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'He Loves Gold, He Loves Only Gold': Dave's Daily

Well, maybe some silver, and come to think of it, anything that glitters as well.
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Well, maybe some silver, and come to think of it, anything that glitters as well. Gold had been bumping against resistance as we've outlined for weeks. With a brief correction the previous week, the metal hung in there pretty well. While gold struggled against resistance, silver cut through overhead resistance like it wasn't there last week. Rumors swirl regarding a short squeeze from commodity proprietary trading desks which include J.P. Morgan. More important is the dollar remains the casualty caused by Fed money printing.

If I wasn't feeling so old, I'd say we were back in the mid to late 1970s when the only profits were in commodities and precious metals, natural resource stocks in general and a few tech names where strong earnings growth might exceed inflation. But here we are 35 years later with the only exception being the players: Bernanke (the mad scientist) versus Volcker (the disciplinarian and sound money man).

You can't make this stuff up!

Not that it matters but I spent the day in Boston only to return recently. Yes, I have all the tools to keep tabs on things but prefer not being bothered in traffic less I kill someone. Geez, the last 6 miles took 40 minutes and aside, I pondered this silly HOV lane. Those few using the lane were in violation and if you had to do this every day you might do the same. What a waste of asphalt by some PC bureaucrats who are determined to make you use it!

(Meanwhile, back to our story.)

Industrial Production data from across the pond was poor while Retail Sales in the U.S. were slightly better than expected although the prior data was revised lower.

Volume improved today but mostly on selling which isn't the bullish script. Also breadth was somewhat negative relieving some short-term overbought conditions.

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SPY

: It is hard to know what to make of things. It was a really weird day all things considered. I'll just stick with the lines for now.

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TheStreet Recommends

MDY & IWM

: These sectors have higher betas (volatility) so one day they kick it and then next not.

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QQQQ & AAPL

: Hey, Dave, you really didn't change the charts now did ya? Nope, nothing changed.

Continue to U.S. Sectors, Stocks & Bonds

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SMH & AMD

: As noted previously, a lot of things can go wrong but tech might still endure if earnings outpace inflation and worries.

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XLB

: Materials sector has strong relationship with commodity sector and while it may seem counterintuitive many companies within here are vertically integrated allowing producers to make money.

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XLF

: Banks have it pretty good for the most part. They screw up and get bailed-out.

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XLY & XRT

: Just when you thought he was tapped-out, our little buddy Chucky the Consumer you can't kill is finding a way for another sequel.

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XLI

: I wonder if the data from the U.S. will be as poor as from Britain.

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IYR

: Will real estate inflate like in the 70s? I think Bernanke would like to see that frankly.

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IYT

: Transports look like many other sectors--struggling to break out of long trading ranges.

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XLU

: Utilities are where advisors are pushing investors wanting safety and yield.

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XLV

: A more defensive sector and money flows naturally to it in this environment.

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IEF, TLT & TIP

: The man behind the curtain, Bernanke, is pulling out all the stops in favor of rising prices. This is the same policy or effort done in the Great Depression as policy makers fought a losing battle against deflation.

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LQD

: MSFT is thinking of selling bond issues at low rates to finance stock buybacks and a dividend increase. Is this just taking what the market gives you? Yep.

Continue to Currency & Commodity Markets

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$USD/DXY

: When policy makers at the Fed tell you they favor a strong dollar, keep a barf bag handy.

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FXE & FXY

: Anything but the dollar.

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FXF

: The Swiss Franc has historically been regarded as a "hard" currency.

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GLD & SLV

: There's more to the silver story then we know. It's said that a large bank was short a large amount of silver and had to cover.

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DBC

: Virtually every commodity on the planet is rising with the exception of energy which, naturally, is the heaviest weight in DBC.

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$WTIC & XLE

: Wednesday brings energy inventories and more tropical issues as well.

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DBB & JJC

: Base metals are in an uncertain state but at high levels. Much of this has to do with the dollar. The dollar declines most commodity prices rise.

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XME

: Miners enjoying the rally in commodity prices overall as it spills over to them.

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DBA, JJG, JO & SGG

: Weather markets caused by drought in Russia, a La Nina causing frost and drought in South America and a rapidly sinking U.S. dollar are all at work in this complex.

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MOO

: With crop problems globally will come more demand for GMO seeds, fertilizer and equipment.

Continue to Overseas Markets & ETFs

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EFA

: While stock in Europe might fall a little, for US holders, the stronger euro is helpful.

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EEM

: Most EMs are heavily influenced by commodities and demand from Asia.

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EWJ

: Here too, the yen favors U.S. investors but is hurting Japanese exporters. If you like the yen, buy the yen.

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EWA

: Down Under things are just fine. The government is basically in a stalemate which is usually a positive and commodity prices are rising.

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EWC

: Meanwhile, north of the border, they're enjoying higher commodity prices but the stronger Loonie negatively affects trade.

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EWZ

: Brazil shares higher with sugar prices and base metals.

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RSX

: "From Russia with Love". Yes, reports indicated they're running out of palladium. 

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EPI

: The new India Small Cap issue from Market Vectors, SCIF should be a winner as demographics are positive and the index will be consumer oriented. Unfortunately there isn't enough data yet to chart.

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FXI

: The trading range continues but the news is more positive.

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The

NYMO

is a market breadth indicator that is based on the difference between the number of advancing and declining issues on the NYSE. When readings are +60/-60 markets are extended short-term.

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The

McClellan Summation Index

is a long-term version of the McClellan Oscillator. It is a market breadth indicator, and interpretation is similar to that of the McClellan Oscillator, except that it is more suited to major trends.  I believe readings of +1000/-1000 reveal markets as much extended.

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The

VIX

is a widely used measure of market risk and is often referred to as the "investor fear gauge". Our own interpretation is highlighted in the chart above. The VIX measures the level of put option activity over a 30-day period. Greater buying of put options (protection) causes the index to rise.

Continue to Concluding Remarks

Today was a pretty weird day overall. By the time I returned home and switched on my screens I gave a quick glance at gold and thought it up only $2.00. But, a second look told a different story.

Commodity markets overall are on fire and much of this is due to the perception that the mad scientist running the Fed is willing to let it go.

At the same time, bond prices rose as the POMO effect still lingers. It really does strike you as a Ponzi Scheme with the Fed buying what the Treasury is selling. What is the effect? To keep rates super low? Give the banksters more play money? I realize it's a function of the central bank to do this but it does seem bizarre at the same time.

Tomorrow U.S Industrial Production data will be released along with energy inventories.

Did you know it's options expiration on Friday already? Good grief, how time flies!

Let's see what happens. You can follow our pithy comments on

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Disclaimer: Among other issues the ETF Digest maintains positions in: FDN, IGV, IYR, XLU, TIP, GLD, DGP, SLV, AGQ, DBB, BDD, DBA, DAG, and EPI.

The charts and comments are only the author's view of market activity and aren't recommendations to buy or sell any security.  Market sectors and related ETFs are selected based on his opinion as to their importance in providing the viewer a comprehensive summary of market conditions for the featured period.  Chart annotations aren't predictive of any future market action rather they only demonstrate the author's opinion as to a range of possibilities going forward. More detailed information, including actionable alerts, are available to subscribers at

www.etfdigest.com

.

Dave Fry is founder and publisher of

ETF Digest

, Dave's Daily blog and the best-selling book author of

Create Your Own ETF Hedge Fund, A DIY Strategy for Private Wealth Management

, published by Wiley Finance in 2008. A detailed bio is here:

Dave Fry.