Subscribe in a reader 
Bookmark this on DeliciousLots of volatility in the commodities market last week, as we saw risk on / risk off by various hedge funds. Some days it seems as if they want to buy everything insight and the next stampede for the doors and sell everything. Trading feels like a yo-yo and very nerve racking for both traders and investors to say the least. Because there is not really a defined trend in this market between the huge sell off, margin requirements and dollar strength, you get people jumping in fearing they're going to miss the rally, then sell fearing another sell off. Up & down, up & down...this volatility looks like it is going to stay around for awhile.
A look at the U.S. Dollar on the weekly chart has rallied off the 73 level and put in a couple of good weeks. In part it is due to a weak Euro off of Trichets recent comments. But the dollar below 73- near 72 is critical level- anything below 72 and we could see a collapse. On the daily the dollar is above the 50 day moving average, but still below it's 200ma. The 50ma is significant, it has pretty much been holding the dollar in check for sometime now.
The last time it was above the 50ma you have to go back to the beginning of this year. With large funds that level tends to trigger buy signals, because they look at it as a bullish trend signal. With it over the 50ma and near 76, we could see some carry over strength into next week. So that leaves us looking at the dollar possible testing the 77 level, which is kind of a confluence of the 100 dma and resistance level. If the dollar can some how push above 77, then I would say traders & investors should reevaluate matters.
It is one thing to go through the 50 day and another to go through the 100 day. What I think is pushing the dollar, is a couple of things. It really began when Trichet didn't raise interest rates on the euro, since a lot of the market was convinced they would hike. After all many other central banks had already been doing so, the ECB had given the impression the were going to hike. Well when they didn't it really disappointed the euro bulls ushering in the sellers; dumping the euro. Then you had the issue with Euro Zone and some of the sovereign debt issues flaring up. So with the euro making of more than half of the weighting in the basket of USDX currencies, that shot up the dollar sharply.
On top of that you have Bernanke and the fed, not really tightening, but doing a quasi-tightening when they're talking about ending QE2. Its not like they are going to take away liquidity, but they're not going to put any more in, is what the current thinking is. So that gave even more reason for traders to buy the dollar.
The last time it was above the 50ma you have to go back to the beginning of this year. With large funds that level tends to trigger buy signals, because they look at it as a bullish trend signal. With it over the 50ma and near 76, we could see some carry over strength into next week. So that leaves us looking at the dollar possible testing the 77 level, which is kind of a confluence of the 100 dma and resistance level. If the dollar can some how push above 77, then I would say traders & investors should reevaluate matters.
It is one thing to go through the 50 day and another to go through the 100 day. What I think is pushing the dollar, is a couple of things. It really began when Trichet didn't raise interest rates on the euro, since a lot of the market was convinced they would hike. After all many other central banks had already been doing so, the ECB had given the impression the were going to hike. Well when they didn't it really disappointed the euro bulls ushering in the sellers; dumping the euro. Then you had the issue with Euro Zone and some of the sovereign debt issues flaring up. So with the euro making of more than half of the weighting in the basket of USDX currencies, that shot up the dollar sharply.
On top of that you have Bernanke and the fed, not really tightening, but doing a quasi-tightening when they're talking about ending QE2. Its not like they are going to take away liquidity, but they're not going to put any more in, is what the current thinking is. So that gave even more reason for traders to buy the dollar.
You have a situation where there's a dollar rally going on, risk trades being taken off as many believe the global economy is slowing down, and that where much of the commodity pressure is coming down. What this has done has taken the $CCI, Reuters CRB Commodity Index,dropped it down so hard from a recent double top. This has made many traders & investors cautious and pulled back. What has happened , it has now put gold & silver into a 'range trade'.
The fact that the dollar has rallied and gold & silver this week didn't move hardly at all, makes me believe that we could be seeing some near term support here. With silver when it drops below $34, it doesn't stay below that long and finds some buying. That's promising and as long as that continues, silver is in fairly good shape. Trading between $33/$34 on the bottom and $37/$38 on the top. Maybe just work back & forth, consolidate and work the emotion out of the market. By the way that would also bring the volatility down and possibly lowering margins.
However, should the dollar get a strong push higher for some reason, silver could head to $30. As for the gold side, it is similar, if you look at the range trade. When it gets down to $1480 it uncovers buying. As long as that holds the top side is $1520 and that range works until something changes. Below $1475 next support is $1460. Same on topside, a break above $1530 and you'll retest recent highs.
Bottom line, if you don't own any silver or gold, now would be a good time to accumulate some, for the long term. Itz continues to believe in the macro view of the dollar and that it is heading lower.
Sure it is rallying now, but nothing structurally has changed in regard to the U.S. economy. We still have an enormous deficit, we still have a huge over hang as far as our gross national debt goes, we continue to have a congress and administration not serious about solving our spending issues, we still have a slowly recovering jobs market, and we still have higher food and energy costs. We're in a situation now where the dollar is rallying, because its the lesser of two evils....but that doesn't mean the U.S. financial house has been put in order. And until it does, you need to own the metals to protect yourself from the inevitable decline of the dollar.
Itz believes at some point this bear market rally in the dollar will exhaust itself and its going to resume its downtrend. The next time the U.S. Dollar comes down to the 73 level...it will not hold!
Itz Stock Chartz
Itz Videos
Looking for the Silver High
Was investment demand the catalyst for silver's higher prices over the last year? Jeffrey Christian, CPM Group, weighs in.
CNBC Half-Time FastMoney crew discuss oil
Still Worth Investing in Commodities?
Discussing whether there is still room to run in commodities, with Sterling Smith, Country Hedging and Joshua Brown, Fusion Analytics.
Oil Margin Hikes Working?
Are higher margin requirements working? Insight with Daniel Dicker, independent oil trader/TheStreet.com contributor and Raymond Carbone, Paramount Options.
Stocks Hit by Commodity Selloff
The Fast Money crew discuss whether speculators are getting washed out or the globe is slowing. Mark Fisher, MBF Asset Management,
Commodity traders are in shock and most analysts are recommending everyone avoid commodities until normal trends return. There were 348 million shares traded on the silver ETF (SLV) and there are 1.7 million option contracts. This commodity is broken and it may not recover for quite a while.
However, nearly all analysts believe silver will finish the year after setting new highs. In the energy sector noted oil trader Mark Fisher of MBF Asset Management said he thought the correction was great for oil prices. "Now there is a fear premium in the market where there was no fear before." He believes WTI will end the year over $120 and Brent over $130. Any decline under $100 on WTI is a buying opportunity.
A Choppy Summer Market? Will volatile commodity prices set the stage for a bumpy ride in the markets? Charting the months ahead with Jordan Kotick, Barclays Capital.
Hedging vs. Speculation
Are speculators driving commodity prices wild? This week, 17 senators wrote to the CFTC calling for a plan to impose position limits in all energy futures markets. Michael Masters, Masters Capital Management weighs in.
No comments:
Post a Comment