Coffee prices remained confined to a 150 point range on what amounted to an inside day Thursday. Traders processed the meaning of the previous two days, Tuesday reversal and Wednesday sharp gain. I expect funds to be supportive if not encouraged to add to their long positions on Friday... And yes, there is a part of me that is waiting for the other shoe to drop.
The volatility in the U.S. Treasury markets heated up this week, as new contract highs were notched on Monday, followed by solid losses on Tuesday and Wednesday. However, price action Thursday morning found the bulls making a counter-attack and having success. Price action Thursday morning was scoring a bullish "outside day" up on the daily bar chart for March U.S. Treasury Bond futures--whereby the high was higher and the low was lower than the previous session's high and low, with higher prices on the day Thursday.
The gold futures market recently backed off sharply from the early-November contract and 27-year high of $848 an ounce. Profit-taking pressure was featured. The past few trading sessions have seen the precious yellow metal in a solid price rebound as the bulls have regained fresh upside technical momentum. The early-November high of $848 is now stiff overhead resistance for the bulls to overcome. However, a push and close above that key price level would be significantly bullish and would open the door to a challenge of the all-time high of $873 an ounce, scored in 1980. On a further corrective pullback there is now solid trend-line support at the $790 area.
This week we have the Thanksgiving holiday here in the States. Most US traders take most if not all of the week off. What that means is a significant fall in liquidity. Lower liquidity usually means more volatility so while it is a Holiday, it is not time to lose focus and turn a blind eye towards the markets. In fact, weeks like this often provide better than usual trading opportunities.
Keep in mind that we just had the G20 meeting, which by most accounts turned out to be a "dog pile" on US treasury secretary Paulson. The other finance ministers berated him about the disorderly free fall of the Dollar that he has allowed. Our sources tell us that most of the other ministers left the G20 meeting deciding that they would have to take matters into their own hands since the US is either unwilling or unable to do the right thing. We continue to look for a bounce in the Dollar in the near term as Europe, Canada, and Australia make the necessary adjustments to deal with a Dollar that in the long run is expected to continue to free fall.
Just to be positive, here is some good news--because the US currency has declined so steeply, manufacturing is returning to our shores. Recently, BMW announced that it will beef up its US production of their cars which, this is a switch, will be shipped to Germany and other destinations. Why? Simple, it is cheaper to produce the cars here and ship them where they are needed. The weak US Dollar strategy, a silent one, is reaping some rewards returning some, painfully little, manufacturing to our shores.
December gold futures were under strong selling pressure Thursday morning on profit-taking pressure from recent gains. No serious chart damage has occurred recently. See that the shorter-term moving averages I follow (9- and 18-day) are still in a bullish mode, as the 9-day is above the 18-day moving average. The recent higher volatility at higher price levels--both on the upside and on the downside--does slightly favor the bearish camp and is one very early technical clue of a topping process in the gold market. But I would not call it a strong technical clue. However, and more importantly at present, the price uptrend in December gold futures remains in place on the daily bar chart.
After four months of a resilient uptrend in the Gold market, it appears traders are beginning to feel the pressure to take profits. I believe Gold traders are keeping a close eye on the recent turmoil in the Stock Market and it brings back memories of the mass Metals liquidation to cover margins in their Stock portfolios. Despite a very weak U.S. Dollar, Geopolitical tension, and the signs of a weakening economy, it is my belief the gold trading community is content to take profits. After all, the Holiday markets are just around the corner.
All this talk about the Dollar being dead is simply over blown. Any investor knows that the greatest trades come from being a contrarian. When the entire investment community says that the Dollar is going down you know it is time to buy. The Swiss Franc has been on a wild rally especially in the last week. A quick look at the chart below and you can clearly see that we rallied to the 2004 highs. We are expecting a macro turn back down from here and are advising readers to buy puts on the Swissy.
As light sweet crude oil prices approach $100.00 per barrel, lunch table conversations could turn from housing related issues to the economics of consumer spending with $100 oil. With $100/barrel oil, will consumers finally hit their threshold for spending and begin to cut back on disposable income purchases in order to fit energy costs into the monthly budget? We won't know what oil price will spark that turning point, but we feel that it may have already started.
After starting out of the gate strong on Wednesday morning (March opened outcry at 1979+25), cocoa prices pulled back to settle unchanged on the day. For this obvious bull I was concerned, especially when looking at the short term picture. I do however continue to hold my long view towards this market and anticipate a favorable push through the psychological barrier of 2000 soon. If that should happen then 2125 would be my next upside target. Another failure at 2000 will cause me to lighten up. A break below 1890 will chase me off the long side.
We have begun to see the Treasury department act to defend the Dollar. Last week we saw one of the largest infusions of capital by the Treasury in 21 years. While this did not yet turn the tide for the Dollar it is an initial sign that they are beginning to back up there "strong Dollar policy" with actual action. We are far from out of the woods yet, but look for more data as well as this weeks ECB meeting to continue to support the Dollar. The trade in the Dollar has become extremely lopsided and that lopsidedness has lead to at least a short term countertrend in the past.
We made it through last week with most of the data coming out in support of the Dollar. At the same time the Dollar has yet to find a bid. So it looks like we will need even more of a catalyst to turn the dollar up. The next major event will Thursday's ECB rate decision. If they hold rates steady that could in a round about way support the Dollar if the raise rates then look for the Dollar to make new lows. Overall these markets have become very data dependent and this usually happens in near the end of a trend. Keep trailing your stops and be ready for a fast countertrend move.
The daily bar chart for the Continuous Commodity Index (CCI) is still in solid price uptrend and just recently hit a fresh 30-plus year high. The CCI is a basket of major raw commodity futures prices rolled into one composite price index. The CCI is also an excellent barometer of the general price trend of the raw commodity market sector. However, recent price action in the CCI has also produced a potentially bearish rising wedge pattern on the daily bar chart. While the CCI is still in an overall bullish technical posture, as both the longer-term and shorter-term trends are decidedly up, the index is also due for a significant downside "correction" in the uptrend soon.
The markets are rocking: precious metals, commodities, raw materials, energy, interest rates, foreign currencies, the dollar and more are providing opportunities, up and down to the prepared investor. The tsunami of money and credit creation required to underpin the asset-backed economies of the G7 has provided opportunities as far as the eye can see. And the massive sterilization of this same money printing by the emerging world is stoking runaway inflation to surface in every area of the globe and signaling the unfolding "Crack up Boom".
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