First, here's a chart of our completely "un-rigged" (as Zero Hedge likes to point out) market making yet another new high.
Getting right to it, the S&P 500 posted another all-time high this past week while virtually every other market indicator crashed in exactly the opposite direction. Nothing makes any sense anymore. Traditional market correlations no longer exist. Fundamental analysis no longer matters. Technical analysis no longer matters. The market is no longer a forward-looking, discounting mechanism. The only thing that matters is that the Fed and its counterparts abroad are creating money out of thin air to buy stocks and bonds in order to give the appearance that "all is well."
First, here's a chart of our completely "un-rigged" (as Zero Hedge likes to point out) market making yet another new high.
As you've probably read by now, crude oil was absolutely massacred after OPEC decided not to cut oil production at its Thanksgiving Day meeting. The last time crude was this low, the S&P 500 was in the low 900s, or 50% lower than the current price. Looks to me like we have lots of extra oil sloshing around with no economic activity to soak it up. But just look at the S&P, all is well!
Or how about the DBC Commodities Tracking Fund that I've posted about previously? As a refresher, the fund's own prospectus states that the index is "composed of futures contracts on 14 of the most heavily traded and important physical commodities in the world." The last time DBC was this low, we were in the depths of the 2008-2009 financial crisis. Wouldn't you think that an all-time high in the S&P 500 might be accompanied by higher commodity prices?
The credit markets, supposedly the "smart money," are flashing HUGE red flags. The yield on 10 year and 30 year bonds crashed over the past week back to levels last seen in mid-October when the S&P actually sorta-kinda was allowed to fall just a little bit. Specifically, the 30 year yield is back down to where it was when the S&P was down 600 points intraday on October 15 before it was rescued by Mr. Bullard of the Federal Reserve. Remember, that was the day that the bond market broke and treasuries yields saw 10-12 sigma daily moves and traders were literally turning off their machines because the market was getting out of hand too quickly. If the market and the economy are so strong, why are billions of dollars pouring into supposed safe haven investments such as US Treasuries?
Lastly, I'll point out that housing, one of the cornerstones of our economy, have not even made it back to 50% of their all-time high set back in 2005. How in the world is the S&P able to print new all-time highs every week if housing isn't participating? Dave Kranzler posts some excellent housing analysis over at Investment Research Dynamics if you're interested in his take on where things are headed. Spoiler alert - it's not bullish.
I'll stop the rant here, but I think you get my point. The market is a train wreck waiting to happen. The Fed has too many balls in the air at one time - something has got to give and it looks like that time will come soon.
Today's post will be short as I just want to point out an observation that I have not seen in a long time (ever?) in silver. Typically, as options and futures expiration nears, as is the case today, silver and gold get smashed lower to allow the shorts to cover with a comfortable profit and then roll their positions to a new month.
So here we have an hourly chart of silver going back a few trading days. I have circled five instances where there was a sudden price plunge followed by immediate strength. In times past, these price smashes worked to clear the bid stack and set the stage for continued weakness. In other words, sudden, high-volume bursts of selling would break the backs of the bulls and lead to even more selling and thus lower prices. What I'm seeing these past two weeks, however, is a change in that pattern. While we're still getting the high-volume bursts of selling that effectively drive prices down, we're now seeing an immediate rebound on equally high volume.
There's been a lot of chatter in the blogosphere about continued high open interest in both gold and silver so close to expiration. Is there a large entity looking to take physical delivery? Multiple entities? Or are the specs playing Russian Roulette with each other, waiting for the other side to blink first? Regardless of who's behind the trading, something has got to give. We will certainly find out in the next couple of days.
About a month ago I posted a fundamental analysis on a handful of primary silver miners. At the time, the entire industry was getting crushed and I argued that fundamentals had been thrown out the window. Everything was being sold regardless of company-specific factors. While scary at the time, value-oriented investors should have been licking their chops as silver miners were offering a terrific entry point from a risk/reward standpoint.
In my post I argued that Silver Standard Resources (SSRI) and Pan American Silver (PAAS) stood above the rest in terms of their balance sheet and their corresponding ability to whether the storm. These were the only two companies I analyzed that were both trading below a 1.0x price-to-book value AND had significant net cash per share.
In today's post I want to follow up a bit and focus on SSRI from a technical standpoint and see what the charts are telling us. The fundamental picture remains the same from a month ago.
To smooth out the day-to-day whipsaws, I'm only going to look at the weekly and monthly charts. Up first in the weekly chart which shows a beautiful needle bottom, or "V-Bottom" reversal pattern that printed in early November. Just one week prior, SSRI crashed below long-term support (denoted by the horizontal green line) and it looked like further waterfall declines were imminent. After opening down in dramatic fashion the next week and even dipping below $4/share, the stock reversed and closed the week right at that resistance line (which was previously support). The action following the reversal is even more encouraging. The stock hardly even paused at the resistance line and continued to shoot higher. As of this writing, SSRI is sitting at $6/share, a full 33% above its low and 20% above its price from October 25 when I posted the fundamental analysis. By all accounts, the break below $5 is looking more and more like a bear trap - designed to suck in all the new shorts only to rip the stock higher and force them to cover. Its RSI is trending upwards with plenty of room to run and MACD is curling up oh-so-nicely about to print a bullish cross.
Next I wanted to show a 10-year monthly chart to compare the action of late to the 2008 bottom. After SSRI peaked in late 2007, it began to break down slowly over the next 6 months. Then, when the markets crashed in 2008, SSRI went right along with it in dramatic fashion. After falling close to 90% from its peak, it staged a sharp V-Bottom reversal in October/November 2008. Over the next 7 months, it went from $5 to $25, a gain of 400%, with only the slightest pause in March of 2009. The stock then churned sideways, digesting its gains, only to break out once more in 2011 for a total gain of 600% from its V-Bottom low.
Compare this to the action we're seeing in 2014. Coincidentally, SSRI collapsed in October and, three weeks into the month, it appears that November will show a similar V-Bottom reversal. If the analog to 2008 holds, then we should expect significant gains in the months ahead. I would also argue that the macro economic / geo-political backdrop today is far more favorable for silver (and gold) thus adding rocket fuel to the potential upside.
Almost daily we're subjected to headlines touting new all-time nominal highs in the Dow and S&P. Even the NASDAQ is within spitting distance of its internet bubble induced blow-off top from 14 years ago. So everything must be great, right? Well if you're in the mega bull camp, then don't look at the following chart because, in my opinion, it's the dirty little secret that the MSM has been conveniently ignoring.
Yep, it's our old friend the Russell 2000 Small Cap Index (RUT). After printing an all-time high in July, the index has failed (twice now) to make new highs alongside the S&P and Dow. Remember, the RUT is comprised of small cap companies and it's the index that tends to lead the larger indices. It's the canary in the coal mine and the action of late is not encouraging for the rest of the markets.
The index closed down another 1% today after putting in a textbook reversal on November 13th (circled). You can see how the RUT attempted to break out to the upside on the day before only to give back the entirety of the gains on the 13th. This is an excellent tell that something isn't quite right. For the following week, the RUT has slid further towards its 200 dma finding support there during today's session. Its RSI has definitively rolled over and its MACD just crossed negative. Take a look at the last two times the MACD had a negative crossover...significant losses quickly followed.
Moving to the weekly chart, one can see a slow, rounded top beginning to take shape. I'd like to make a couple observations here. First, notice how badly the MACD has deteriorated since the end of 2013. When the RUT hit a new all-time high in early July, the MACD had already collapsed 50% from its high 6 months earlier - a major non-confirmation. Second, last week printed a textbook Shooting Star candlestick formation. As Wikipedia explains, "The shooting star is a type of reversal pattern presaging a falling price." Lastly, its RSI has turned downward once again and its MACD is beginning to flat line at a very low level. Both observations suggest that the recent bounce was simply corrective and further declines are ahead.
Written by Bill Holter via Goldseek.com
This past Friday was a near carbon copy of the previous Friday for the precious metals. Both were "outside reversal" days where the overnight and morning sessions were quite weak, only to bottom and then reverse to the upside strongly on very heavy volume by the day's end. First, this type of action is almost unheard of for precious metals and has happened only a handful of times over the last 15-20 years. Also, both reversals were quite large from the day's early lows to their final closes, the range was 3-4% which obliterated the long held "2% rule". We have now seen this twice in exactly 6 trading days and both were on a Friday.
I want to emphasize "FRIDAY" and put it in capital letters to boot. Friday is the end of the week where there is no trading over the weekend. (It is also the most important day to chartists where the charts cut off and print a close for the weekly period.) Once business closes on Friday, participants are basically frozen in their position until Monday morning ...or until the market reopens. Market participants obviously know this and either position themselves accordingly or square their books going into weekends, it has been this way since the beginning of markets. That said and as you know, I am a believer that we will see a system wide "re set" and this will in most all likelihood occur over a weekend.
I wasn't sure when sitting down to write this how I'd structure it, meaning give you evidence and lead to a conclusion or the reverse? My conclusion is that we have hit a precious metals BOTTOM and are now reversing, the worst is over in my opinion! I must confess, I called a bottom 2 days after the low in June of 2013, some 16 months ago ...which stood as correct until 2 weeks ago... I was wrong. I did not in any way believe the $1,180 level in gold would be broken, it was. That level was broken the day after the last FOMC meeting when 7 days worth of global production was sold at 12:30 AM on the COMEX. Clearly this sale was meant to "break the charts" and break the spirits of any remaining PM bulls. It did break the charts and sentiment along with it. I actually saw a bullish/bearish sentiment reading this past week at "0" bulls, I can't remember where I saw it but I can tell you in 30 years I have never seen this before in any market.
OK, here is what I see and what leads me to believe we now have a hard bottom in. We had the two consecutive reversal Fridays and both on very big volume. These can be considered "impulse waves" if you will. The previous week's raid occurred just as the GOFO lease rates were again going negative (an impossibility in any normal market scenario). Since then, the GOFO rates have gone further negative and have now seen two (possibly three, we will know on Monday?) record negative consecutive days. GOFO rates should never be negative yet they are more negative than any time since 2001 when the gold bull market began. Negative lease rates mean that the real metal is scarce which is a direct contradiction to dropping prices. I will say this, while the COMEX can create 7 days worth of paper gold and sell it while everyone is sleeping to "make" price, they cannot create real gold out of thin air to satisfy real leasing needs. What I am saying is this, rates in the "real" market show gold as very scarce, NOT plentiful as price would suggest.
Another anomaly occurred this past Thursday and Friday. Scotia stepped up and served 920 Nov. COMEX gold contracts on Thursday and another 462 Friday. This is VERY strange and can only be explained as "someone either needs or wants gold...NOW"! I say "now" because the November month is historically a very small delivery month, there are only a few days left and there were only 33 contracts open prior to these 920, and 462 being served. This represents 92,000 ounces of gold, almost three tons and 46,200 ounces or nearly 1 1/2 tons. In a contract that is going off the board in short order, for what possible reason would this ever be done? Who is the ultimate buyer and why now? We can't know "who?", we can only speculate on "why now?" but we do know one thing for an absolute. Someone is desperate for gold and has to have it immediately! I have never seen anything like this in the COMEX metals in the last 15 years happen even once ...but back to back days smacks of something really different! Stay tuned as I plan to write more about this anomaly and the GOFO backwardation in my next piece.
Other pieces to the puzzle include very high open interest for Dec. silver, still contracted for more than 7 ounces for each ounce represented in registered inventory. Interestingly, the bullish consensus on the dollar has never ever been higher than it is right now, everyone has moved to one side of the boat. Russia announced a doubling of their purchases over the last three months to 55 gold tons while China is averaging nearly this amount weekly ...and India looks to again be ramping up purchases. We also have seen a rampage in Europe, particularly Germany where silver demand has recently been voracious. So much so that many mints have gone "back order" including the U.S. mint suspending the sales of Silver Eagles. Anecdotally, I would also like to mention the premiums on U.S. Gold Liberty coins has risen dramatically over the last two weeks, so much so that they now actually cost more than when gold itself was $30-$40 higher. I understand, "they don't make these anymore" but dealers are being forced to raise what they will pay owners to entice product. NONE of this is the action of a market where the thought process is "get me out now"!
As a backdrop, we still need to hear from the G-20 and what was decided there along with the Swiss vote at the end of the month and also the "nuisance" factor of ISIS announcing they will create their own currencies ...made of gold and silver. We already know the APEC/G-20 meetings have respectively shown little U.S. respect as president Obama was pictured far from the center and (I mean no disrespect) between two women...followed by Mr. Putin being isolated by his lonesome for the G-20 photo. I bring this up because China/Russia obviously knows the game of proper diplomacy, I can see no way a U.S. president would ever be treated like this unless something was afoot and close to being made public (I wrote about this in my "G-20 Massacre" article last week). As for the treatment of Mr. Putin who now says he will leave the summit early, do the G-7 members really believe there is an upside to poking "the bear"?
As for the Swiss vote, this may be quite interesting as the banking powers that be seem to be putting a public full court press for a "no" vote. If this was "no big deal", there would not be as much or as many efforts to "scare" the voters away from gold. For that matter, the recent price action may be directly connected to this vote and is being used to scare the "yes" vote? I mentioned the announcement of gold and silver currency by ISIS because this will also increase demand. Please do not think the "timing" of their announcement was by any coincidence or by chance, they can see everything we do and understand precious metals are the Achilles Heel of the Western fiat systems.
One last area I'd like to address is sentiment from personal experience. In all my years as a broker and since then writing, I have never seen the fear that has been recently prevalent. I have never received so many e-mails and phone calls from fear the stricken as I have of late. These past two weeks have topped the charts. Even the die hard's are questioning their logic. Never mind that demand far exceeds supply or that gold and silver cannot be produced for long at these prices, the fear has run rampant and blood is running through the streets (minds) of precious metals investors.
Please understand what is happening and why. President Obama met with the leaders of finance last year and then suddenly gold and silver started to drop. This in my mind was a last ditch effort to show the world "dollar is good, gold is bad". It has worked ... so far, the only problem being "gold cannot be printed" and the West will at some point run out of metal to supply the buyers. I did not take lightly "calling bottom" in June, 2013 and I don't do so now. That level held for 16 months until the most recent operation but it is what it is. The action of the last two Friday's tells me that something has definitely changed and physical buyers are digging in their heels. In my opinion, we will not trade at the current levels for long. I will be surprised if the action from here is not "V" shaped and another impulse wave kicks it off. Whether or not we have a market closure, holiday and "re set" I don't know but I do believe it is a likely scenario. Any number of events could possibly be pointed to as ("but if such and such didn't happen we would have been fine") a reason. There must be a "reason" for public consumption when in fact the "real reason" is simply an unworkable monetary experiment.
For the first time in many weeks, gold and silver are starting to gain some upside momentum which suggests further gains are in order, at least in the short term. Let's first take a look at the daily chart of gold and see what it's telling us.
Everything I'm seeing points to at least a temporary bottom in gold. First, Friday saw a 4% swing from low to high on the day accompanied by significant volume. From a technical perspective, Friday's action is what's known as a Bullish Engulfing Candle. We saw this same formation a week ago, and now we're seeing it again. The Bullish Engulfing Candle from Friday, November 7 was followed by several days of sideways action on unimpressive volume. This is important because if the sellers were taking back control, we would have strong down days on rising volume. Instead, we drifted sideways until yesterday when gold exploded higher again on increased volume. Momentum indicators are all confirming the bullish move as RSI is trending higher and the MACD just posted a bullish cross.
Above is the weekly chart of gold going back one year. What I'd like to point out here is that we've seen two consecutive weeks with Hammer Bottoms on big (and increasing) volume. You can read about hammer formations here, but the gist is that these are often upside trend reversal indicators at the end of a downward move. The fact that we've now seen two weekly hammers in a row is a testament to the strength of support at these price levels. To demonstrate what can happen after a hammer bottom, look no further than the recent action in the S&P 500. The index put in a massive hammer bottom for the week of October 13 and look what it's done since.
I wrote on Tuesday of this week that Gold needs to close above $1183/oz before we can even start talking about a change in trend. Well that happened yesterday with a close at $1187.90 so we can check that box. If this recent rally is going to have any teeth, however, then we need to see a close above its 50 dma, which, as of Friday's close, is about $1213. Given the positive showing on strong volume and the accompanying momentum confirmations, I would say further upside next week is a strong probability. Much work still needs to be done before we can call a trend change, but the action is encouraging nonetheless.
Silver had a very similar upside reversal day on Friday, almost doubling gold's gains in percentage terms. It too posted a bullish engulfing candle on big time volume. From a short-term perspective, silver and gold look very similar. Momentum indicators are all confirming the bullish moves and increasing volume has been there as well.
While silver's daily chart is in lockstep with gold, the weekly chart is not quite as bullish. Yes, silver has posted two consecutive hammer weeks, but volume could certainly be better. Its RSI and MACD are still deeply oversold and have not yet turned bullish. This shouldn't be discouraging for the bulls, however, as silver's chart is/was much more damaged from a technical perspective. In other words, silver will take longer to heal than gold. The first major step in the healing process will be to close above prior support at $18.17/oz. Even after Friday's impressive gains, that's still over 11% away.
Every journey starts with the first step. I believe the action in gold and silver this past week was indeed that proverbial first step. There is a long way to go before us precious metals bulls can declare an official trend reversal, but we've got to start somewhere and this might as well be it.
Here's a long term monthly chart of the USO, an ETF launched in 2006 designed to " reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. After collapsing in 2008, it recovered slightly and then has ground sideways for the last six years. Since 2009, it has been neatly bound by a trading range with $29 as support and $42 (more or less) as resistance. For six years it bounced between these levels - that is until November 2014. After briefly piercing below $29 last week, it quickly recovered only to lose it again this morning it was is turning out to be very heavy volume. Volume since the 2009 bottom has been weak but the recent weakness has come on elevated turnover - again, not a good sign for the bulls.
Here's a 20 year chart of West Texas Intermediate Crude, USO's underlying commodity. You can see the same break of intermediate term support that occurred this month which opens the door for continued weakness. Volume has accelerated these past few months adding credence to the sell-off.
I've also drawn the long term line of support dating back to the late '90s. Based on the recent breakdown, I fully expect crude to revisit this support, somewhere in the mid-to-upper $60s depending on how quickly it declines.
In short, I see little relief ahead for oil bulls.
I'm going to keep it short and sweet this morning with a quick analysis of gold and silver in the short term. Above is a daily graph of gold showing the hard bounce with good volume last Friday. I circled that day and day prior to illustrate what's known as a Bullish Engulfing Candle pattern. According to Investopedia, it is defined as follows:
A chart pattern that forms when a small black candlestick is followed by a large white candlestick that completely eclipses or "engulfs" the previous day's candlestick. The shadows or tails of the small candlestick are short, which enables the body of the large candlestick to cover the entire candlestick from the previous day.
So in the immediate term, this is a positive development for the gold bulls. It's also worth noting that even though price was down yesterday (Monday), volume was paltry compared to Friday's rise suggesting the sellers may be getting exhausted.
The big picture, however, remains decidedly bearish as gold continues to print multi-year lows week after week. What gold bulls need to see first is a close above $1183 which was previous intermediate term support. From there, you would want to see a close above its 50 dma. Until this happens, be cautious about deploying more capital at these levels.
Silver is exhibiting the same Bullish Engulfing Candle as gold. After a middle-of-the-night smack down to almost $15/oz between Thursday and Friday of last week, silver turned tail and bolted higher for the better part of the next trading session. We can see on the chart that there were three attempts at $15 last week, each one heartily rejected. Yesterday's volume was also unimpressive making the decline much less meaningful. The dashed line represents the next area of resistance that silver must close above to have any real chance of rallying for the longer term.
Like gold, silver is deeply oversold and due for a bounce. The action from last Friday is encouraging, but it is by no means the beginning of a new bull market. Keep your eye on those key technical levels I've mentioned and continue to be patient.
When looking at charts of the big indices this evening, a very recognizable pattern on the S&P and Dow jumped up and slapped me across the face. Known as a Megaphone Topping Pattern, or Broadening Top, this relatively rare formation is the opposite of a Symmetrical Triangle. According to Trendng123.com, "A Megaphone Top is formed because the stock makes a series of higher highs and lower lows. The Megaphone Top usually consists of three ascending peaks and two descending troughs. The signal that the pattern is complete occurs when prices fall below the lower low." They provide the graphic to the right as a textbook example.
Now take a look at the daily chart of the Dow Jones Industrial Average. Look similar?
That looks like "three ascending peaks and two descending troughs" if you ask me. Same goes for the S^&P. Take a look below:
Both major indices are completely stretched to the upside based on RSI and MACD and volume has been pathetic during the recent rally. And speaking of the recent rally, the Dow has risen 10.7% in the last three weeks while the S&P has rallied 11.3%. As Zerohedge points out, the S&P has just posted its "biggest 16-day market surge in history." As in ever. Does that seem healthy to you?
Anyway, back to the megaphone pattern...why do we care? Trending123.com concludes its description with the following:
The pattern occurs after the bulls have been charging and driving the stock price appreciably higher. During the formation of the Megaphone Top, however, bears are exerting increasing influence on the stock and causing it to set a series of lower lows. The increasing volatility eventually creates a sense of uncertainty, leads to profit-taking, and deters some of the bulls from making any further commitments.
I think we can say unequivocally that volatility has been increasing as the year has wore on. There is a tremendous sense of skittishness out there - like every investor is terrified that his chair won't be there when the music stops.
So I've been saying for months now that markets have looked vulnerable. Even though the S&P and Dow just hit new all-time highs, something just doesn't feel right. They're making these highs on lower and lower volume, with less and less underlying participation. While I didn't show it on the graphs above, the Advance/Decline Lines for the Dow and S&P both peaked back in May and are nowhere near those levels today. These are huge non-confirmations of the recent rally.
Speaking of non-confirmations, the Russell 2000 Small Cap Index, the canary in the coalmine for the broader markets, is still 3.5% below its all-time high set back in July. Take a look at its series of lower highs and lower lows. This should be concerning, particularly when you consider the Russell typically leads the other indices.
I have no clue what the markets are going to do tomorrow. Or next week, or next month, or next year for that matter. What I do know is what I see on the charts and what I'm seeing is borderline crazy (or maybe all the way crazy). Major indices just flat out are not supposed to behave this way in a normal, healthy market. It's up to you whether or not you participate in this market, but for my money, I'm going to sit this one out.
Reuters: The U.S. Mint said on Wednesday it has temporarily sold out of its American Eagle silver bullion coins following "tremendous'' demand in the past several weeks.
In a statement sent to its biggest U.S. coin wholesalers, the U.S. Mint says it will continue to produce 2014-dated coins.
The Mint will advise when additional inventory will become available for sale without providing further details.
The announcement has not been made available to the public, but a U.S. Mint spokesman confirmed that it has sent the statement to its authorized participants.
A sharp break in gold prices to their lowest in more than four years last week has unleashed a surge in demand for silver and gold coins in North America and Europe.