TOP in POT

POT (largest potash and nitrogen fertilizer producer in the world) has seen a dramatic rally during the past year, which has recently gone parabolic. The cultivation of corn is the largest use of potash fertilizer, and POT has benefited from a dramatic increase in the demand for corn, not only from rising global demand, but also from the ethanol craze that began a couple years ago. But corn-based ethanol is probably one of the worst policy decisions made by the US government, and I expect the ethanol craze to quickly disappear as more and more people realize its detrimental impact on sky-rocketing grain prices. There is significant downside risk to POT if there is a reversal in the government's policy on ethanol. The rising price in natural gas may also start to hurt POT's profit margins with respect to its production of nitrogen fertilizer. Moreover, there seems to be some more correction left in the commodities complex, which will add more selling pressure. Technically, it's hard to ignore the RSI divergence and the massive weekly doji that formed last week. A big down bar this week could very well signal a TOP in POT.



Jim is predicting a correction in POT that is similar to that of FXI, which had also gone parabolic before correcting by over 45%.

Dollar rebound and gold correction

The euro had a large sell-off due to weakening European fundamentals and dampening US rate cut expectations. Crude also had a large sell-off after inching above $119. Moreover, market sentiment has completely turned around with major players calling an end to the credit crisis. Under such pressure, gold sold off to below $900/oz and broke below a major trendline. I think gold will continue to sell-off to the 50-week MA, but prices should pick up again during the second half of this year. We have only seen the tip of the iceberg...so the best strategy right now is to patiently wait for the dip.

T. Boone Pickens style...

Gold hit $899.20/oz this morning. I WAS WRONG.

$950 before $900?

Gold has formed two inside days in a row, each with strong volume. Today's headlines were filled with news about the euro's rise above $1.60, reminding the markets about the ECB's determination to fight inflation, even if it has to raise rates. This is indeed a drastic contrast to the Fed's primary mandate of stabilizing the markets at all costs, both financially and (il)legally. Considering such contrast to the ECB, it would be nice to see some vigilante action in gold to test the guts of the Fed. I would go so far as to say...$1000 before $900!

Gold might surprise everyone: reversal?

Following a nice rebound during the past few weeks, gold had a large sell-off last Friday. The catalyst for the sell-off was a sharp rebound in the dollar. Although the Euro and Yen have retraced all of their losses from last Friday, many gold bulls are raising doubts (Gartman covered his ENTIRE gold long at $922/oz). Many gold bulls are also expecting an intermediate-term range capped at $960/oz. But with a slew of economic data coming out in the next two weeks, I think gold will surprise everyone on the upside in the short-term. Gotta believe in the fundamentals!

From a technical point of view:
1) There is a potential inverse head and shoulder pattern. Anything above the blue neckline will be very bullish.
2) Today was an inside day, and an inside day is usually followed by a rally.
3) There is RSI divergence.



Even if there's intervention in gold (or dollar), so be it...more fuel for the gold rally.

Wheat technicals

Are we near the bottom of the wheat correction?

Interpreting today's wild action in macro markets

The dollar rallied hard today, triggering a sell-off in euro, yen, and pm. I have been anticipating a new leg down for the dollar, but today was not my day. So does this mean the dollar has bottomed for now, in the intermediate term? Fear and panic have indeed subsided in the US market, but the fundamentals are the same, if not getting worse. Moreover, pm could very well decouple from the dollar. Technically, however, it's hard to rule out further correction in euro, yen, and pm.

All eyes will be on whether stocks will be able to retrace this year's losses. If so, the price of bonds will break to the downside, which may cause a bit of deleveraging by hedge funds that have been long bonds (and even gold).

Today proved how difficult it is to have a short term edge in a potentially consolidating macro markets, but perhaps it will be a better strategy to patiently accumulate pm and pm stocks until we see clear move to the upside.

Euro bulls taking charge?

The battle between buyers and sellers of EUR/USD around the $1.5850 level has intensified during this past week (notice the rising volume). It will be interesting to see how the Euro finishes the week. I think we'll see $1.60 by tomorrow morning.

People need to accept the reality that a strong EUR/USD is a good thing for US stocks (not so much for European exporters, but who cares about them?).

Earnings uncertainty: buy Yen protection

Following yesterday's impressive rally in equities, Yen dropped down to 102.35. Yen was trading at pretty strong support this morning, and I think 102 is a good point to buy Yen. Indeed markets have calmed down significantly during the past few weeks. But uncertainty in earnings seems to be stoking some volatility and risk aversion, so I think it will be prudent to hold some Yen until we clear through earnings season.

Short silver at target ($18.750/oz)

Silver has reached a strong resistance level at $18.750/oz. Looking at the dollar action overnight, the greenback does not appear to be as bearish as it did yesterday. Gold is also pretty close to my target of $960/oz. I am shorting silver at $18.750/oz to hedge my short dollar bias, though I will be ready to cover at moment's notice.

Update: covered silver short @ $18.220/oz

What volatility?

Jim has pointed me to a nice chart of VIX. The chart shows how much volatility has come down during the past few weeks. Perhaps this is a sign to buy a little protection.

Euro and gold: imminent technical breakout

Good morning. My trading screen is blinking green for literally all assets (ex bonds)...sometimes you can just feel capital flowing back into the markets. The underlying force of this reflation is of course the dollar. One cannot ignore the major interest rate differences between the US (2.25% and going DOWN), Europe (4%), and Japan (0.5%) - the dollar is the new carry currency.

Technically, euro and gold are poised to test major resistance levels. The Euro has strong resistance at $1.590, while the 50-day moving average ($945/oz) provides strong resistance for gold. Many market commentators have been calling for a rebound in the dollar (rebound in US credit market), so going long the Euro and gold seems to be a nice contrarian trade.

According to this morning's inflation data, price levels are rising faster in Europe relative to the US (bullish for Euro). Bullish crude data could provide more fuel to Euro and gold.

Short term targets:
Gold ($960/oz)
Euro ($1.615)

Good point to buy YAMANA

Mining stocks have not rebounded as strongly as the metals. Some interpret this as a sign of non-confirmation of the rally in futures. However, gold is poised for a short term breakout, and I think this will pick up AUY back up from its feet. If there is a strong rebound in AUY, then it would be safe to say that $14 is history.

Gold short term bullish

The price of gold is poised to test the upper boundary of its recent one-month consolidation (triangular formation). Crude oil continues to rally into unchartered price levels, providing fuel to the Euro and precious metals. Short term target for gold is $960/oz.

Reflation picking up...

Good morning. Reflation is inching back, and risk appetite seems to be cautiously on the rise. Euro/Yen broke through 160 overnight, while both stocks and commodities rallied hard. Sacrifice the dollar, and everyone will be happy.

Gold and silver look very bullish

Despite recent volatility, precious metals have painted a nice technical sell-off. Gold and silver have sold off to November 2007 highs, and I believe they have bottomed. Near term resistance seems to be $960/oz for gold and $18.750/oz for silver. Both metals will probably consolidate around these levels before rallying to new highs.

Precious Metals Bottoming...

Precious metals have plummeted along with the rest of the commodities complex. The deflationists seemed to prevail over the inflationists. Moreover, the financial crisis seemed to be miraculously cured by the Fed/Treasury/Administration. Wrong and wrong...the fundamentals have not changed one bit. Indeed, deleveraging during the past week and a half has been severe (gold sold off the most in a quarter century). Gold and silver sold off to levels we haven't seen since the end of last year - the same time massive speculation in both markets began. But the sell-off has been very technical, providing low risk opportunities to short.

The ultimate question has been when the precious metals would bottom. Obviously, such bottoming would occur when long term buyers dip in and speculators realize that the current crisis is far from over. Although many believe the precious metals sell-off to occur over a longer period of time, I believe we saw the bottom today. Many expect gold to sell off to $850/oz and silver to sell off to $15/oz (both are pretty obvious support levels), but this is turning out to be wishful thinking. Today, gold and silver sold off to their highs reached in November last year - a good level to start buying.

He who wins is he who owns the most ounces...