Gold Rockets Higher, But Why?

A weaker Dollar is being attributed for the rocketing price of gold today, but I fail to understand the reasoning. The US Dollar really wasn't that much weaker. The price of gold surged $30/oz!

Cotton Surges on Panic Buying

Demand for cotton has also increased over the past few days. From Dawn.com:

Cotton prices on Friday maintained their upward drive as spinners and mills continued to make panic buying in the backdrop of a sudden bullish change in the world cotton scene, analysts said.The both perceptions of a short crop and revival of new year demand from the leading cotton importing countries is said to be the chief factor behind the snap price flare-up.

Corn Surges on Drought Worries in South America

From the NASDAQ website:

Corn prices surged on U.S. trading and pared some of its recent losses. The grain climbed amid concerns a drought in South America could cause damage to supplies.
March corn futures rose to $3.91 per bushel, up 25.6 cents on the session. Despite the rally, corn lost almost 5% for the week. On a long-term basis, the grain has lost more than 50% of its record high of $7.9925 reached on June 27.
Soybeans for March delivery also surged...

Here is the entire story.

And Grains Explode Higher

Meanwhile Treasuries Sell Off

Stocks Battle Back to Black

Dumping the Dow

Stocks have now turned negative. Yesterday's upbeat mood and rally didn't last long, did it?

Treasuries Trump All Other Futures Today

Buying treasury futures was the right move today. If treasuries are moving solidly higher, it suggests to me that uncertainty or fear is draining cash from other securities. Gold has also rebounded very strongly today. This is another sign of market fear and uncertainty. When both gold and treasuries are rising strongly, we can take this as an omen that fear embraces the financial marketplace today. It is also possible that the Federal Reserve is buying treasuries to suppress interest rates, as they had signaled to the market that they would do in their FOMC minutes. As they do this, traders -- like me -- join the bandwagon, the prices moves higher at an even faster pace. As a short-term trader, I don't care that interest rates are artificially low, and heading lower. I'm only interested in the direction they are headed.

Treasuries are my favorite instrument to trade because the futures are extremely liquid and the futures move rather slowly. The slower movement makes executions easy and accurate with minimal slippage. What more favorable conditions could a trader want?

Grain and Stock Update

Both grains and stocks opened higher, but haven't been able to solidify or add to their gains. Perhaps these are the financial instruments that are losing ground at the expense of treasury purchasing. I don't know.

Grains have lost both their edge and their gains, and are showing some weakness. For a market to move higher requires active buyers, but for a market to move lower only requires a lack of buyers (not active sellers). Perhaps grains have lost ground because the Argentine government has announced that they will permit greater exports. Since Argentine grain products compete with those of the United States, this tends to weaken prices. Needless to say, the increased supply also has the influence of suppressing prices.

Stocks are maintaining a positive day, but are struggling to do so. At this moment, the Dow is barely positive after being more than 100 points higher in early trading. Trading conditions are atrocious! It is inconceivable to me that people would be buying stocks on a day when the entire banking system is showing signs of a catastrophic risk of collapse! But the market rules, not I!

Grains Gain Ground

The grains are moving higher again. Weather and fund buying appear to be driving prices at the open today. Stocks have rebounded too!

Stocks Struggle to Maintain Gains

Extreme and erratic trading is the buzz word today in early stock market trading. However, gains have been sliced in half over the past 45 minutes of trading. The Dow had been more than 100 points higher, but are less than half that at this moment. The prices are highly erratic and unpredictable. I'm trading treasuries today.

Bailout Du Jour: Viability of U.S. Banking at Risk

From Bloomberg today:

Renewed questions about U.S. banks’ viability are pushing regulators toward a new plan that would remove toxic assets from bank balance sheets, in what may become the biggest effort yet to unfreeze lending.
President-elect Barack Obama’s advisers see an increasingly grave banking crisis and are considering proposals far more sweeping than any steps that have been taken so far, according to people who’ve discussed the outlook with them.

Here is the entire Bloomberg story.

Despite this, stock futures, without any underlying fundamental data to support it, have risen yesterday and overnight, as despicted on this 4 hour chart. Perhaps this is an oversold rally following six consecutive days of declines. Stock market bulls successfully defended the Dow 8000 level yesterday and overnight, shrugging off the systemic risk of this news today. The elation may be temporary if the horror of recent news continues.

Bank of America Had Second Thoughts on Merrill Purchase, Government Promised More Money

Bank of America CEO Kenneth Lewis has revealed that the bank bought Merrill Lynch despite feelings of buyer's remorse and serious misgivings about their offer to purchase the trouble investment bank in December. Both analysts at B of A and at Merrill Lynch underestimated that magnitude of the losses to Merrill's portfolio of loans. (Does this portend something for the future, I wonder?)

The U.S. government promised to provide additional funding to B of A because they were worried about the systemic risk to banking system viability if the deal fell through. Bank of America is the largest U.S. bank by assets, so it is a bellweather for the industry. Bank of American has also slashed its dividend to a token $.01. From Bloomberg:

The government said earlier today it will invest $20 billion in Bank of America and guarantee $118 billion of assets to help the company absorb Merrill and prevent the financial crisis from deepening. The agreement is part of a commitment to “support financial-market stability,” the Treasury Department, Federal Reserve and Federal Deposit Insurance Corp. said in a joint statement shortly after midnight in Washington.

Here is the full story.

Grave Grain Weather Conflict

From Farm Futures:

South America’s weather problems are the number one concern for corn, soybean and wheat traders longer-term. USDA’s bearish crop report on Monday essentially meant that we could delay a battle for acres for a year, if South America would come through with a good crop. However, the current drought has already significantly cut corn production for our largest export competitor and it’s beginning to hurt soybean production. The duration and intensity of the current South American drought will shape the scope of the U.S. acreage battle as spring approaches.

Stock Rally #2 Sticks

Stalled Stock Rally

Going into the closing minutes of today's trading, the stock market rally has stalled and has once again turned negative. However, most of the loss has been erased. The closing minutes, as usual, are exciting!

Crude Finds New Low Below $34

What a stunning chart of the soon-to-expire front month crude oil contract! A picture is worth a thousand words!

Dow 8000 -- and $850 Billion -- Pump Bulls

Stock market bulls strongly defended the Dow 8000 level today, fueled by an announced $850 billion stimulus package by Congress. How long will this one last? It's anyone's guess!

Jobless Claims Continue to Rise

The moving average of jobless claims has spiked higher today.

Foreclosures Surprise Market, Spike Higher in December

"The /foreclosure/ numbers continue to go up frankly because none of the /prevention/ programs that have been adopted so far have had any material effect." Rick Sharga, VP Marketing, Realtytrac (Realtytrac specializes in providing data and services regarding foreclosures in the United States.)

From Realtytrac's website:

“State legislation that slowed down the onset of new foreclosure activity clearly had an effect on fourth quarter numbers overall, but that effect appears to have worn off by December,” said James J. Saccacio, chief executive officer of RealtyTrac. “The big jump in December foreclosure activity was somewhat surprising given the moratoria enacted by both Freddie Mac and Fannie Mae, along with programs from some of the major lenders and loan servicers aimed at delaying foreclosure actions against distressed homeowners.

“Clearly the foreclosure prevention programs implemented to-date have not had any real success in slowing down this foreclosure tsunami. And the recent California law, much like its predecessors in Massachusetts and Maryland, appears to have done little more than delay the inevitable foreclosure proceedings for thousands of homeowners.”

Realtytrac issued a report this morning that 2.3 million properties were subject to a foreclosure filing in 2008, a 81% increase from 2007. When considering that foreclosure filings had spiked higher in 2007 also, this is a gargantuan increase -- up 225% since 2006. Foreclosure filings were up 17% just in the month of December alone! It is a stark jolt back to reality, especially when during this same period, the government has been bending over backwards to modify mortgages and keep people in their homes that couldn't pay their mortgages. Realtytrac also reports that there are currently more than 1.5 million foreclosed properties in the system.

Nat Gas Price Drops Through the Floor on Weak Industrial Demand

While the arctic chill that has struck the eastern United States has created increased demand and prices for heating oil, collapsing industrial-sector demand has caused the floor to collapse under natural gas prices. This is an amazing development given that prices are now lower for natural gas than during all of 2007 and 2008. The price of natural gas has now fallen more than 70% since the highs last spring. I hope the various state utilities commissions will require that the gas supply companies provide either lower prices or a rebate to their customers!

Fresh Worries of Banking Crisis

Worries over the dismantling of Citigroup and the necessity of fresh capital injection into Bank of America by the U.S. authorities is creating worries of a system-wide banking crisis of confidence. Bank of American absorbed both Countrywide Mortage and Merrill Lynch in short order last year, and despite having 10% of the nation's savings deposits, has seen its share price steadily eroded as confidence in the banking system has failed to materialize. JP Morgan Chase has also been under pressure in recent days and weeks, after absorbing Washington Mutual late last year. The Dow has been lower throughout the evening and overnight session thus far.

Here is a related Bloomberg story.

Q4 GDP Revised Downward

JP Morgan today revised downward its estimate of the U.S. GDP for the 4th quarter of 2008. They changed it from -3% to -5%!

Stocks Freefall on 98% Down Day

Sellers today outnumber buyers today by nearly 50 to 1 volume. This is not a good day to be long stocks, because if you are, I'm taking money away from you. At the time of this writing, the Dow is down 300 points.

Retail Sales Slump Twice the Forecast Amount

Retails sales for November have been revised downward, and retail sales for December were also worse than anticipated, reflecting an even worse scenario than analysts had expected. Retail sales for December were down 2.7%. Chain store sales were down a staggering 9.8%, the largest drop on record. Does the bad news never end? Stock futures are reflecting the dour news. Folks, we may yet again test the lows from last November! Key support on the S&P 500 is around 850.

Here is a good summary by Marketwatch.

Madoff Ponzi Scheme Hits Pension Funds, and Now Tax-Payers - Hard!

This morning's news indicates that the Madoff Fund crisis may have been even more far-reaching effect than we thought even a few days ago. Why? This morning's news suggests that several pension funds ignored the tried-and-true principle of diversifying risk by spreading their investments across various asset classes and management companies. Several pension funds have now admitted that they invested their entire funds in a single management company -- Madoff's. Now, their pension dependents have lost their entire retirement, and the government's pension guarantee fund will be forced to foot the bill.

If there is any good news at all in this, it is that the pension funds involved have been relatively small. However, that is small consolation for pensioners whose life savings have been compromised, because the government guarantees will reduce their benefits substantially.

Conflict Between Weather and Crop Report

From Farm Futures magazine:

Monday's market was about surviving USDA's bombshell and /Tuesday's/ was about sorting the severely wounded from the slightly injured. Corn took a beating once again, while soybeans and wheat managed to bounce modestly on weather concerns. Yet, all suffered from bearish signals in the outside markets and ongoing index fund portfolio rebalancing.
Fund managers may still have every intent to own corn, soybeans and wheat for 2009, but bearish chart signals could tempt them to wait until a bottom is found to establish their long (bought) positions. Meanwhile, Wall Street is in the dumps once again, worried that the current economic crisis could struggle throughout much of 2009. That tends to add to bearish sentiment at a time when the market is already vulnerable.
The bright spot continues to be weather related, with adverse growing conditions providing support for both soybeans and wheat. Ironically, the rapidly rising new-crop soybean/corn price ratio may leave the U.S. desperately short of corn acres this year, with farmers reluctant to pay high input costs without a better promise from the market. That could lead to quite a wake up call for the market when USDA releases the results of its producer planting intentions survey on March 31 if things don't turn soon.

When conflict exists between bullish and bearish forces, consolidation and erratic trading can often be expected. The bearish USDA crop report two days ago conflicts with the bullish weather to create inherent volatility. However, since weather will put the larger-than-expected crop at risk, it would appear that the bullish weather forecasts will probably trump the larger crop expectations. Farm Futures particularly looks at longer-term weather patterns, with a La Nina pattern having developed in recent weeks. Until the weather looks more favorable, grains are likely to see price support. Thus, grains have rebounded higher overnight, and soybeans and wheat are showing particular strength.

Are These the Lies or the Statistics?

John Mauldin has more on the details and the real facts behind last Friday's awful jobs report from the U.S. Bureau of Labor Statistics. He says that these facts are in the BLS report and not not hidden, if someone just takes the time to look for them. He also states that the deceptiveness of the headline numbers are not due to conspiracy, but just the methodology that tends to understate the gravity of unemployment during times of economic trauma.

He has posted it under the heading, "Lies, Damned Lies, and Government Unemployment Numbers":

There are some who see a ray of hope in the recent jobless claims reports, which have dropped back to “only” 467,000 in initial unemployment claims, down from 491,000 for the last week, after being over 500,000 for several weeks. Those numbers are seasonally adjusted. That hope disappears if you look at the actual numbers. For the current reporting week ending January 3, 2009, the advance number of initial claims came in at 726,420. Last week’s advance number was 717,000. We have been above 600,000 new initial claims every week since the third week of November. Continuing claims jumped massively, by 744,000 to 5,316,124...

In December, the number of unemployed persons increased by a seasonally adjusted 632,000 to 11.1 million and the unemployment rate rose to 7.2%. Since the start of the recession in December 2007, the number of unemployed persons has grown by 3.6 million, and the unemployment rate has risen by 2.3% and is now at 7.2%.

I happened to be watching CNBC at the time of the release of the data, and several commentators remarked how much better the number was than they thought it would be. I wish they were right, but again, the actual numbers showed a loss of 954,000 jobs, over 50% more than the headline number reported in the press release. And that assumes that new businesses created 72,000 jobs from the birth/death model that I so frequently write about. It is possible that almost 1 million jobs were lost in December. I doubt the market would have liked that number.

I should note that the Bureau of Labor Statistics does not hide that number. You can find it if you dig for it. But most analysts seem to prefer just to take the press release and go with it. And most of the time that is fine. But in times like this, when trends are changing, you miss the bigger picture and get misleading data...

If you add people who have part-time jobs but would like a full-time job, and what are called marginally attached workers, the current rate is already 13.5%.

Even Mauldin's figures don't state the full total in a single figure. If we add the number of reported jobs losses and the assumed jobs created that weren't really created, the total jobs lost in December were:

1,026,000 jobs lost -- and that's one month!

Here is the entire newsletter.

Today's Grain Rally Feels Weak, Unconvincing

This chart shows the soybean futures intra-day just moments after today's close. After rallying more than 20 cents higher early in the session, soybeans closed only 7 cents higher. Needless to say, today's rally has largely fizzled. After this morning's rally at the open, soybean futures lost momentum fairly quickly, and had shown more and more weakness as the trading session progressed. After closing limit down 70 cents yesterday, closing only 7 cents higher today suggests continued weakness to my mind.

Corn gapped lower this morning, and continued to drop throughout the trading session. This is significant because corn and soybeans often tend to trade somewhat in lock step with each other, so when one or the other moves independently of the other, it is very noticeable. Wheat moved higher at the open, but like soybeans, slowly edged lower since. Wheat has now closed near the flatline for the day. This also suggests bearishness. I wouldn't be surprised if more selling/liquidations occur over the coming days, driving prices still lower. Of course, a weather event could change everything -- literally overnight! We will now be trading weather through mid-May 2009.
The daily chart (above) for soybeans shows how strong yesterday's limit down price thrusts were, but it also depicts visually how weak today's attempt at a rebound was. If, following a strong one-day move that crosses over the Exponential Moving Average (in this case, crossing below the EMA yesterday), prices attempt a rebound back toward the previous trend (in this case, soybeans had been on a solid uptrend throughout December and early January), but fails to cross back over (above) the Exponential Moving Average within the next few days, a confirmed new trend (in this case, a downtrend) is confirmed. The fact that the rebound did not cross back above the EMA into bullish territory, increases the probability of a confirmed downtrend. Once an EMA crossover occurs, I will only trade the direction of the new trend, in the hopes of entering the new trend at a fairly early stage to maximize my profit. Since today's rally appears to be faltering, by shorting grains today, I hope to take advantage of the early emergence of a new downtrend in grains, if it occurs. I will continue to place short-only trades as long as the closing price remains below the EMA, or until prices crawl back above the EMA and create a fresh uptrend.

A consolidation is obviously a possibility as well with these strong movements in price. It is possible that for several days, price may move erratically back and forth within a range. If a downtrend is not confirmed within a day or two, I will pull back and stop trading until a new trend asserts itself and is confirmed. If the Bollinger Squeeze indicator turns red (not shown), this is an indication of a consolidation pattern and tells me that I should stop trading that futures instrument and watch for a new trend to emerge.

Even though soybeans closed higher today, the daily chart clearly shows the weakness of today's higher close. Corn continued to drop significantly throughout the session, confirming a downtrend, and wheat, while rallying with soybeans early in the session, closed nearly flat, signifying potential further weakness ahead. Since corn futures have greater open interest than the other grains, its movements tend to carry more weight in my decisions. It's lower close today creates a bias in my mind for further downside potential.

Grains Struggle to Build Foundation Following Yesterday's Bloodbath

Grain prices, just as they did last week, have rebounded modestly following yesterday's limit down move. Corn remains week and has dropped modestly lower this morning, but soybeans (see chart) and wheat have not confirmed a downtrend, and have moved higher instead. Note, however, that in the daily chart for the grains (not shown here), the Klinger Volume indicator is showing a bearish divergence. When this occurs, I will tighten my stops and maintain tighter stops for the next few days until either 1) prices drop through my stop and liquidate my position, or 2) prices rebound solidly higher, suggesting that the bearish divergence wasn't valid. In either case, maintaining a tight stop beneath the recent lows will help me to both protect my profits and leave room to the upside for further price increases.

Dollar Moves Higher Like Fireworks as Trade Deficit Narrows

This morning's data that the U.S. trade deficit narrowed has provided rocket fuel for the U.S. Dollar. A smaller trade deficit is beneficial for the greenback. Go Dollar!

Crude Oil Sinks

Crude oil has also continued its decline, largely on anticipated weak demand due to poor economic conditions.

Grain Prices Collapse To Near Limit Down

Grain prices today collapsed to near limit down almost across the board. This chart for wheat shows the daily chart on the left and the 15 minute intra-day chart on the right. Note the huge downward spike on the daily chart that occurred right at market open today. The dotted line at the bottom of the upper panel of the 15 minute chart represents the exchange's maximum permitted downward move for today.

The large ETF DBA began an immediate sell-off when the stock market opened this morning, confirming the bearish market sentiment for grains one hour before the grain futures trading began trading at 9:30 am CST. I often look at this and other ETFs during off-market hours to gauge virtual market sentiment. This also works after the stock market closes because if ETF traders continue to sell the ETF after the grain market closes at 1:15 pm CST, it is likely that the futures will continue to sell off when trading resumes at 6:00 pm CST.

This chart is typical of grain prices throughout the entire spectrum. Corn and soybean prices also have either touched or are very close to limit down today. This is one reason why I always abide by Phantom's Rule #1 and keep extremely tight stop loss orders. If a trade isn't making money, I exit very quickly. I exited my soybean trade late last night that I initiated during the day session yesterday. When soybean prices collapsed about 1:30 am EST last night, my stop loss order was activated and I exited the trade with a modest profit. Corn and wheat prices were both soft during evening trading, which was a red light to me. Since then, grain prices have gone straight down! Crude oil prices also showed even greater weakness, putting additional pressure on the bio-fuel grains, corn and soybeans.

The USDA released a crop report this morning that was bearish for grains, with the USDA announcing greater than expected acreage plantings for spring 2009 for both corn and soybeans. Wheat was slightly bullish because the USDA estimated fewer acres planted in wheat (although they also increased the estimated end stocks due to lower feed demand) , but the price chart indicates the fervor of the sell-off today, with wheat plunging in sympathy to the other grains. Now, we will begin building a new base and I will look to find a bottom and reenter the market. If prices continue to drop this week, I will consider a short trade. I will trade weather conditions for the rest of the winter, as well as acreage updates for the next 3-4 months.

(Interest Rate) Eurodollar Futures Continue to Move Higher

This chart does not depict the Euro Forex futures, but the Eurodollar interest rate futures. Eurodollars are U.S. Dollars deposited in banks outside the United States. Like treasury futures, the price of Eurodollar futures moves inversely to interest rates, so this chart suggests that Eurodollar interest rates continue to drop.

Soybeans Continue March Higher

While corn has gone flat, the price of soybean futures continues to march higher overnight. Wheat is also marginally higher. On the left we see here the longer-term daily chart and the uptrend, and on the right, we see the tick chart showing the overnight price rise.