Quantitative Cocktails

by Marketanthropology

Picking up where we left off last week - here's another look at the latest "Quantitive Cocktail" to explode.

"It's safe to say that both silver and the Nikkei were THE risk cocktails for each periods pronounced gains; whereas, the markets monetary handlers had brought participants noses back to the trough to feed (through a perceived weakened currency) - then gallop, in the asset meadows that would most benefit its yield."

Click to enlarge image

Click to enlarge image                                                Click to enlarge image

As was the case in 2011 with silver and the commodity led risk drive, the impetus for these pronounced periods of boom and bust were largely psychologically driven phenomenons, motivated by what initially was perceived as radical central bank interventions. Should the rally in the Nikkei meet the same fate as silver, the weakness in the targeted currency will prove to be ephemeral as well as its primary benefactors.

See the original article >>

U.S. Treasury Bond Market Sell Signal

By: Brian_Bloom

On reflection, the two weekly charts below should have been included in the equity market overview that I sent out yesterday (http://www.beyondneanderthal.com/equity-market-risks-are-rising-3/ ).

A significant “sell” signal has been given on the weekly bond price chart.

Theory says that the index should consolidate before heading down in earnest. Minimum target move is 152.5 - 137.5 = 15 points. Minimum target destination is 142.5 + 15 = 127.5 – which is where the index first gapped up in August 2012.

Looking specifically at the yield chart below, we see a mirror image, but without the gaps:

Target move is 34.5 - 25 = 9.5

Target destination is 32.5 + 9.5 = 42 (4.2%)

Note that a move to 4.2% will take the yield above its 200 week moving average.

Conclusion: The market is calling and end to the Fed’s game playing in respect of yields. Regardless of what Mr Bernanke may be saying, fundamental factors are now beginning to prevail. We can expect a 15/142.5 = >10% fall in the long bond price, which will translate to significant capital losses in the long bond market. In principle, the direction of bond prices in general is likely be down and capital shortages will be the likely result as lenders become risk averse. For various reasons the general rise in cost of capital will weigh heavily on the equity markets.

BB Comment: There are those who will argue that a rise in yields will evidence a coming era of price inflation and that, therefore, we can expect this inflation will drive equity and gold prices “up”. Yesterday’s equity market overview was intended to emphasise the dependence of corporations on rising sales volumes to drive rising profits on a sustainable basis. At this point in history, if corporations raise prices faster than they raise wages, then consumers will have less disposable income to afford to buy the goods and services that drive the economy. Therefore, if corporations raise prices they will likely experience falling sales volumes and the economy as a whole will contract. We are too early in the Kondrat’eff up-cycle for emerging technologies to drive “green shoot” revenues. The debt bubble needs to deflate as a condition precedent to future economic stability. Alternatively, a replacement “artificial” economic driver needs to be introduced. The last time that happened was in the 1930s, leading up to World War II. Time will tell whether humanity has evolved beyond reaching for the Neanderthal option of beating your enemy over the head with a club to get what you want. The evidence suggests not, but the optimists live in hope. They point to the tsunami of emerging technologies that has been building. They point to the Gross National Happiness Index in Bhutan and hope that it is the first emerging sign of a possible shift in human values. (See: http://www.grossnationalhappiness.com/ and http://www.grossnationalhappiness.com/wp-content/uploads/2012/04/Short-GNH-Index-edited.pdf )

See the original article >>

Too tough of a nut to crack for the Fed?

by Chris Kimble

CLICK ON CHART TO ENLARGE

Two of the U.S. broadest index's (NYSE Composite & Wilshire 5000) are both facing a series of resistance lines that so far stopped them on a dime towards the end of May. Could the confluence of resistance lines at this time become important since they took place in May (Sell in May and go away)?

The Fed is to announce its thoughts on QE to infinity & beyond tomorrow, can the action they take push these key index's past resistance? A breakout above these lines would be a positive for sure.

Is this resistance "too tough of a nut to crack right now?" Stay tuned, these are important levels for Ben and the Fed to break!

See the original article >>

U.S. to buy domestic sugar to ease glut after prices plunged

By Marvin G. Perez and Alan Bjerga

The U.S. Department of Agriculture plans to spend about $38 million to buy domestic sugar in a bid to ease a glut that sent prices plunging this month to a four- year low.

The surplus will be reduced by 300,000 short tons (272,155 metric tons) as the government buys sugar and then gives it to U.S. refiners in exchange for credits normally used to import cheaper raw sugar from overseas, the USDA said today in an e- mailed statement. The refined sugar would then be exported, the agency said.

Record production from cane and beet growers, who are supported by government restrictions on imported sugar, and duty-free supplies from Mexico left the biggest inventories in more than a decade and sent domestic prices tumbling 34% in the year ended June 14. The drop in value threatened to force growers to forfeit $110 million to $320 million of sugar to the USDA to avoid defaults on government loans.

“Most traders believe that there would’ve been some defaults in the fourth quarter without pre-emptive action from the USDA,” James Cassidy, head of the sugar trading desk at Newedge Group in New York, said in a telephone interview. “This won’t be enough to remove all excess supply, but it’s a start.”

Domestic-sugar futures for September delivery rose 2.4% to 19.35 cents a pound on June 14 on ICE Futures U.S. in New York. Prices reached 18.85 cents on June 11, the lowest for a most-active contract since March 2009. Raw sugar for October delivery, reflecting world prices, rallied 3.4% to 17.09 cents a pound on June 14. The contract was up 0.5% at 1:36 p.m.

Cheaper Alternative

“Today’s notice is estimated to cost approximately two- thirds less than not taking action to prevent forfeitures” on crop loans, Brian K. Mabry, a USDA spokesman, said in an e-mail. “USDA will continue to monitor market responses and determine if additional action is necessary.”

The U.S. limits sugar imports and sets prices for about 5,000 growers, raising consumer costs by $3.5 billion a year, according to an Iowa State University study. Because it helps farmers by setting artificially higher prices rather than with direct payments, government spending is minimal.

While sugar is the only major agricultural commodity grown in the U.S. in which the government actively manages imports, Mexican product can access the country without restrictions under the Nafta free trade agreement. Mexico’s production will be a record in the year ending Sept. 30, the USDA estimates.

Sugar Loans

Under the U.S. sugar program, processors can take out loans from the government, pledging the sweetener as collateral. Borrowers are guaranteed a minimum of 20.9 cents a pound for unrefined sugar. If it drops below that level, processors who get the credits can repay their debt by selling the sugar to the USDA by the end of the market year, which coincides with the fiscal year ending Sept. 30. Default notices could come as early as Aug. 1.

While “this might provide some relief to the domestic sugar glut, the market has been anticipating something like this for some time,” Sterling Smith, a futures specialist at Citigroup Inc. in Chicago, said in a telephone interview. “It’s already baked in the cake.”

Production in the 12 months that end Sept. 30 will jump 6.2% to a record 9.015 million tons, the USDA said in a June 12 report. Global production will exceed demand for a third year in row in the 12 months started Oct. 1, according to the London- based International Sugar Organization.

See the original article >>

Just how high above $100 will oil go?

By Gary Kamen

An interesting question from yesterday’s Father’s Day BBQ from non-traders.

First, last week’s price action on August 2013 Crude Oil opened the week at $96.36 and closed the week at $98.07, with the biggest moves coming Thursday and Friday. The media spin on the $1.97 move up was the unrest in the Middle East, more specifically the Syrian crisis. Now, last time I looked Syria is not a huge oil producing country, but the media said the unrest there could cause a problem for shipments. Exactly how much crude oil does the United States receive from the Middle East? See the 2013 graph below. I think you can see if we angered Canada that that would be a much more serious crude issue.

NOTE: Keep an eye on the U.S. dollar — as it drops crude will rise.

COT Data

Of course on the weekly chart we see how “big” money is posturing. From the COT-Disaggregated Swap Dealers (now the sell side of crude) increase their net shorts from -277,940 contracts to -290,115 contracts. Managed Money increased net longs from 199,735 contracts to 215,957 contracts and Producers (the past sell side) dropped their net longs from 30,522 contracts to 22,249 contracts. If Producers once again become net short and add to these, that will help push the price of crude oil up. And at the same time, if Swap Dealers continue adding to net shorts, there is a very good chance we see the break over $100 and retest $110, which we have not seen crude trading at since February 2012. OPEC seems to like the price of crude oil at $90-$100. That is clearly reflected in the price action since the beginning of 2013.

If you need help understanding how to understand how to use the NEW COT report to your benefit get instant access to my new e-book "What Lies Beneath ALL Trends". It is filled with eye opening information.Commercial Net Tracker instructions: This form tracks the Commitment of Traders (COT) data for the commodity futures market. This form "looks" at the most recent five weeks of COT data and provides visual indications of the data. A) If the current value is at a 12-month low, the cell will display a red/burgundy background. B) If the current value is at a 12-month high, the cell will display a green background. C) If the current value went from net negative to net positive, the cell will display a blue background (indicating a bullish condition). D) If the current value is both a 12-month high and also went from a net negative to a net positive, the background will be green. You should view the data with green backgrounds to determine if they also went from net negative to net positive.

Technicals

On the daily chart below, you can see ADX at 23.6 and rising, reflecting strength developing to what is still a weak trend. We see Stochastics now in deep overbought territory, which does have this trader a bit concerned, and MACD is bullish with increasing divergence from above the signal line. I will be watching DI Differential very closely now.

Click to enlarge.

On the weekly chart we see ADX at 23.7 and rising telling me the weak trend is starting to show signs of strengthening. Weekly Stochastics are in deep overbought territory like on the daily chart. On the weekly chart you can see the price action has not closed below the 20-period EMA (94.35).

Have a prosperous trading week.

See the original article >>

Markets seek reassurance from Fed over stimulus

By John Caiazzo

Overview and Observation;

"Grasping at straws." Investors spent market session hours searching frantically for a reason to buy or sell equities, Treasury bonds, currencies and other dollar and interest rate based criteria on which to develop a trade. Technicians got "whipsawed" as they had to quickly maneuver to expand their projected "range" and determine where their "stops" should be. The "program" of "buy high, sell low, or sell low then buy back high" apparently did not work well for account valuations. Without definitive direction by the U.S. Federal Reserve, frequent "comments" by some of the Fed area Presidents move markets and until which time as Fed Chairman Bernanke makes that "definitive" statement on his economic projection and subsequent rate decision we will continue to experience wide price swings. Now for some actual information to help my readers "navigate" through the "jungle" of news and reports…

Interest Rates:

September 30-Year Treasury bonds closed at 140 07/32nds up 16/32nds on Friday as the money made the "trip" from equities back to the "safe haven" of Treasuries. The University of Michigan/Thomson Reuters index showed a decline to 82.7 from the May 84.5. Once again analyst expectations were incorrect as they projected a reading of 84.7. That, as well as the flat May U.S. industrial production lent concern about the so called "economic recovery" and prompted the selloff in equities and the rally in Treasuries with the corresponding decline in yields. The U.S. Federal Open market Committee scheduled for June 18 and 19 should emphasize a "calming effect" but with the expected reduction in the bond buying program could produce additional market activity. Fed Chairman Bernanke is expected to indicate that any reduction in bond buying would not necessarily mean the Fed is ending the quantitative easing program. We expect the weak U.S. economy to impact yields and produce further price gains in bonds. Hold those calls we recommended recently and add on any further price decline.

Stock Indexes:

The Dow Jones industrial average closed at 14,070.18, down 105.90 down 0.7% and for the week lost 1.16% even against the triple digit gain on Thursday. The S&P 500 closed at 1,626.73, down 9.63 or 0.59% and for the week lost 1.01%. The tech heavy Nasdaq closed at 3,423.56, down 21.81 and for the week lost 1.32%. The Thursday rally was prompted by the better than expected first time unemployment number but at over 330,000 still remains a problem. Once again the concept of a "jobless recovery" is a fallacy in my opinion since an unemployed "consumer does not consume." The producers of those "unconsumed products" will be next to lay off workers. As I have been stating for some time, any reduction in the first time unemployment number is not a sign of recovery, but merely an indication that companies have no more employees to lay off without "shutting their doors." I would not take solace in any reduction in the weekly number on that basis. I reiterate, implement hedging strategies for holders of large equity positions. The use of futures and options can provide some protection against what I see as a 2008 type decline. Don’t get "caught again."

Currencies:

The September U.S. Dollar Index basket of currencies closed at 8082.5, down 13.7 points tied to the weaker than expected University of Michigan/Thomson Reuters index of 82.7 against expectation of 84.5. The dollar lost 3.4% against the Japanese yen for the week as the yen recovered from its weakness over prior sessions. The Bank of Japan’s massive stimulus program provided some recovery for the dollar but the yen still managed a gain of 53 points to close at 0.10601. Other currencies posted gains with the euro 4 points to $1.3356, the Swiss franc 2 points to $1.0861, the British pound 10 points to $1.5697, and the Canadian dollar 11 points to .9809. The Australian dollar closed at .9528c down 13 points. We have been in favor of the dollar and continue to feel that relative to its trading partners, the U.S. will fare better. Stay with the dollar

Energies:

July crude oil closed at $97.85 per barrel, up $1.16 tied to Middle East tensions with the U.S. As far as crude prices, we may see further price gains tied to geopolitical events but our overall view remains unchanged that supplies are adequate, and demand is declining. Stay with the puts but do not add for now.

Copper:

July copper finally staged an "anemic" correction of 1.3c per pound on Friday closing at $3.1980. Copper remains under pressure from adequate supplies at warehouses and the recent decline in demand by China. We have been bearish on copper for some time and have suggested taking some profits off the table from short positions. Hold put positions for now.

Precious Metals:

August gold closed at $1,387.60, up $9.80 for a gain of 0.92% and a weekly gain of a mere 0.3%. The short-covering in front of the weekend after recent heaving long liquidation from the December 2012 $1,700 level was feeble and not a sign of "recovery." The "collapse" mid-April from $1,570 to $1,390 in two sessions appeared to be a "washout" of weak longs but indicative of a bear market. We have been on the sidelines in metals for some time and while some "bargain hunting" can be expected, any rally should provide for an opportunity to move, with us, to the sidelines. July silver closed at $22.00 per ounce, up 41.70c following the gold bounce and remains our favorite if investors must have a precious metal in their portfolio. Otherwise I see no reason to expect a major recovery for metals at this time. July platinum closed at $1,450, down $2.10 while September palladium gained 95c to close at $732.00. Our long time preference of palladium over platinum remains unchanged.

Grains and Oilseeds: July corn closed at $6.54 ¼ per bushel, up 10 3/4c on short-covering after recent weakness tied to an expected record U.S. crop. We prefer the sidelines. July wheat closed at $6.81 per bushel, down 4 1/2c tied to hedging pressure but with the storms in the growing areas, I would not want to be short wheat even though I see no definitive export demand and increased production from Russia. Stay out for now. July soybeans closed at $15.16 per bushel, up 5 3/4c on continued reports of farmers withholding supplies from the market and weather providing ideal growing conditions. We have preferred soybeans in this group but with no new fundamentals we are on the sidelines for now.

Coffee, Cocoa and Sugar:

July coffee closed at $1.2215 per pound, down 1.55c on continued speculative selling and tied also to the weak Brazilian Real. Large supplies from producers such as Vietnam as well as good growing condition in Colombia and Central America should continue to pressure prices. We are on the sidelines. July cocoa closed at $2,240 per tonne, down $68 on long liquidation and a lack of fresh fundamentals from West Africa. Weak demand also a factor as a global recession is evident. We favor the sidelines here as well. July sugar closed at 16.75c per pound, up 51 points on short-covering but remains mired at the lows. We are on the sidelines here as well.

Cotton:

July cotton closed at 90.21c per pound, down 1.51c on profit-taking after recent sharp gains from early June lows around 79c. Poor weather in the Delta and Southeast have impacted production and reduced estimates. We think cotton may have further gains but would take some profits off the table here.

See the original article >>