It May Be Time To Grab Some Commodities

Sorry about the late start today, but I've been looking around quite a bit, it's important to see what changes in character are taking place once Window Dressing is largely over which was yesterday as Window Dressing in such a low volume environment is going to be the dominant market force, all funds are moving, and reallocating assets, most do so to look smart so when new clients read their prospectus for 2014, they see, "Oh, this fund owned this and that stock that did great last year", the thing is the fund may have only owned them as of yesterday and as far as the losers, they sell those even if they are ready to take off, they'll just buy them back after the prospectus comes out and potential clients will say, "This fund didn't own one big loser" which they may have all year, but sold it on the last day of window dressing so it doesn't appear on the prospectus.

This is why we call Window Dressing "The Art of Looking Smart", it's smoke and mirrors, they may look smart, but it's all deception that anyone who's not really willing to do their homework, will never find out about.

In any case, what I've been watching of course is the 10-year benchmark yield crossing the 3% mark today, 3.019%, this isn't good and is proof positive that institutional money isn't buying what the F_E_D is selling, TAPERING IS TIGHTENING. 

Whether you believe that or not is of NO CONSEQUENCE, the market is 100% PERCEPTION and if that's the perception, which it strongly appears to be, then THAT IS THE REALITY.

So what I was hoping for with a gap up this morning, so far is doing it for the reasons I hoped to see, here are a few assets...

 SPY daily, yesterday I said, "I'm ok with a gap up this morning because the best  bearish candlestick confirmation candles all start with a gap up such as a bearish Engulfing Candle which would see the real body of today's SPY candle that gapped up, close below yesterday's real body which is where the SPY opened yesterday. Even if the candle today closes more than halfway below yesterday's REAL BODY, we still have a bearish Dark Cloud Cover, in other words we have the bearish confirmation reversal candles I hoped to see today and specifically the day after window dressing finished.

 The IWM's candle is different because it put in a bearish candle yesterday, this second one is helpful, the larger its range to the downside the better.

TWTR was specifically one I was watching for bearish confirmation as it was entered as a short position yesterday, thus far, even though it's not an engulfing candle, this is one of the most common 3-candle reversal patterns seen, the Hanging Man or Doji Star from yesterday and a lower, bearish candle today serves as confirmation, but we are still a long way from the close.

What I find of great interest is the market again acting like Bernanke hoped it wouldn't, the 10-year benchmark yield is rising and broke above 3%, that's only happened a couple of times over the last several years, one as I showed last night led to a -20% sell off in 2011.

I think the F_E_D had to know, thus Bernanke tried so hard to define Tapering as just that and not as a new policy tool akin to tightening, but as I said, the market is all about perception and whatever the perception is, that's what the reality becomes.

Gold (Silver to a lesser degree because I haven't spent as much time looking at it) and Oil all look set to rise, in OTHER WORDS, COMMODITIES LOOK SET TO RISE.

We saw commodities up significantly during QW@, so much so it was squeezing Corporate profit margins as input costs sky-rocketed, the F_E_D made sure that didn't happen with QE 3.

HOWEVER, one scenario in which HARD ASSETS do well is when BOTH Bonds and stocks fall, bond yields move the opposite of bonds and we have the 10-year hitting the 3% area, not good, but it may be great for commodities.

Weekly Chart of the 10-year Bond Futures, not good. 

Gold itself is bought on inflation expectations. I have liked gold/GLD for sometime as a long term play, I think I'll be looking in to a UGLD / GLD purchase soon.

 THIS IS THE 4 HOUR GOLD FUTURES CHART, which I have liked a lot as a long term play as a large base has been under construction for some time.

This would be the base on GLD's daily, the implied "measured move" would be $260-ish which is a solid counter trend bounce that puts us in the area of a major crossroads between a counter trend bounce and a new primary uptrend.

The 60 min GLD chart looks like a strong base, ready to go in a rectangle or large "W" formation. I see an entry here as low risk/high reward, ESPECIALLY IF I'M WRITE ABOUT WHAT IS HAPPENING IN THE MARKET WHICH IS BEYOND THE COMPREHENSION OF MOST TRADERS AS THEY ARE NOT USE TO THIS CORRELATION AS IT'S NOT SEEN THAT OFTEN.

GLD 15 MIN IS GOOD

AS IS THE 5 MIN.

Theoretically under the scenario I'll describe, silver should do well too, I saw some interesting bullish signals last week, but haven;t paid much attention to it because silver has been one of the most manipulated assets since Bear Stearns' and their large silver short was inherited by JPM back in 2008. JPM's Blythe Masters has put in countless sleepless nights defending JPM's silver short, they even were taking to court over it and won, but that doesn't mean they weren't doing it, in fact it's well accepted and known they were and may still be so this is my least favorite of hard assets.

30 min chart in SLV looks decent.

Crude oil and Nat. Gas would be two other assets that would do well, you know how I feel about UNG long term and the last several months I've been saying crude is setting up a base for at least a large counter trend rally.

Looking back at the action in gold, crude and nat gas, it seems Wall St. may have been preparing for a new scenario that is just being revealed now, this is what I mean when I say they work years in advance just like they did when they accumulated home builders in 2000 during the Tech crash, who would have guessed a couple of years later, HOUSING of all assets would lead the next bull market? Smart money knew and years in advance.

This is oil which looks to be in stage 2 after a lengthy lateral consolidation, I'd like to see volume, but we likely won't see that until the new year.

This is the 60 min chart that I've depended on to define the base building in USO.

The 30 min, 15 min, 10 min, 5 , 3 and 1 min charts are all in line with price.

So what is this all about? 

Commodities do well or hard assets which ironically can include real estate, I say ironically because what has private equity been doing for the last 2 years? They've been scooping up as many single family homes, condo's and rental units, holding them and financing the holding by renting them and even selling rental backed securities just like the banks sold MBS, Morgage backed securities before the 2007/08 crash.

The same thing is playing out, a bubble in real estate, but not in terms of shoddy loans, in terms of rental units, ALMOST AS IF THE ENTIRE HOUSING BUST WAS ON PURPOSE SO THEY COULD GRAB THESE HOMES IN THE HUNDREDS OF THOUSANDS PER PORTFOLIO ON THE CHEAP AS A HARD ASSET.

WATCH COMMODITIES.

The scenario I'm describing is a bit unusual, usually if bonds sell off then risk assets rise and vice versa, it's the flight to safety or reach for risk trade, but that hasn't been a well oiled correlation for some time. In certain rare instances, both bonds and stocks sell-off and when this happens, investors look to buy tangible or hard assets, better known as commodities: Gold, Silver, Oil, Nat. Gas, real estate and commercial real estate to some degree.

IRONICALLY THIS WOULDN'T BE POSSIBLE WITHOUT THE F_E_D'S QE, the withdraw of QE or tightening looks to be perceived as a policy tool of tightening no matter what Bernie says, perception is reality in the market so that could take care of stocks, at the same time when they do this, support for bonds falls as they are no longer buying $40 some odd billion a month and bonds fall, yields move opposite bond prices and thus the 10-year crossed 3% today. So the F_E_D itself may have created this new monster in which stocks and bonds fall at the same time while interest rates sky rocket as the 10-year seems to be hinting at.

A Unique situation.

As far as other things I've been watching...

 VXX, short term VIX futures are continuing with that 20 min leading positive divergence, I may take action soon here.

The same can be seen in the 15 min VIX futures, even stronger than yesterday.

If we get a bond and stock sell-off, the safe haven asset is no longer bonds, maybe the CHF currency will see some flow, but I'm guessing a good commodities fund with some diversification may serve you well.

It seems as I suspected and was waiting for confirmation, since the F_O_M_C taper, smart money has decided a taper is not a taper, it's a pol;icy tool and any policy tightening is bad news for the market, in this case it's also bad news for bonds as China is no longer an enthusiastic buyer of US debt, maybe that will change if the F_E_D promised then to reign in QE, but for now, the market seems to be discounting falling bond prices and rising yields which means interest rates across the board may be soon hitting a shocking level, Poof there goes the economy again.

I'll be looking for assets that make sense outside of what we are already looking at or holding, as this could be a very dramatic and unique situation.

As for Gold and USO, I like them bother where they are, of course I would prefer buying in to a pullback (UDSO specifically).