Time To Buy Gold Again?

By: Brian_Bloom

The following interview with Jim Sinclair is highly significant in my view. (http://www.youtube.com/watch?v=GNjAg9x1_s8)

I find myself respecting what this man says and I think he is reading the gold market situation substantially correctly. He made four salient points in the first half of the talk (the second half was elaboration)

1.    When the bordello is raided, even the piano may need to be sold by the owners so that they may survive in the immediate future. Thereafter, the facts of life re-establish themselves and they regroup. The gold price has been falling for various reasons, including a raid by the authorities. It will bottom when weak holders are forced to sell the piano. Thereafter, it will rise.

2.    No currency will ever again be backed by gold. Fiat currency is used for transactions whilst gold is used for savings – i.e. as a means of protecting savings. [BB Comment: It doesn't matter whether this market perception regarding gold is right or wrong. If enough people believe it to be so then it is so]

1.    If/when the dollar loses its status as the world's currency,  gold will skyrocket. [BB Comment: As Mr Sinclair himself acknowledges, the jury is still out regarding the potential for this development, but the commencement of gold’s next rise will not necessarily be a function of the dollar’s fall.]

2.    Gold will start to rise when Comex runs out of inventories - possibly around July.

All four of these points are consistent with what I am seeing on the charts. Gold may be approaching a bottom. One needs to recognise the possibility that the target of $785 on the 5% X 3 box reversal P&F chart may not be relevant because of artificial “manipulation” in the futures markets.  Even if you only accept points 1, 2 and 4 above (which I am inclined to do) then gold may be approaching a bottom. The downside may be $100 whilst the upside is very likely greater than $1000 an ounce. That is a good risk/reward equation.

The chart below shows a possible reversal in the down trend that commenced in mid 2011:

Chart #1 – Daily Bar Chart of the Gold Price

The question one has to ask one’s self is whether the bounce will look like the April 2013 bounce or whether we are facing a bullish sea-change. Looking at the length of the high/low bar on Friday June 28th, in context of the non-confirmation of the rising bottoms of the MACD, it is “possible” that the next rally may be very different from April’s rally.

The 3% X 3 box reversal chart shows a target if $1,109 and the current price is $1,232. Gold might fall another 10%. I think, on balance, one will be trying to be too clever by trying to catch the exact bottom.

Chart # 2: 3% X 3 Box reversal Point & Figure Chart of the Gold Price

Of course, if the piano has to be sold then the price might fall to the target of $785 but, in context of Jim’s argument – with which I strongly agree – that fiat currency is for spending and gold is for saving, the error of timing might be rectified within a  few months. I suspect we are heading for a period of growing (extreme?) volatility on all financial markets.

The P&F chart of the Volatility Index below has just given a “warning” signal that complacency is about to reassert itself in the markets because the $VIX might break below the rising trend line

Chart #3: Volatility Index,  3% X 3 box Reversal Point & Figure

But we need to see this signal in context of the big picture. Below is the 10% X 3 box reversal chart. It is calling for a strong rise in the $VIX. Note how the length of the uptrend lines has been shortening since the GFC emerged and the Fed became more heavily involved in the markets. It’s almost as if the volatility has been slowly hypnotised into a state of sleep.  Well, using that analogy, the latest signal in the chart below shows a market that may now be waking up from that sleep and that the short term sleep “signal” we have seen was really REM (rapid eye movement).

Chart #4: Volatility Index,15% X 3 box Reversal Point & Figure

There is no question in my mind that the signal on the more sensitive $VIX chart is a contrary indicator. For the $VIX to go lower than it currently is has soporific implications.  Can anyone seriously believe that, under current circumstances in the world’s financial markets, investors are going to go remain in a deep sleep for much longer?

In terms of the chart below – of the $SPX – the market is still technically overbought.

Chart #5: Elliott Wave Analysis of Standard & Poor 500 Index

Since the 2011 bottom there have been five (green) up waves with wave 5 being extended relative to wave 3 but at a shallower angle of incline than wave 1. At very least we need to see a three wave downward reaction, and the timing of this is confirmed by the sell signal on the MACD. On a worst-case scenario, if Mr Sinclair is correct about his July/August/September timing, we might see the commencement of a five wave downward movement which, in turn, will be the beginning of a Primary Bear Market. I would be prepared to stick my neck out and make that call if the index falls below 1,379 (the 50% mark)

Finally, a few days ago, Richard Russell’s PTI index recently came within 8 points of turning negative. In context of the above, I am prepared to treat that as a warning shot across the market’s bow.

This warning short happened to coincide with the increased volatility on the bond markets as evidenced by the 10 year yield chart below:

Chart #6: US 10 Year Treasury Yield, 3% X 3 box Reversal Point & Figure

Note how the “high pole” has now reversed itself. In context of all that has been happening, I have to conclude that the latest column of descending zeros has been artificially created by Fed interference. But, at the end of the day, The Fed is not City Hall, the Market is City Hall. City Hall is where the public gathered to take decisions.

Conclusion

To quote Abraham Lincoln: “You can fool some of the people all of the time, and all of the people some of the time, but you cannot fool all of the people all of the time.”

The above series of charts – when seen holistically – leads to the conclusion that we may see growing fear in the markets within the foreseeable future. Investors will likely increasingly come to understand that the Greenspan/Bernanke hosted party is drawing to a close.  Rightly or wrongly, gold is perceived as a haven for savings. It’s time to act.

As an optimist, I don’t think we are witnessing the end of the world so much as the culmination of a “me” oriented era of selfishness and corruption and, soon, the dawning of a new and more “we” oriented era.

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Stock market recovery sets up interesting move

By Jeff Greenblatt

Phoenix made the world news this weekend for hitting 119 degrees. If you are wondering what it was like, it was miserable. But really, it was only one day, as Sunday never lived up to the terrible hype. Thankfully, it’s only been this hot four times in the past 23 years. Now that we got the formalities out of the way, let’s talk about something that was almost as hot.

Last week I told you we were really close to Fibonacci calculations to spawn a bounce. By a week ago Friday, we had the minimum requirements in but we really didn’t have the wash out I was looking for. On Monday we got that wash out and it was a classic. What people need to understand about sentiment is that fear can build but that’s not really enough to bottom out markets. What is required is a whole bunch of fear and then the other shoe drops. We need the kind of day where it feels like it’s going down forever. That was Monday and we got the response I was looking for. The rest of the week was up and by Friday we started a benign pullback. It was not the kind of selling we saw last week.

Feast your eyes on this chart. It’s the best one I have. Never mind the calculations back in 2011, if you want to learn symmetry you ought to take my training. What I want you to look at is where the drop stopped going down. Its right on the trend line supporting a possible ending diagonal wedge. This could be a larger 4th wave low destined to give us one more high. We are off to a fine start. My view of these markets is we are in a similar situation to that of March 2011. The only difference is we didn’t end quite with the bang of a Japanese tsunami. Thank God we didn’t. But my point is the VIX got high enough to give us a trading leg but not high enough to give us a sustained rally. Don’t forget my time windows coming in at the end of August. We have enough time if it’s going to happen to top in the fall window. But let’s be concerned about now.

This rally looks good for today and it comes after the best sentiment I’ve seen at a low since August/October 2011. But there are a few problems. Have you seen commodities? I know you’ve seen Gold and it violated an incredible 1-1 relationship in terms of range and time last week at 653 give or take. That’s not supposed to happen if there’s going to be a reversal. Also, I’ve seen some reports that suggest Gold insiders/traders/analysts are hoping for lower prices so they can buy on discount in an ongoing bull market. I know you folks long enough; can I be blunt about this?

In bull markets pullback are short and intense. Fear builds quickly. I understand Gold is a commodity and the psychology is a little different than if it were a stock. But we also had a 20 year bear market where nobody was interested in yellow metal. In that way the psychology is similar to equities. Gold is nearly 2 years off a high with several lousy bounces. This isn’t Wal-Mart; you don’t get to pick the price level you want to buy on the dip. These people have been around the block long enough to know this. I’m not going to name names. But let’s just say that after all this time there is still complacency creeping into the precious metals. It might bounce here because we have an interesting reading in the XAU but in the bigger picture I think we are going lower.

Finally Corn and Wheat broke to the downside. Oil is treading water and so is Cotton. I cover the Cotton market once a week and come to know it pretty well and what I can tell you is it’s a fairly good economic indicator because enough products use it. Equities might be up but the commodities are telling a different tale. That may not have a payoff right now but ultimately it should. Unless commodities kicks into gear the economy is likely stagnate into the 4th quarter.

Then we had a downward revised GDP number last week for the first quarter. Traders actually liked this because they took it as the Fed being early on ending their bond buying program. So that part of sentiment hasn’t changed. Banking looked good, housing looked fair; biotech looked much improved, transports is okay while oil stocks are trying to get out of their own way. See what I mean about commodities?

I think we are in a position where we can get new highs in certain areas, not others or quite possibly marginal highs the way we did in May 2011. But I am looking for a rough 4th quarter for the stock market. That may or may not pan out but right now, coming out of the seasonal time window for June, if we did put a low in place with the information we have now we could peak this year.

Nothing has really changed with the longer view of interest rates and risk very high at some point for a waterfall event in the bond market. It could happen in October or a year from October. But my main concern is that interest rates do not accelerate but rise slowly over time. Unfortunately, I don’t think that’s going to happen. Finally, I think Europe also has a high probability low in place. That will allow them to be in a position for leadership again. There’s excellent price and time symmetry on the DAX which stopped going down at the 200 day moving average. For a chart that has held and is testing the big average it would be rare for it to break on the first test. We’d probably need to see some really flat action in the coming days and weeks for it to violate to the downside. At the end of the day we are likely in a case of here we go again with the bull market. But there are danger and warning signs. Play it appropriately but as always be flexible enough to not be the last man in.

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Are You Missing a Great Investment Opportunity in Precious Metals?

By Sasha Cekerevac

It’s obvious to anyone who follows the market that the precious metals have dropped by a significant amount this year. At this point, many new investors who have been on the sidelines and were thinking about precious metals as a possible investment opportunity are wondering if this is the right time to begin dipping their toes into the pool.

Let’s take a look at the fundamentals of one of the precious metals, platinum, to determine if there is an investment opportunity.

Ultimately, supply and demand will lead to price movement, but in the short term, many other factors come into play. For example, if investors or institutions own multiple asset classes and they begin to suffer losses, they will end up selling indiscriminately, regardless of the long-term potential.

That’s because, at some point, everyone must have a stop-loss, and large investors can end up moving the market far beyond equilibrium.

Fundamentally, platinum appears to be headed for a deficit, as production problems in South Africa persist, cutting supply despite the stable demand.

Additionally, the rising cost of production has resulted in many mining companies involved in precious metals stopping or scaling back their operations and production, leading to lower supply levels.

South Africa is the largest producer of platinum, and we have seen significant labor issues over the past few months. These problems are set to continue, as workers demand greater safety standards as well as higher pay.

All of this leads me to conclude that there will be less production of precious metals such as platinum coming out of South Africa.

Chart courtesy of www.StockCharts.com

The 10-year chart of platinum above shows how volatile the precious metals sector can be. Volatility, however, can create an investment opportunity. The plan is to accumulate during times when the selling pressure on the precious metals market is near an end.

With the recent sell-off in the precious metals market, the obvious question is: do you believe that platinum has hit a bottom in price and that there is now an investment opportunity?

Calling the bottom in price for any market is a foolish goal, so what I would suggest is to look at two areas to determine an entry point—the fundamentals and the technicals.

As I outlined above, the fundamentals appear relatively strong over the next 16 to 20 months. But price is telling us that there will be much more selling pressure occurring in the market.

The strategy I would employ is to watch for the price to move in line with your fundamental analysis. If the market for precious metals is really in that much of a deficit, then naturally we would see the price begin moving up.

Until the price of platinum begins to show aggressive buyers, especially by industrial users, I would stay neutral; but I definitely would look to accumulate this commodity over the next few months and build a larger position over a longer period of time.

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Stock Market Downtrend May Have Bottomed

By: Tony_Caldaro

Wild week! Monday started off with a gap down opening pushing the SPX down to 1560. Then for the next three days the market gapped up, hitting SPX 1620 on Thursday. Friday appeared to be a consolidation day as the SPX ended the week at 1606. For the week the SPX/DOW were +0.80%, the NDX/NAZ were +1.25%, and the DJ World index rose 1.3%. On the economic front positive reports outpaced negatives 11 to 5. On the uptick: durable goods orders, Case-Shiller/FHFA prices, consumer confidence/sentiment, new/pending home sales, personal income/spending, PCE prices, plus weekly jobless claims improved. On the downtick: Q1 GDP, Chicago PMI, median home prices, WLEI and the monetary base. Next week, a holiday shortened one: monthly Payrolls, Auto sales and ISM.

LONG TERM: bull market

We have counting this bull market as Cycle wave [1] of a multi-decade Super Cycle bull market. Typically these bull markets last about five years and unfold in five Primary waves. Primary waves I and II completed in 2011, and Primary wave III has been underway since then. Primary I divided into five Major waves with a subdividing Major wave 1. Primary III is also dividing into five Major waves, but both Major waves 1 and 3 are subdividing into five Intermediate waves.

Major waves 1 and 2, of Primary III, completed by mid-2012. Major wave 3 has been underway since then. Intermediate waves i and ii completed by late-2012, and Int. iii ended in May 2013. The Intermediate wave iv downtrend may have just completed this week, with an Int. v uptrend now underway. When this expected uptrend concludes, possibly July/August, the market will end Major wave 3. Then after a Major 4 correction, a Major 5 uptrend will end Primary III. Finally, after a Primary IV correction a Primary V uptrend should end the bull market. We still expect this to occur by late-winter to early-spring 2014.

MEDIUM TERM: downtrend probably bottomed

We had counted the six month long Intermediate wave iii uptrend as five Minor waves ending at SPX 1687/1674. Over the next four weeks the market corrected 7.5% and confirmed the Intermediate wave iv downtrend. Soon after we received the downtrend confirmation the market started impulsing upward again. This has occurred a few times during this bull market. Nothing unusual.

From top to bottom, Intermediate wave iv declined from SPX 1687/1674 to 1560 in a complex a-b-c corrective pattern. The b wave rally was 56 points SPX 1598-1654. Off monday’s SPX 1560 low the market had rallied 60 points into Thursday’s 1620 high. A positive. The rally also appears to be impulsing: wave 1 SPX 1586, wave 2 SPX 1573, wave 3 SPX 1588-1577-1604-1595-1620, wave 4 SPX 1601, and wave 5 SPX 1616 so far. We are expecting this rally to end within the OEW 1628 pivot range for Minor wave 1 of the Intermediate wave v uptrend. Then after a Minor 2 pullback, Minor waves 3, 4 and 5 should complete the uptrend in either July or August. If it completes in July the SPX will probably make a double top at the 1680 or 1699 pivots. If it extends into August we can envision the SPX reaching the 1779 pivot. Currently medium term support is at the 1576 and 1552 pivots, with resistance at the 1614 and 1628 pivots.

SHORT TERM

Short term support is at SPX 1593-1599 and the 1576 pivot, with resistance at the 1614 and 1628 pivots. Short term momentum bounced from oversold Friday morning. The short term OEW charts ended the week negative with the reversal level SPX 1607.

After the SPX 1560 low on Monday the market rallied in what appears to be an incomplete five wave pattern for the rest of the week. We can count four waves completed: 1586-1573-1620-1601 with the fifth wave underway. The market was quite overbought on Thursday, after rallying 60 points off a positive divergence. The oversold condition on Friday should set up a negative divergence when the fifth wave concludes for Minor wave 1, possibly in the 1628 pivot range, next week. Minor wave 2′s, during this bull market, have been fairly steep pullbacks: 38.2% to 50%. Then the Minor waves 3, 4 and 5 should follow. Should the market drop below SPX 1586, however, the Intermediate wave iv downtrend would still be underway. Best to your trading!

FOREIGN MARKETS

The Asian markets were mostly higher on the week for a gain of 2.0%. No uptrend confirmations yet.

The European markets were also mostly higher on the week for a gain of 1.6%. No uptrend confirmations yet.

The Commodity equity group were all higher for a gain of 1.4%. No uptrend confirmation here either.

The DJ World index gained 1.3% on the week.

COMMODITIES

Bonds continue to downtrend and finished the week with a 0.1% loss.

Crude continues to uptrend and gained 2.8% on the week.

Gold is still downtrending losing 5.0% on the week.

The USD appears to be uptrending, gaining 1.0% on the week.

NEXT WEEK

Monday: ISM manufacturing and Construction spending at 10:00. Tuesday: Factory orders and monthly Auto sales. Wednesday: the ADP index, weekly Jobless claims, the Trade deficit and ISM services. Thursday: holiday. Friday: monthly Payrolls report with the Unemployment rate. As for the FED: Tuesday an open board meeting, then a speech by FED governor Powell at 5:45. Best to your weekend, week and holiday!

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Humbled hedge funds placed better for corn plunge

by Agrimoney.com

Hedge funds appear to have avoided being wrong-footed by Friday's double bill of US sowings and stocks data as they were over the last batch, in March, when bets on rising prices turned "disastrous".

Managed money, a proxy for speculators, reduced its net long position in Chicago corn futures and options for a fourth successive week in the week to last Tuesday, to 70,701 lots, according to data from the Commodity Futures Trading Commission, the US regulator

The decline appears to have positioned hedge funds well for the slump of some 7% in prices since, fuelled by data on Friday showing that US farmers sowed 97.4m acres with corn – a little more than they had initially planned on.

Analysts had expected a sowings number of 95.3m tonnes, banking on the set spring preventing growers from planting with corn all fields they had allocated to the grain.

While July futures have risen by some 3.5% since Tuesday, this contract, with expiry imminent bringing the contract physical delivery implications, is thinly traded and not widely held by funds.

More short positions

Indeed, while managed money's allocation to corn of long positions - which benefit when prices rise - was, at some 256,000 contracts, close to the long-run average, the level of short positions – which profit when values rise - was, at about 185,000 contracts, near record levels.

The positioning represents a sharp contrast from that ahead of that in March, before the US Department of Agriculture's previous data on sowings crops, released - as on Friday - with separate statistics on the level of grains in US inventories.

Ahead of that report, hedge funds had ramped up their net long position to a 2013 high, including long bets of more than 300,000 contracts.

This left them badly caught out after statistics showing higher-than-expected corn inventories sent futures tumbling 13% in two sessions, a scenario termed "disastrous" for hedge funds by Ann Berg, former director at the Chicago Board of Trade, in a report for the UN Food and Agriculture Organization.

More upbeat on livestock

Despite a reduction in the net long position in corn, managed money raised its net long position in the top US-traded agricultural commodities overall, by nearly 20,000 contracts.

The increase reflected in part improving sentiment over cattle futures, which have shown some recovery from a mid-June low, helped by ideas that weakening corn prices and improved pasture conditions in many areas will encourage herd rebuilding, prompting competition between beef packers and ranchers for animals.

Hog prices have also been underpinned by the prospect of weaker grain prices, besides hopes for firm demand for pork, and in particular bellies, the basis of bacon.

While futures fell in the last session, in profit-taking ahead of a quarterly USDA report on the domestic hog and pig herd, many investors expect prices to open firm on Monday, after the briefing showed animals numbers little changed, at 66.647m head.

Analysts had expected the number to come in at 66.992m head.

Sugar shorts covered

Among soft commodities, managed money also undertook a massive covering of short positions in raw sugar, ahead of the expiration of New York's July lot, but also amid wet weather in Brazil's key Centre South region, hampering the cane harvest and lowering sugar levels in crop.

Data from Brazilian cane industry group Unica last week indeed showed the Centre South harvest slowing, although sugar output remained well above year ago levels.

Short positions on sugar have been a profitable bet for speculators, with futures down some 14% so far this year on a front contract basis.

However, hedge funds cut their net long exposure to New York-traded cotton futures and options, amid talk of improved weather in Texas, America's top producing state, and of potential reforms to a Chinese subsidy programme for its farmers which has been a major support to world values.

In arabica coffee, for which a decline in values has stalled amid ideas that they are well below production costs in many countries, hedge funds continued for a sixth successive week to build a net short position, but at a far slower rate.

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The Perfect Storm In Bonds

by Tyler Durden

The Fed has managed to remove some of the complacency in financial markets for now, but we would also argue that financial markets have managed to remove any complacency the Fed (and any other central banks) may have had regarding how easy the exit strategy from QE was going to be. As we discussed here, the market and the Fed are trapped in a prisoner’s dilemma, and, as Citi notes, the events over the past three weeks make it clear that 'collaboration' is the best strategy – i.e. a non-complacent market and no hawkish surprises from central banks. There is a big risk to this scenario though. As Citi explains, a risk that we fear not even the recent dovish messages by central banks may be able to do much about.

The recent sell-off has, unlike the previous sell-offs this year, managed to trigger outflows in funds and ETFs; as we mentioned above, our credit survey reports the first outflows since 2008. The negative feedback loop which has been triggered around fund and ETF outflows has gained a momentum of its own and the following four charts suggest bonds are in fact primed for the perfect storm.

Via Citi,

The credit market may have never been more vulnerable to rising Treasury yields.

MTM investors make up a much higher proportion of credit investors now than normal,

and MTM risk itself is near all-time high.

amid record low breakevens (i.e. a need to reach increasingly for yield)

and extremely crowded positioning

In the last few days, the market has calmed down, but the ball is not now so much in the Fed’s or institutional investors’ courts, but in those of retail investors.

Whilst institutional investors will likely be happy to “collaborate”, in our view, we’re not sure if retail investors will. They will likely be receiving their quarterly statements in the next few weeks – how will they react to the recent negative performance on their funds? If the outflows continue, we see more downside in cash (vs. in synthetics) and in low beta credits (vs. higher beta credits) – the proxy hedging via indices and unwinding of what investors perceive to be their riskiest trades we’ve seen so far would be overshadowed by selling down those positions which (i) make up most of investors’ portfolios and (ii) are easier to dispose of in a capitulating market

BUT -

What drew investor attention this week most notably - as we discussed all week was Cash lagging CDS. As Citi explains, in general, we are seeing cash bonds underperforming CDS in our sectors in the most recent market volatility. The rate-fear driven selloff, which led to substantial outflows in HY funds including ETFs, are putting more pressure on cash prices as investors are selling bonds to raise cash.

The bottom line is that we have 4 extreme charts that signal a perfect storm that is increasingly out of the hands of both institutional investors and the Federal Reserve as retail flows (once the darling of yield/spread compression) force unwinds in a vicious circle with hedging (via CDS) impossible given the redemptions.

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