I will have to keep these comments brief as I have my hands full with the livestock markets today. For now, something that stands out to me is continued weakness across the commodity indices such as the Goldman Sachs Commodity Index.
Look at the plunge across the sector. The index is now at a three month low. Oddly enough, copper prices are firm today. I have no explanation for that one. This is spite of the fact that the dollar is benefitting from fears arising around the Portugal situation which has undercut the Euro.
My grain index hit a 31 month low today. By the way, both the October cattle and the October hog contract hit limit down today during the session although neither remained there.
I bring this up because based on the general fall in commodity prices that we are seeing, I remain somewhat cautious about the lasting ability of the current gold rally. The charts are very much improved on gold however and for now, that is all that matters.
Gold has managed to clear overhead resistance noted on the chart, a level which had successfully stymied it for almost three weeks now. The next level that it should have to contend with begins up near $1355 and extends just past the $1360 level. There is some light resistance showing up near $1340.
One of the indicators that I use reflects some negative or bearish divergence, suggesting upward momentum is waning but that is not unusual to see when a market has been trading sideways around a resistance zone as gold has been doing. I am monitoring it however as I would prefer to see it confirm the move higher by pushing to a fresh peak, or at the very least, reaching the previous peak reading.
The ADX continues to rise but remains below 30, a level that I generally look for when attempting to see whether markets have entered a trending phase. I get the distinct impression when watching the price action that this move is one being driven by shorts who are reluctantly exiting their positions ( buying them back). As of yet, based on the volume readings and general price action, there still looks like there remains a great number of skeptics about the current rally. The push through $1334 this morning nailed the overhead buy stops and fired them off generating a great deal of activity but since the time that those stops were taken out, volume has been lackluster.
Bulls have a good shot here at generating some further excitement if they can reach $1360 and surmount it. They might be able to pull this off if the notion that the shaky conditions existing in that bank in Portugal (Banco Espirito Santo) are going to spread further among other European-based banks and possibly precipitate some sort of bond buying program by the ECB.
Euro gold in particular seems very strong as a result of this thinking ( call it contagion fears). It is right into the resistance level noted on the chart near 985 and looks strong. Depending on how things go over in the Eurozone, it looks well-positioned for a try at 1000 Euro. That is a big psychological number.
I should also note here that the big gold ETF, GLD, reported holdings at 800 tons yesterday. That is very promising as one wants to see this key sentiment indicator moving upside along rising gold prices.
The junior miners as evidenced by the GDXJ look strong on the charts as they gapped above resistance this morning which is bullish but have encountered nothing but selling pressure since. If this index can close through 46, it would portend a push towards the next level of resistance near 48.
There is a type of flag formation on the chart ( It is not a classic one but similar) which suggests as a potential target a move all the way to the 52 level. Obviously bulls would need to clear 48 for a shot at that. The recent consolidation that occurred the last two weeks of June looks healthy in hindsight as the run higher was too far, too fast prior to that. Traders wanted to take a breather and survey the scene before getting too aggressive. Once again they are now into an area on the charts where it looks as if they want to pause once more. We'll see what we get to end the session today but especially to end the week tomorrow.
We have a big USDA report due out at 11:00AM CDT tomorrow which could send some further excitement into the grain markets. I will get some info on that report up sometime tomorrow. Grains have been anticipating a bearish report heading into the release. One thing I can tell you with certainty, livestock producers are very happy right now with these lower input costs. So too are the poultry guys, although rooster fertility issues are being noted through that industry.
Crude Oil, which succumbed to that long liquidation that some of us were concerned about, looks like it might be trying to find its footing down here. The jury is still out on that however but it is holding together pretty well after the recent beating it has taken.
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