Friday, September 12, 2014

Sentiment Shifting for Gold Bugs

From a post on the HUI at the site last week:
"There are worse things that could happen than filling a gap and scattering the wrong kind of gold bugs back out. Then it would be up to the longer-term charts to do the heavy lifting if the daily does fulfill this downside potential."
The gap was filled, the top end of the anticipated support zone was reached and indeed, the wrong [i.e. momentum players] kind of gold bugs are scattering back out. The hard sell down on Thursday was very likely due in large part to the selling by traders with a fetish about gold as a geopolitical or terror hedge.
We should continue to tune out these people and while we are at it, tune out the 'Indian wedding season' and 'China demand' pumpers in favor of real fundamentals like gold's relationship to commodities and the stock market, the Banking sector's relationship to the broad market, Junk Bond to Quality credit spreads and US Treasury bond yield relationships.  (more)

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The Downside Target in Silver is Below $15

One of the scariest looking charts in the world today has to be Silver. The other popular precious metal, Gold, is looking pretty terrible itself, as we mentioned on Wednesday. But it doesn’t get worse than Silver. I first brought up this bearish development a month ago, but since then the scenario has actually worsened. Let’s get right into it.

Here is a weekly bar chart of Silver going back to the rally that got going towards the end of 2010 that took silver close to $50/oz. There are a few things that I want to point out here. First of all, notice how many times Silver has tested this support just below $19.

This area is key because not only was this former resistance in 2010 but it also represents the 161.8% Fibonacci extension from the early 2012 counter trend rally, which was the biggest one before the eventual breakdown last year:

ASC 9-11-2014 SI weekly bars
The more times that a level is tested, the higher the likelihood that it is going to break. After this many tests of support, my experience tells me that a big break is likely coming soon. To come up with a downside target we want to take the 161.8% Fibonacci extension from the size of the recent consolidation. In this case, the base of the descending triangle from the 2013 June-August rally gives us a target of $13.75. There is also some support around $14.80 from prior support in early 2010 as well as a measured move target based on the size of the last two bounces in Silver that took place throughout 2014.

We want to see new weekly closes in this market below all prior weekly closes in order to confirm this breakdown. So far the closing lows during this consolidation are 18.85 from July 2013 and $18.80 this May. We want to be short, but only below those levels. I believe there is enough downside here to justify the risk, as far as our risk tolerance and time horizon is concerned. For a catalyst, sentiment was much more bearish on the first 3 tests of support than there is now. Crashes don’t come when everyone expects them. In this case, fewer market participants expect one. We love that.
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Emerging Markets Soon to Breakout?

Tiho Brkan of takes a technical look at how emerging market equities have been performing and whether now is the time for global fund managers and asset allocators to shift capital from expensive Developed Market equities towards laggards.
Chart 1: Could emerging market equities break out in coming quarters?

Source: Short Side of Long

Emerging Market equities have under performed Developed Market equities for years now. Slowing economic activity, falling export growth, over-leverage, inflationary pressures, and geopolitical tensions have plagued various regions and countries within the index. Since early 2010, the MSCI Emerging Market index has basically gone sideways while US equities have risen to record highs and become extremely expensive on historical basis.
Chart 2: Emerging Asia equities have already broken out to the upside.

Source: Short Side of Long

The question now is, could global fund managers and asset allocators shift capital from expensive DM equities towards laggards? GEM equities have now approached a major resistance zone, after making no progress since at least 2007. It seems that a breakout could be at hand in coming quarters, especially since Asia is already leading the way higher.
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Skyworks Solutions Inc (NASDAQ: SWKS)

Skyworks Solutions, Inc., together with its subsidiaries, provides analog semiconductors worldwide. Its product portfolio includes amplifiers, attenuators, battery chargers, circulators, DC/DC converters, demodulators, detectors, diodes, directional couplers, front-end modules, hybrids, infrastructure radio frequency subsystems, isolators, LED drivers, mixers, modulators, optocouplers, optoisolators, phase shifters, phase locked loops/synthesizers/VCOs, power dividers/combiners, power management devices, receivers, switches, voltage regulators, and technical ceramics. The company also offers MIS silicon chip capacitors and transceivers. It provides products for supporting automotive, broadband, cellular infrastructure, energy management, GPS, industrial, medical, military, wireless networking, smartphone, and tablet applications.
Take a look at the 1-year chart of SWKS (Nasdaq: SWKS) below with my added notations:
1-year chart of SWKS (Nasdaq: SWKS)
SWKS has been trending solidly higher since its bottom in late October. Starting in April, the stock has commonly found support on the increments of $5 (blue). For example, $35 acted as support in March. Then, $40 was support in April and May. There was support at $45 in June, and $50 in July. So, identifying this tendency should help when it comes to identifying when to enter a trade on SKWS.

The Tale of the Tape: SWKS is currently trading above the $55 level. A long position could be entered at $55 or on a break above $60 with a stop placed below the level of entry. If SWKS breaks below $55, another long play could be made at $50.
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USDA report sends Grains Reeling

Talk about a bearish set of reports! Most everyone was expecting the numbers to be on the bearish side as reports from private firms have been indicating crops in incredible shape with the potential for strong yields picking up with the passing of each month. USDA tends to be a bit conservative however and that had most in the trade expecting them to confirm higher yields but to wait for their October report before getting too optimistic.

Boy howdy was that NOT the case!

In the case of soybeans, USDA left both planted and harvested acreage unchanged from their August report (84.8 million and 84.1 million respectively) but it was the big jump in yields that caught many off guard. They found another 1.2 bushels per acre of yield from the August number of 45.4 to an astounding 46.6!

The result – a massive crop of 3.913 billion bushels, well up from last months 3.816 billion. Combine that with imports of 15 million bushels and the total supply jumped to 4.058 billion bushels of beans. I am still reeling when looking at that number!
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