Thursday, May 21, 2015

Dow Jones Transportation Average Breaking Down On Huge Volume

Yesterday one of the main US stock market averages, Dow Jones Transportation Average, broke down.
What is more, this move was accompanied by a huge volume, which magnifies this pattern. Please, look at the chart below:

The second most important average - Dow Jones Industrial Average is flirting with its top:

Simply put - the divergence between these two averages is increasing.

Sunday, May 17, 2015

Corn - Consumption Is Expected To Be Higher Than Production; This Is A Radical Change In Fundamentals

Some time ago I published a bullish post on agriculture commodities (link here). On May, 12 the USDA (United States Department of Agriculture) published new crop forecasts. According to these forecasts, for the first time since the season 2010 / 2011, the world consumption of corn is expected to exceed its production. Please, look at the chart below:

                                                               source: USDA and Simple Digressions

As the chart shows, in 2015 / 2016 corn consumption should exceed its production by 0.47 million tons. The last such occurrence took place in 2010 / 2011, when corn consumption was higher than its production by 18.22 million tons.

Looking at some details, below I am listing countries and their production / consumption numbers projected for 2015 / 2016:

  • The biggest world producer of corn is USA with production of 346.22 million tons per year (35% of the world production).
  • China and Brazil are ranked second and third with production of 228 and 75 million tons respectively. All these three countries are expected to report an excess in production over consumption of 68.96 million tons. And here we have another bullish indicator for the corn prices - this excess is expected to be lower than 82.11 million tons reported in 2014 / 2015.
  • The chart below shows other big players in the corn market and differences between their production and consumption (a negative bar means that consumption is expected to be higher than production):  

                                                                  source: USDA and Simple Digressions

In my opinion, the last forecast is supportive for the bull case for the corn prices.

While the fundamentals are indicating chances for the beginning of the new bull market in the corn prices, the technical picture is still bearish - look at the chart below:

Friday, May 15, 2015

Value Line and The Broad Equity Market In The U.S.

While the broad equity market in the U.S., represented by S&P 500 index, is still marching up, its geometric sister called Value Line Geometric Index ($XVG or XVG) has stalled since July 2014.

In the past such divergences have been an early indicator of the incoming problems. Please, look at the chart below:

For those unfamiliar with $XVG - this index tracks the median index move as if all stocks had an equal amount expressed in dollars invested in them. Simply put - all equities are equal (this index does not care whether Apple is bigger than e.g Ebay).

To make things more visible, below I am putting the detailed charts picturing three periods when divergences between XVG and S&P 500 occurred.

                                               1998 - 2000

The Internet bubble was catastrophic. But S&P 500 needed quite a long time (two years) to start its bear market since XVG topped in April 1998. What is more, S&P 500 went up 36% since XVG topped.


The last bear market in S&P 500 started just three months after a top made by XVG.

                                                  2014 - ?
XVG made its first top (in this ongoing bull market) in July 2014. Since that time S&P 500 has gone up 11%. The current divergence is still intact - XVG is struggling at its resistance while S&P 500 is still marching up. Please, look at the chart below:

Summary - looking at the history of divergences between XVG and S&P 500, today we have something similar to the late Internet bubble. Then the broad market was going up fueled by big internet companies. Today the broad market is fueled by the FED and other central banks all over the world. While this broad market is still going up, the warning signals are flashing.

Monday, May 11, 2015

Gold Is Disappearing From The Western Vaults

In my opinion, this is an extremely bullish development for gold investors. Simply put, there is less and less gold in the major Western vaults. What is more, these vaults comprise the lowest amount of gold since many years.
Let me discuss two vaults: COMEX and SPDR Gold Shares (GLD).

The chart below shows the number of ounces of gold held at COMEX as "Registered Category". These ounces of gold are the basis for futures transactions carried out at COMEX. On May 8, 2015
there were 407,402 ounces of gold registered at COMEX. This is a very small number - similar quantity was registered at the end of January 2014 (439,900 ounces) when a strong move up in the gold prices was beginning.

To be even more precise, open interest in gold futures is currently standing at around 41 million ounces of gold, which means that the investors / speculators take part in a play where the total bet of 41 million ounces is covered by just 407 thousand ounces of "real" gold (1%). This can end very badly if even a small  group of players wants their gold to be physically delivered. Because there is practically no gold in the registered category vaults, only higher gold prices could fill the gap between demand and supply. But even then I am not sure whether the vault is filled with enough gold. 

2. GLD
Similarly to COMEX, the GLD vaults comprise less gold. Please, look at the chart below:

It is easily spotted that today there is the smallest amount of gold in the GLD vault since the end of 2008, when the last bottom in the gold prices has been established.

These two developments are, in my opinion, very bullish for the gold bugs.