.

In the Eastern Belt, Illinois is 59% complete compared to 43% last week and 71% last year. The five year average for that state is 72%.

Indiana is 44% complete compared to 31% last week and 57% last year with its five year average at 60%. Lastly, Ohio is 36% complete versus 23% last week and 46% last year. Its five year average is 44%.

I can say essentially the same thing about this as said about the remaining bean harvest - the weather for the remainder of this week looks pretty doggone good to allow substantial progress to be made.

At this point, technical-based buying generated by some initial buying based on the slower pace of harvest has now unleashed a torrent of both short covering and new longs in these grain markets. Couple the strong basis for meal in the Eastern Belt and funds have been going beserk in their buy programs. At some point, and I believe we are soon reaching that point, new crop supplies are going to start flowing in considerable size and that is going to unleash the hedge pressure that has heretofore been absent. It is the absence of that strong hedging-related pressure that has produced a pocket of air ABOVE the grain markets and allowed fund buying programs to essentially move prices unimpeded to the upside.

Simply put, the funds are not selling at the moment and neither are the big commercials  ( YET) in size. Once the fund buying meets up with sufficient supply to absorb it, I believe that the grains are going to come face to face with the reality of massive supply looking for a home and competing for storage and transportation availability.

In looking through today's numbers, I cannot see any further justification for running the meal, and thus the beans, significantly higher especially given the forecast for harvest this week.

The corn might still try to keep some premium in it but a fair amount of that premium is already accounted for. With progress moving only one way at this point, and that is higher, maintaining much more of any sort of premium in corn related to harvest delays seems unwarranted.

My concern for the grains remains the same - when the funds are done buying, having chased prices to such lofty levels considering where the beans and the corn were at the start of the month, who is going to take their place on the buy side?

I guess we shall see soon enough, shall we not?

Soybean Meal Continues Pulling the Grain Floor Higher

Last week it was the 100 day moving average in the meal that was the talk of the town. Today, and this week, it is the 200 day moving average. Meal has now taken both of them out and has set in motion a blast of buying by hedge funds in spite of the fundamentals associated with improving harvest progress and soon to be hedge pressure.



Farmers watching the rally are sitting tight on sales of new crop ( (which is a mistake in my opinion ) as most of them now want to see how high the rally in the beans and in the corn will go before they let go of their newly harvested crop.

The problem with such thinking is that it essentially turns the farmer into a speculator. Rallies that fly in the face of fundamentals are bewildering but they can flame out faster than they began leaving a lot of people holding the bag at the highs wondering what they did wrong.

My suggestion to farmers who think higher prices are yet to come is to not hold off on selling any new crop but to sell a portion of it and replace that with call options if you think you can fetch more down the road. What you do not want to do is to end up selling at the same time all of the hedge funds do as well!

Once processors have new crop supplies of beans flowing into the pipeline, especially in the Eastern Belt, basis is going to move swiftly lower in my view. The buying frenzy that has been seen in the meal will then become a selling frenzy. Again, I have no idea when that will occur nor from what level it will take place but I am watching several key technical levels to get a sense of when the hedge funds will have awakened the big commercial hedge pressure machine.

For now, it is the funds in the driver's seat.


Meal stalled out last week at EXACTLY the 50% Fibonacci retracement level of the collapse from the May high near $412. It flew through that level this morning and is now threatening the 61.8% level near $368. Quite frankly, I am going to be stunned if it can succeed in clearing that level although with the Dollar showing some weakness today and the macro boys buying into commodities as a result, anything is possible. If it does, we could see this thing run all the way to $380 before reality sets in.

Meal had traded in a range between $360 and $340 for nearly two months ( July-Sep) before it broke down in the face of the massive bean crop expected. That it has not only returned to this former "value zone" but has exceeded it, is something that I never expected to see and I have seen a lot of weird things in the bean market over the years.

There is some chatter occurring that late rains in Brazil have turned some farmers there away from beans and towards cotton but one has to be careful with such unconfirmed rumors. More often than not, these sorts of stories arise when people are trying to come up with some sort of fundamental reason to explain inexplicable technical price action.

The technical price action has many analysts now confidently predicting a harvest bottom has been forged and that the grains are going to work higher from here. Put me in the disbeliever camp but until I see some signs that these funds are through playing "chase prices higher and move more demand to S. America" I am very careful. Those computers are unacquainted with "value" and will press in the direction that they are programmed to go until something halts them and makes them reverse.

This afternoon we'll get an update from USDA on the harvest progress.



Crude Oil Weakness Continuing

Two weeks ago during the trading session, crude oil briefly dipped below the $80/barrel level. It did not stay there long however. This morning, crude has revisited the sub $80 level. This is something that we should monitor closely.

We will want to see how this market closes today as it has not had a close below $80 since 2012.


Weak crude prices, while generally good for the consumer ( cheaper energy costs ) and some business interests ( transportation related), are a sign of sluggish economic growth generating insufficient demand to keep up with available supply.

Equity markets are lower as I type these comments as well with the Yen higher and the bonds higher. More safe haven plays are in vogue at this point. Deflationary pressures are back once more on the minds of traders it would seem.

Gold is getting tugged between being a safe haven and the general trend lower across the commodity spectrum.

Macro trades are on display once again.

Saturday, October 25, 2014

The GIAMATT Crowd and Perpetual Motion

For hundreds of years, dreamers, theorists and inventors, along with a huge assortment of quacks, hucksters and con men, have sought to either create or to peddle to the unsuspecting, a machine that when once set in motion, would continue moving without the application of any outside energy to feed it. Of course science has long ago disproved that this is possible because of what are widely acknowledged and irrefutable laws that govern our universe - namely the first and second laws of thermodynamics.

This is not a site dedicated to the exposition of those laws nor is this post directed at refuting the theory of perpetual motion.

What it is directed at this time around is yet one more novel theory concocted by the GIAMATT crowd. For newer readers this is the  short-hand abbreviation I have assigned to the "Gold is Always Manipulated All The Time" crowd.

That perpetual motion has been disproved has not stopped some from promoting it in order to create an income. Same goes for some in the GIAMATT group - that their wild and logic-twisting theories have been disproven time and time again, does not stop them from coming up with yet another and another and another. One must hand it to them - they seem to never grow weary, shame-faced or at a loss in their ingenuity at devising one more scheme to justify substantially higher gold prices.

I have chronicled some of these in the past three years and have written many refutations in an attempt to provide some balance that has hopefully spared some of their victims from losing a substantial portion of their hard-earned wealth.

Please see this previous post for a laundry list and note that this is not all of the theories that I have seen over this time period but only the more prominent ones.

http://traderdannorcini.blogspot.com/2014/10/gold-mining-stocks-continue-to-sink.html

I would like to focus in on the latest.  I am forced to admit this is one that stretches the ability of those whose minds work in a logical manner to conceive of anyone falling for such a twisted example of convoluted and contradictory assertions.

I referenced this the other day in that post linked above but here it is in a nutshell.

The big gold ETF, GLD, is being drained of its gold inventory in order to meet insatiable demand coming out of the East and that this is BULLISH for the metal.

Let's start with a brief history of GLD, ACCORDING to some of the very same people promoting this latest theory.

Remember, in their mind, it is a contest between the PAPER gold markets here in the WEST and the REAL ( their word) gold market, which is in the far East.

Their claim is that were it not for manipulation of the gold price here in the West, that gold would be substantially higher because the true price would be set in the East by the physical market there. According to their new priests and prophets which lead this gold cult, once all of the gold is finished being drained from GLD, it will liberate the metal from the constraints being placed upon it in the West and the price will soar. Therefore, according to this view, FALLING GOLD INVENTORIES in GLD is ultimately WILDLY BULLISH!

( Please note that every single one of these theories is ALWAYS wildly bullish and PROOF POSITIVE that sharply higher gold prices are imminent).

Let's proceed to dismantle this latest theory by taking a trip back in time. When GLD was first introduced, a large number, if not an outright majority of those in the gold bug community swore up and down that its introduction was further evidence that the powers that be in the West were intent on siphoning true demand for gold AWAY from the physical gold market ( remember - in their mind that is the real gold market ) by creating another PAPER vehicle, just like the Comex. This paper vehicle would divert millions, tens of millions and hundreds of millions of dollars into an entity which could be manipulated by the "evil bullion bankers" and thus serve as a sort of Trojan Horse ( remember that phrase because it was extremely popular back then- Trojan Horse).

The big case against it however was its auditing process and specifically the point that the custodian for GLD was none other than HSBC, one of the noted "conspirators" in rigging the gold and silver prices (their claim - NOT mine). In other words, it was a case of the Fox guarding the chicken coop as far as they were concerned.

Additionally, they railed against the Authorized Participants of GLD - Bear, Stearns, Lehman, Citigroup, Merrill Lynch, Goldman Sachs, JP Morgan, UBS and Morgan Stanley as being unfit to be associated with anything the least bit related to gold, since they could not be trusted ( again - THEIR claim; NOT mine).

I distinctly recall the mockery and vociferous criticism raised by many of the ringleaders in the GIATMATT crowd when referencing the reported holdings of gold in the ETF. They screamed again and again that the auditing process was "a joke", and could not be trusted as they sarcastically put the following words in the mouths of those who managed the ETF:

 " JUST TRUST US, the GOLD is THERE".

Do some of you remember this as well?

They cited the fact that the Trustee had no right to visit the premises of any subcustodian for the purposes of examining the Trust's gold as evidence that NO ONE COULD BELIEVE the REPORTED GOLD HOLDINGS in the ETF.

In other words, the GIAMATT crowd was reeking with disdain for any numbers coming out of GLD as unfit to be trusted.

Thus, they LOUDLY claimed that the gold was not there at all and that which was there was rehypothecated, subject to COUNTER-PARTY risk. This counter-party risk was something that they made a big deal about at that time.

Remember that other wild and popular claim that many of the gold bars were fake, being filled with tungsten?

All of their claims AGAINST GLD were to specifically DISCREDIT it as a viable gold investment vehicle that no one who really wanted to own gold should have anything to do with.

Here is the point - many of the same people who were mocking GLD back then and pooh-poohing the gold numbers it was reporting as its holdings, are NOW NEW BELIEVERS, NEW CONVERTS and have SUDDENLY had a REBIRTH of FAITH in the numbers coming out of GLD each day.

Now, some few years later, all of that Gold, Yes, the Gold that was NOT THERE in the ETF ( just trust us, the gold is there they said mockingly), the Gold that was rehypothecated, the Gold that had huge counter-party risk, and the Gold that was not really gold, but rather tungsten-filled bars is all being "RAIDED" and heading to the EAST to supply the insatiable demand from that corner of the globe.

I am not sure what world that many of my readers live in but in the world in which I live, this is what is referred to as hypocrisy. It is also one of the most egregious examples of illogic, inconsistently and blatant disregard for sound reason that I have ever seen in the arena of financial matters.

I guess these people who promote this sort of idiocy think we all have very short memories.

Then again, I suppose we should expect this sort of perverse reasoning when it comes to the gold cult. After all, this is just a sort of mirror image of the same "logic" that asserts that when gold experiences a sharp selloff at the Comex it is proof of "price suppression by the gold cartel banks". However when it experiences a sharp, blow your socks off sort of rally, that is normal, just, and righteous price action. Thus when it comes to the reported holdings of GLD, when they are rising, it is evidence that the numbers are bogus and should not be believed but when they are falling, it is incontrovertible evidence that the East is draining the ETF of all our gold.

Reductio ad absurdum perhaps???

To those readers who are actually serious-minded and are who are attempting to make fact-based investments or trades, rising GLD reported holdings are bullish for the gold price. Falling GLD reported holdings are bearish for the gold price. It really is that simple.

Don't fall for yet another hoax coming out of the GIAMATT cult. They see what they WANT TO SEE and not what is supported by the obvious facts. That is called "Observer-Expectancy Effect".

In closing here are two charts that illustrate perfectly what I stated in this last paragraph.

Here is the chart of GLD showing the rise and the fall in reported holdings.


And here is the gold chart:


Notice how closely the price of gold corresponds to the rise and fall of the reported holdings in GLD. Please note that I am NOT saying that there is a perfect correspondence in the daily price movement of gold in response to the reported holdings. What I am saying is that the general trend in the price of gold very closely mirrors what is happening in GLD holdings. When holdings rise, so too does the gold price. When holdings fall, so too does the gold price.

Keep that in mind when you come across yet another theory coming out of the GIAMATT crowd.





Friday, October 24, 2014

Has the Bean Market Rally Finally Halted?

Beans have rallied an astonishing $0.98 since the first of this month. Why I say, 'astonishing' is because we are in the midst of harvesting a massive bean crop with the possibility of having a carryover nearly 4X as large as what we were left with for the 2013-2014 marketing year.

Part of what has contributed to this very unexpected ( because of the sheer size of the rally ) move higher has been that extremely tight carryover of which I just wrote. With the beans ( and the corn ) lagging the normal maturity levels somewhat, harvest has been running a bit behind the normal pace. ( Remember - I submit that the reason for the lag in maturity has been the near ideal finishing conditions for the plants, warmth and moisture, which has kept the plant pumping nutrients into the ears/pods instead of beginning the normal shutdown process. Translation - bigger yields!).

The slower pace of harvest means that some end users have been scrambling for supplies while they waited for the new crop to hit the pipeline. So we are faced with the anomaly of soaring bean prices over the last three weeks during a time frame in which we normally see prices working into a harvest low.

What has led this move higher has been the meal. For those who are new to grains, meal is made from crushing beans. The other by-product is soy oil.

There have been some reports coming out of the Eastern belt that processors are having trouble getting enough beans to crush. I do not know how reliable those reports are but let's just say that apparently the meal market believes it.

Look at this chart and you will see what I mean. Meal has rallied $65/ton since October 1! it is this strength which has driven the beans themselves higher. This is the normal for bean rallies - they are always led by meal.


However, this market may very well have run out of upside steam this week. It is still too premature to call an end to this rally but there are some signs that need to be heeded.

Look at where the rally has run. It stalled out just above the 50% Fibonacci retracement level which is near $353 before it closed BELOW that level today ( Friday). The market did however manage t to close over the 100 day moving average which is a big deal technically; however, the key for that next week will be whether or not it can sustain any upside follow through and remain ABOVE that 100 DMA. If not, there is a good chance that the meal has topped and with it, the beans.

By the way, every now and then we get the occasional "self proclaimed trading genius" who scoffs at those of us who employ Fibonacci numbers in our trading strategy. What I can say to them is that in all the years I have been trading, I find myself constantly amazed at how close these various levels are to reversal points that markets make. They are not fool-proof ( no trading method is ) but they are reliable enough that any professional trader ignores them at his or her own peril.

So has the bean market rally finally halted? We shall certainly see next week.

One other thing - the Cattle on Feed report confirms the tight supply of cattle that livestock traders are well acquainted with by now but it did show a bit larger number placed than at the same time last year. Still, the comp was already tight. That being said, while the cattle chart is one of the few charts in the entire commodity complex that has been very strong, the December is having trouble cracking the ceiling at $170. For long time cattle traders, some of us remember during the bust years seeing cattle prices at a THIRD of that. I am talking about a "5" handle in front of the cash cattle prices! That is to provide some perspective just how high these nose-bleed prices are in the cattle industry.


I am still keeping a close eye on this market for signs of a permanent top. I still think that cattle are living on borrowed time, giving the overall trend towards lower prices in the commodity sector, not to mention the increased competition from cheaper pork and chicken. The one thing that has kept beef elevated in my opinion, longer than I originally expected, has been the sharp - and I do mean SHARP, fall in gasoline prices. Cheaper gas leaves mom more money to buy high-priced beef but even cash-flushed moms have their limit.

So far, while this market has bent, it has yet to break. Big specs keep coming in and defending their long positions and have had the wind at their back as packers keep paying up for cattle to fill their slaughter schedules.

Lastly, hedge funds have been huge buyers in the corn of late and that is partly responsible for the $0.45 rally in corn since October 1. Based on today's COT report, hedge funds have covered, or bought back, 60,000 short positions since the start of the month. Yes, you read that correctly. We have seen a MASSIVE Short covering rally in the corn. I am also watching that market to see if it is running out of steam to the upside as well.

With wheat putting in an Downside Reversal Pattern today, it could be that the corn is ready to move lower into a final harvest low. Still, with all that has transpired in the grains these last couple of weeks, I am certainly treading lightly!

Here is the wheat chart. An interesting thing about the price action. I have noted that on the way up, $5.20 was a tough nut to crack but if cracked, wheat could run to $5.40. Guess what, it ran through $5.20 and managed to close above that level yesterday for the first time, then promptly ran to $5.39 1/4 before COLLAPSING BACK DOWN through both levels today! WOW...



With all the goofy money flows this week and huge spread positions being piled on and taken off, I am a bit leery about prognosticating anything about the grains with much certainty right now but this is usually one of the more reliable technical signals. Then again, Wednesday's sell signal in the beans and in the meal immediately was negated on Thursday so there ya go! The motto is: "NOTHING IS EVER SURE IN COMMODITIES - NOTHING!". Just about the time you think you've got things all figured out, a steamroller flattens you and leaves you wondering what the hell just happened to you!
 
Enjoy the weekend - the drill starts over again Sunday evening!