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Gary Tanashian
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Gary Tanashian is proprietor of Biiwii.com. Actionable, hype-free technical, macro economic and sentiment analysis is provided in the premium newsletter Notes From the Rabbit Hole (http://www.biiwii.com/NFTRH/subscribe.htm). Complimentary analysis and commentary is available at the 'Biiwii Blog'... More
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  • CoT - Gold, Silver, Commodities And T Notes

    Among its 29 pages of high quality market analysis, this week's NFTRH (#287) reviewed the Commitments of Traders (CoT) structures of a few markets and their implications.

    (click to enlarge)

    The above CoT graph clearly shows that gold has declined as the structure improved (red arrows). It then bottoms with the circled extremes and rises in conjunction with a degrading structure (green arrows). Gold is still on its journey toward bottoming.

    (click to enlarge)

    Silver did much the same thing into last summer's bottom and its convoluted CoT structure since then has gone hand in hand with its failure to get bullish with the rest of the sector early in 2014. Silver like gold, is still on its journey to whatever bottom lay ahead. Were I to affix my tin foil hat I'd say 'sure, they're manipulating silver'. But I'd also note there is nothing we can do about it aside from watching the signals each week, not getting hurt by it and eventually capitalizing upon it.

    (click to enlarge)

    Courtesy of Sentimentrader.com

    Commodities on average continue to look bearish by their CoT view. This could be in line with our [thoughts] that the hedge fund world (large spec's) is in here pumping certain items beyond reason (ala uranium, copper, crude in years past).

    Below once again we review the CoT structure of 2-year T Notes because despite last week's burst upward in interest rates, the commercial hedgers remain net long and the spec's net short. They are generally at extremes.

    What this tells us is that the supposed smart money expects these yields to decline again. This would likely come in tandem with a lurch toward liquidity by market players. A lurch toward liquidity would also be known as a lurch toward risk 'OFF'. Needless to say I continue to calmly hold 1-3 year T bond fund SHY as a cash equivalent.

    (click to enlarge)

    Courtesy of Sentimentrader.com

    Interestingly, as you go up the curve you would notice that the CoT structures steadily degrade in the 5's, 10's on up to the 30's. While these are not extreme or even bearish, they are not aligned to a bullish extreme like the 2-year.

    The theoretical implication is that the curve will eventually start to rise again if 2's are more bullish than for example, 10's, because the implication is rising long-term yields in relation to short-term yields.

    Could that come hand in hand with a gold bottom? Yes, but let's patiently move forward, watch these real fundamentals and tune out the noisy stuff on the internet. A rising curve may not be as favorable for the broad markets, although it would theoretically at least, reinvigorate the banking sector's 'carry trade' potential.

    Biiwii.com | Notes From the Rabbit Hole | Free eLetter | Twitter

    Disclosure: I am long SHY.

    Apr 21 11:45 AM | Link | Comment!
  • Big Pictures: Stocks, Gold And The Miners

    Ukraine war hype, China demand drop, GOFO mysteries… these are the short term noise inputs on the gold sector.

    US Treasury bond yield spreads, gold vs. commodities (i.e. the 'real' price of gold), gold vs. the stock market… these are some of the fundamental considerations that actually matter and they have taken a hit since January.

    It is easy to say 'I am bullish in the big picture' (measured in years) but it is not so easy to actively manage in the smaller pictures (measured in days, weeks and months) with all of the above noise inputs and more bombarding the poor individual player.

    We use shorter term charts to manage the shorter time frames. Daily charts have most recently indicated a bearish set up as bear flags formed across the precious metals complex (with the exception of silver, which never got going to begin with) last week. Weekly charts continue to indicate that an extended and oh so grinding bottom may be forming, but that includes the potential for ups and downs, also known as volatility.

    There is also a lot of noise lately in the stock market. The US stock bull celebrated its 5th birthday last month. The last 2 cycles (the manic phase of the secular bull ended 2000 and the cyclical bull ended 2007) were each approximately 5 years long. Today let's retreat to the calm of the long term monthly charts and get a snapshot of the big picture.

    The S&P 500 has a measured target of around 2190 that we have had open as a possibility since the big breakout occurred in early 2013. A measured target is just that, a measurement; simple math. It is not a directive and therefore 2190 is not hype, it is just a possibility.

    (click to enlarge)

    While we are seeing some shorter term signs that the S&P 500 may not make it to that target (at least pending a test of the big breakout) the chart does not lie. A breakout occurred off of a giant pattern that had its low 5 years ago. A 5 year cycle in the SPX could simply entail a decline to the breakout support. That would probably occur within the context of a mild cyclical bear market. Indeed, we will only manage such a potential decline for now rather than force other interpretations on the chart at this point.

    (click to enlarge)

    Gold vs. the SPX appears to be boxed in above support and below resistance. Notably, Gold-SPX has not closed the 2008 'fear gap' as it has the 2010 Euro 'fear gap'…

    (click to enlarge)

    Yet even in European market terms gold has some resistance to deal with.

    Gold vs. stock market ratios are among several fundamental considerations (most of which are beyond the scope of this article) that must come in line for an investment case to form in the gold mining sector.

    (click to enlarge)

    HUI (Gold Bugs index) vs. SPX is making a potential bottom at a valid support level. That bottom would not be confirmed however, until significant resistance noted on the chart is exceeded.

    (click to enlarge)

    Nominal HUI seems really busy but in reality it is very simple. There is a potential bottoming pattern trying to make a higher low to 2008. This is what we have called a "grind" and it is doing its job on people only looking at shorter term views. Those looking at pictures like the above will be very interested to see if this bottoming process holds up or fails.

    Again, we note that despite what the conspiracy detectives uncover to rationalize gold's smack downs, the fundamental backdrop (including everything from a weak 'real' price of gold to a strong US economy) has not been good. It will take routine check ups on these fundamentals and the technicals over much shorter time frames to ensure being positioned properly for the time when opportunity arises.

    We are all human and part of being human is thinking like a human; thinking rational thoughts, having rational hopes and aspirations. But the markets eat that stuff for breakfast, puke it up and have it again for lunch. People simply have to learn how to be less like people and more like components of the market and always be in alignment with what the market decides.

    Anyway, as often happens, I digress. On to our final chart, the Gold-Silver ratio (GSR).

    (click to enlarge)

    This chart may bode ill for the precious metals sector in the short term, but a breakout in the GSR would most likely go hand in hand with major problems for global stock markets because GSR itself traditionally goes hand in hand with draining liquidity. That has made what has gone on with US stocks over the last couple of years somewhat of an anomaly.

    Precious metals got destroyed, commodities go whacked and global markets varied. US stocks received the benefit of current inflation operations because Goldilocks applied deflationary pressure - which the GSR may well be indicating - to temporarily at least, offset these conditions. This pressure took the form of China's economic deceleration, ongoing deflationary issues in Europe and other drags on the global economy, in which the US participates.

    In 2010 GSR declined impulsively with the Fed's QE2 hyper liquidity operation. Since 2011 it has ground higher, chewing up precious metals (and to a lesser degree, commodity) investors first and now, with a potential breakout in view, it may have stock market investors in its sights.

    Now, will GSR break out? I don't have that answer. The answers I do have are that if it does break out to new recovery highs, stocks will be very vulnerable and that somewhere within the fallout, the gold sector should be among the first to recover.

    Another possibility is that the hyper liquidity of 2010 (GSR down spike) simply evened out the hyper liquidity drainage of 2008 (GSR up spike) and now it will muddle along. So we might not necessarily expect dynamic events across markets in 2014. Those make great headlines, but we may simply be in line for more slugging it out between stock bulls and bears, and gold bugs vs. gold bears.

    So now we return to our normal programming in managing daily and weekly views in an ongoing manner because while the big pictures are fun to look at (for we geeks, anyway), the signals will crop up on the shorter time frames. They are like quick little PT Boats where the monthlies are giant lumbering aircraft carriers. Okay, the post is now getting a little weird so we'll nip it here by simply asking you to consider a subscription to NFTRH if you would like a dedicated short term through long term guide as markets go through their processes.

    Biiwii.com | Notes From the Rabbit Hole | Free eLetter | Twitter

    Apr 17 3:41 PM | Link | Comment!
  • Gold Contrary Indicators

    gold.barThe gold sector is peopled by a high concentration of contrary indicators because it is a relatively (to the vast world of equities and bonds) small market that offers refuge from some of the damaging aspects of the spectrum of investment products that are supported by the manipulation of interest rates and printed (and digitally created) money supplies. Thus, gold has moral high ground if an asset can be thought to have morality.

    More accurately, the people bullish on and promoting gold take high moral ground and that is where the emotional power comes from in this market. This power feeds upon the desires of regular people to not suffer the consequences of the 'evil' actions of those running a system that many do not agree with. Readers of this site know of course that I certainly don't agree with the setting and manipulation of interest rates by decree of man (and woman) in service to engineering desired outcomes in financial markets.

    Hence, I am a gold bull on the big picture until I see the system change for the better, which would mean a significant reduction of intensive interest rate micro management in play for 5+ years and counting. But within the big picture view are myriad smaller gyrations filled with volatility. Gold makes strong surges and gut wrenching declines. I have to believe that much of this volatility is the result of conviction that so many people hold toward the 'honest money' asset.

    Decent people are coded to hope for and even fight for what is right and good. This is emotionally powerful. Decent people naturally deplore evil and dishonesty. Team Gold Bug… meet Team Evil Entity, AKA the Fed, the Fed/Wall Street Banker conspiracy, the covert operators within COMEX or whoever else is antagonistic to the price of the 'honest money' metal in the minds of gold bulls.

    But it is often the emotional power of the gold 'community' itself that swings momentum so far one way or the other. 'Ukraine harkens a dark age of war, famine and plunder… BUY GOLD!' 'The Fed is going to BLOW the system… BUY GOLD!' Or, the last great damaging event for gold's price… 'The Euro is imploding… BUY GOLD!', as the global knee jerk into the monetary metal blew off the last cyclical bull and brought on a strong bear market, which gold still finds itself within at this moment.

    I said it then and I'll say it now, it was the sudden acquisition of masses of unhealthy holders (those driven by fear, hysteria and hype) that terminated gold's last cyclical bull market and brought on a cyclical bear. The bear is and has been addressing that distortion for over 2.5 years now. Tune out those who want to paint evil entities as the enemy of gold. We have seen the enemy and he is - more than any external evil - us (or more accurately the unhealthy, unsavory elements within the 'community').

    During the up phases those promoting gold tend to play hero or troubadour in heralding those bullish phases when finally, right and good shall triumph over evil.

    Stop right there!

    Gold is lump of pretty and heavy metal dug out of the ground. It has been used as a monetary retainer of value for centuries upon centuries. But it is not an idol. Aside from physical holding considerations (which is personal and beyond the scope of this post) it is a wildly volatile asset to own. Both gold bulls and bears should be prepared for this.

    One way to prepare is to keep an eye on sentiment. Among gold sentiment indicators, Mark Hulbert's HGNSI (Hulbert Gold Newsletter Sentiment Index) is right up there in value with respect to gauging when the time is right to be bullish or bearish on gold. In his latest report, Hulbert shows an HGNSI that is dropping toward - but not yet fully settled at - a bullish backdrop for gold. Are the goldbugs finally crying 'uncle'?

    hgnsi

    This data point marries up nicely with our own technical analysis that sees gold near, but maybe not quite yet at a bottom for the current corrective leg that began so predictably off the Ukraine/Crimea/Russia hype. See…

    March 3: Ukraine, Time to Be Careful

    Regardless, the bottom line is that the next time those advising about gold start to trumpet war or any other non-monetary event en masse as being bullish for gold, speculators and traders should take that as a sell signal. Conversely, when legions of bearish trend followers come out of the woodwork late in a downtrend well, you know the drill; it's time to get bullish.

    Gold contrary indicators, whether bullish or bearish, tend to be quite reliable due to the nature of this asset and emotions it stirs up.

    Biiwii.com | Notes From the Rabbit Hole | Free eLetter | Twitter

    Apr 02 8:58 AM | Link | Comment!
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