Eye Of The Hurricane

It was a fine week to head out of town to a tropical beach, sit, drink, read and swim to you hearts content and forget about this crazy market and the smashing gold and silver and most equities and indices took.  

Unfortunately that’s not what I did.

The hangover would have been much better than watching this painful action.

I’m just not feeling the love from markets these days which is no fun because the markets are my true love.

I guess all lovers have their tiffs at times and this is one of them for me.

As has always been the case in my experience its time for me to shut up, listen while nodding understandingly and admittedly wrong, and say I’m sorry.  Then we can skip right to the make up love!

With equity options expiring Friday the 18th and options on futures expiring Tuesday the 22nd gold and silver were hit hard along with many a mining company.  Funny enough several we’re holding actually rose on the week and Thursday more specifically as the day the metals were hit hardest.

I’m actually hoping this volatility will continue and we rip to the upside next week with leading equities as we’re caught offsides at the moment, something  that rarely occurs.

Ah well, nobody is perfect and really, life is pretty sweet so I can’t complain about some losses and they are still only paper losses so we may come out smelling like roses in the end.

Indeed it does feel like I’m sitting in the eye of a hurricane at the moment, and that’s only because it’s the weekend.  The other half is surely to arrive early Monday morning or perhaps Sunday night as things open up in Asia.

Let’s get into the damage, which isn’t all that bad for gold at least.

 

METALS REVIEW

We saw gold hit to the tune of 3.67% this past week.  With the GLD options expiring Friday and options on gold futures expiring this Thursday the 22nd, what else would you expect.  It’s all good though for holders of physical gold, not so much for those who are levered in the trade.

 

As hard as those who want to see gold lower tried, they still couldn’t annul the uptrend line, nor the nice cup and handle pattern here where gold is trading nicely in the handle portion.

However, it’s nice to see lower volume in the handle on down days than up, but I’ll take it for what is it and that’s a contrived takedown to rob gold longs.  I’m taking that large volume day with a grain or three of salt and maybe a shot of tequila to wash it down with.

It was definitely one of those weeks but we’ve seen them before and we’ll see them again.  We always come out stronger on the other end.  As the saying goes, what doesn’t kill you makes you stronger.

In reality gold is on sale, but it’s not even a real sale, it’s only at the lower end of the range before gold becomes much more expensive.

 

The GLD ETF saw mediocre volume for the week with the exception of Thursdays takedown which looks like the universally known one finger salute.  Take a look at it.  Shorts just flipped us longs the bird!  It’s uncanny!

Once we get past options on futures expiration Tuesday we should be back into the clear for the most part.

Silver dropped 6.92% for the same reasons as gold but as usual silver was more volatile throughout the week.  The chart is broken but as we’ve seen too many time to recount before silver loves to break a chart pattern one way and get traders to pile on in only to revere and catch them offsides.

What's most interesting in this chart is the absolute lack of volume on the downside on Thursday.  That has me really thinking this move lower is fake.

On the contrary the SLV ETF saw much higher volume on Thursday’s move lower than any other day this past week.  While the divergence in volume  from futures and the ETF is strange it does make ones antenna rise as they should both see high or low volume for confirmation of a move.


This will be an interesting week ahead after Tuesday, but remember it’s s short week with American Thanksgiving Thursday and markets only open half a day Friday so really it’s only a three day trading week ahead.

Platinum dropped 3.32% this past week but is so far holding up above horizontal support and the uptrend line which are both close to the $1,550 level.

What does concern me is the pattern of a lower high here and then the sharp move lower.  The chart is pretty messy here and I’m not so sure we can hold the $1,550 area since this metal is seen as an industrial metal first and a precious metal second.

Friday printed what is termed a Doji which oftentimes signals a change in direction.  It’s nice to see a longer move before seeing a Doji bar as they tend to work better then but I’ll take what’s given at the moment.

The PPLT ETF volume was pretty heavy on both Thursdays down day and Fridays stabilization which means the Doji may indeed be real.

Palladium looked great going into the week but it ended up being slammed for 8.71% in the mass selloff.  The downtrend line just couldn’t be bested and a very sharp selloff ensued and it doesn’t look done yet either.

I think we should see $575 tested here very shortly and hopefully that level will hold.

Right now it’s a very broken chart on heavy volume with questionable support levels slightly below.

The PALL ETF saw strong volume  Wednesday through Friday and is not showing me a sign of a bottom quite yet.

There is no doubt it was a rough week for the precious metals but we’ve been here and done that before.  Nothing is broken through the medium to longer term, just a short term black eye that will quickly heal.

  

FUNDAMENTAL REVIEW

More bunk out of Europe was leading the headlines this past week but what rocked the market was a downgrading of some banks and the revelation that US banks are exposed to the European crisis and as a result could be downgraded.

I’ve talked about this in depth on many occasions.  It’s not you or I who own the US and European debt, it’s the large financial institutions and central banks of the world.

They are the ones holding this stinking bag of questionable contents and as such they are the ones going to be in trouble and need of a bailout.

On that front it’s becoming more clear that the failure of MF Global was just about all out theft of customers funds as they tried to stay solvent but it wasn’t to be.

Many a traders have lost their whole accounts thus far and have been unable to change their positions leaving them massively exposed in one of the most volatile markets I’ve ever seen.

 

It’s becoming clearer that the MF Global failure is indicative of a systemic problem.  That is part of the reason that they weren’t bailed out yet, because if they were then those who will fail next would expect a bailout also.  That simply cannot happen as there just isn’t enough money to do it and to print it would be catastrophic.

Much of this was revealed in an open letter this past week from a small brokerage firm who is closing shop because she believes the system is broken.  It’s a must read.  

I agree but the powers that be are very skilled at prolonging the inevitable so we can go on for a while yet I imagine, although this particular time in history is very volatile and we are on the edge of a cliff there is no question, we’re just hoping we can regain our balance before a gust of wind does us in.

We saw only two banks fail this past week to join the slowly growing list of biggest US losers this year.  Don’t worry there will be many more and much larger banks failing in the future if you've been missing the excitement.

I hate to go off on a tangent here but I feel obligated.  The US is doing one of the dumbest things I’ve seen them do in a while, and I’ve seen them do plenty of dumb things.

They are putting off deciding on a key oil pipeline from Canada to the US South for refining, until after the presidential elections.  I don’t get why it’s so tough to want to get oil from a safe friendly neighbour, rather than seeing it shipped in the vulnerable seas from countries with questionable loyalty to the US.

But, it’s no skin off our backs up here in Canada, we won’t have any problem selling our oil, and we’ll likely get a better price for it anyhow.  If those in the US don’t want it China does and we are willing to sell it to them.  You can deride us for this but the fact is simple.

The US is unwilling to give us an answer and China will.  What would you do in your business?

I know there are environmental issues but none large that I can see and you simply need oil for everyday life.  Also the amount of pipelines running across the US already is staggering when you consider this one.

Surely one more can’t hurt, especially one so important to US lifestyles.

Sorry about that but the US is acting like children and is making stupid decisions, or non-decisions, that will affect the country form generations to come.  Again, do not blame Canada, blame your local elected official and your Nationally elected officials.

In the same vein, China is trying to acquire a large miner in brazil for $1 billion.  The buying spree continues and they will have control of a large portion of the worlds resources in the not to distant future.  We’re letting them though with stupid red tape everywhere.

We have to understand that everything we touch on a daily basis is a product of oil or mining.  99% of everything you touch.  Think about it and give your elected officials head a hard shake!

Ghana is going to soon impose a new tax on mining companies operating within the company.  They will increase taxes from 25% to 35% and also collect a 10% windfall tax if the proposed 2012 budget gets through.

Officials say they’re aware that this may impede future and current investment in the country and as such, they  must tread carefully but no details were provided.  As always you have to be so careful when it comes to your mining companies jurisdiction.  Things can change quickly even in so called safe, or mining friendly jurisdictions.

Silver exports from China this year are expected to drop about 283 tonnes or 5% this year as domestic demand has increased.  This should come as no shock to any one of us.

John Paulson was seen selling about 1/3rd of his GLD holdings over the past quarter.  There is speculation that the liquidation was due to fund redemptions which is a fact.  He had to pay back some money so had to sell something in order to raise the required funds and it’s better to sell a winner than a loser in some cases.

 

This weeks funny is hilarious once you get it.  I’m not big on the new slang of texting acronyms other than the odd lol, or IMHO.  It did take me half a minute to get this one but it’s still making me chuckle.  It’s eerily similar to something my own mother would say.

I may as well throw in this prank call from an 8 year old.  Hilarious doesn’t begin to describe it and I’m sure she’s not the only one who feels that way!

Until next week take care and thank you for reading.  

 

 

Warren Bevan

 

 

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