Greek Commissioner warns about leaving euro

Capital anticipates while politicians talk of possibilities. Euro gold at new highs reflects capital voting with their feet about the future of the EU. The same can be said for U.S. dollar gold.

Euro Gold:

A Greek EU Commissioner warned that the country's participation in the euro was under threat, though the prime minister insisted Wednesday his government would see through new austerity measures and keep Greece in the joint currency.

The EU's Fisheries Commissioner, Greece's Maria Damanaki, warned that "The scenario of removing Greece from the euro is now on the table."

"I am obliged to speak openly. We have a historical responsibility to see the dilemma clearly: either we agree with our borrowers on a program of tough sacrifices with results ... or we return to the drachma," she said in a statement on her personal website.

Mark Haines Dies: CNBC Anchor Dead At 65

Mark Haines Dies: CNBC Anchor Dead At 65

Bearish Setup In U.S. Dollar Underway

Bullish setups in gold, silver, stocks, and commodities are confirmed by a bearish count (setup) in the U.S. dollar.

Ignore the newswire and follow the money.

U.S. Dollar Index and the Commercial Traders COT Futures and Options Stochastic Weighted Average of Net Long As A % of Open Interest


The long-term chart provides a better perspective of downside targets and forces.

U.S. Dollar Index

Court Orders New Jersey to Increase Aid to Schools

Public spending deemed a constitution right in NJ. QE cannot stop because the system is utterly dependent on it. The late run in gold and silver suggests the market understands this reality.

Headline: Court Orders New Jersey to Increase Aid to Schools

The New Jersey Supreme Court ordered the Christie administration on Tuesday to increase state education aid by $500 million in the coming school year, saying it had failed to meet its constitutional obligation to provide adequate educational resources for poor and minority children.

In a 3-to-2 ruling, the court directed that the additional aid be distributed among 31 school districts in historically poor cities like Camden, Newark and Paterson — the so-called Abbott districts at the heart of a school financing case, Abbott v. Burke, that has roiled state officials and courts for three decades.

Coffee price hikes will bring tough wake-up calls

The seeds of hyperinflation have been sown. Soon the public will have to deal with the harvest.

Coffee drinkers are facing a tough wake-up call: Retailers are finding it increasingly difficult to hold the line as rising commodities prices percolate through the system.

At the Coffee Tree Roasters shops in metropolitan Pittsburgh, Pa., prices have just increased for the first time in at least two years.

"We held out to try to see where the market was going to settle out," said Bill Swoope, co-owner of five coffee shops as well as Iron Star Roasting Co., a wholesale roaster in West Mifflin.

Things Not As They Appear In Equities

Flavor-of-the-day experts cite "Sell in May and Go Away" trading logic as the motivation for turning bearish.

My personal rebuttal to this argument would be hogwash!

Retail money, chronic tail chasers, has become increasing bearish into weakness (see table below). This counter-intuitive, negative swing in sentiment is bullish.

AAII Survey


A detail study of market internals also supports the bullish thesis. Statistical concentration of breadth, as illustrated by the red painted stick, tends to be generated at or near tradable bottoms.

NYSE Composition and Breadth Analysis:


Let’s not forget the bullish money flows into stocks.

Retail Money Chases Its Tail

Retail money chases its tail while connect players setup the market. Yesterday's commentary, Invisible Hand of Control In Crude Oil, discussed the setup well ahead of the newswire flash.

Headline: Crude Oil Rises as Dollar Slips, Goldman Sachs Boosts Brent Price Forecast

Oil rose the most in almost a week in New York as the dollar declined, boosting commodities’ appeal as an alternative investment, and Goldman Sachs Group Inc. and Morgan Stanley increased their oil-price outlooks.

Oil jumped as much as 2.3 percent as the Dollar Index, which tracks the currency against six major counterparts, slipped from a seven-week high and U.S. equities advanced. Goldman Sachs and Morgan Stanley raised their estimates for Brent oil futures, saying the prolonged conflict in Libya is eating into OPEC spare capacity.

“The dollar’s under pressure and you’re having a bit of an equity market rebound,” said Gene McGillian, an analyst and broker at Tradition Energy in Stamford, Connecticut. “The upward revisions to some of the investment-bank oil forecasts may be lending a certain positive sentiment to this market.”

Words of Wisdom Found Within The Daily Noise

Great observations form Dow Theory Letter’s Richard Russell,

Last Saturday Faye and I had coffee at the Pannikin, one of our local coffeehouses. A cup of decaf sells for two dollars. The place was busy with people eating lunch, talking or just drinking coffee. I asked Faye, "Does this look like people are cutting back because of the Great Recession?" Faye shook her head, "Hardly," she smiled.

I reminisced, the Great Depression ended around 1942. That was about 60 years ago. Three or four generations have elapsed since 1942. So it's been three or four generations since Americans have experienced what I call "hard times." Only old codgers like Richard Russell remember what it was like during the Great Depression. Those were the days when people clung to every nickel and dime they could scrape together.

In 1940, if I wanted some coffee, I probably already had it in the thermos bottle that I was cramped into my lunch box. Or I could go to the nearest drug store or maybe to an Automat and buy a cup of coffee for a nickel. Actually, I'd probably prefer Woolworth's because there coffee was always a nickel, and there'd be no charge for "refills" (as many as you wanted).

It occurred to me sitting there with Faye at the Pannikin coffee house that people today have no idea or concept of cutting back and saving money. Here were kids buying cups of coffee for two dollars a cup and ordering sandwiches or salads for 5 to 8 dollars a pop. "Well," I thought, "If the government isn't cutting back, why should the people? It's the way of the world today." But I have this feeling, this creepy feeling, that it isn't going to last. Somewhere ahead I believe the Great Recession could turn in to the second Great Depression.

Russell, a prolific straight shooter, nails it. The distinction between the Great Recession and Depression is mostly semantics. Another great trading box, similar to that of 1873, 1929, and 1971, formed in 2000. This suggests that real (constant currency) stock prices and standard of livings have been falling since 2000. It will take decades before the 2000 highs are breached to the upside.

Russell’s observation suggests that most of the public remains oblivious to the reality that excessive debt-based consumption is dead. A public weaned on reality-based television and bubble gum economic analysis is always the last to know. Russell’s pragmatic observations be viewed as prophetic anyone willing to study history after 2025. I say why wait to send him compliments? He’s right today.

U.S. Large Cap Total Return Index (LCSTRI); S&P 500 Total Return Index to Gold Ratio

Fear Sees Only The Obvious In Copper

Screaming sell when prices are falling is comparable to yelling fire in a crowded movie theater. This technique is effective in the trading world because the flight or fight response is difficult to suppress. Discipline supported by knowledge is critical to acting without emotion. The following chart illustrates a classic weak to strong hand transfer into weakness in copper.

Copper (JJC) And Copper Diffusion Index (DI)


Headline: Low China Imports, Strong Dollar Pressure Copper

Copper futures fell nearly 4% as another sharp decline in China's copper imports and a stronger dollar pressured prices.

In recent months Beijing's tighter monetary policy has forced many factory managers to use up inventories without replenishing them. Companies that use copper to make electrical wiring and other products—the main source of copper demand in China—are struggling to get credit, and many are relying on "hand-to-mouth" purchases to feed production lines.

China is the world's top copper consumer, accounting for 30% of demand, but imports have been on a steep decline in recent months. On Monday, China reported its imports of the metal in the first four months of this year were 756,199 metric tons, 29% less than the same period last year. April refined copper imports fell 48% from a year earlier and down 17% from last month to 160,236 metric tons.

Invisible Hand of Control In Crude Oil

The invisible hand of control is not restricted to the gold and silver market. The well-defined and recognizable money flow footprint can be found in the crude oil market.

Crude Oil (WTI) and Crude Oil Diffusion Index (DI):


Prices will continue to climb once the fuel is exhausted.

Headline: Oil slides and pump prices drop

Oil dropped more than 2 percent Monday as the dollar strengthened and an energy research group said it expected growth in Chinese demand for oil to slow later this year.

At the pump, gas prices continued to fall as oil retreated.

Benchmark crude for July delivery lost $2.44, or 2.4 percent, at $97.66 per barrel on the New York Mercantile Exchange in afternoon trading. In London, Brent crude gave up $2.62 or 2.3 percent, at $109.77 per barrel on the ICE Futures exchange.

Crude dropped as the dollar rose against other currencies. Oil is priced in dollars, and it tends to fall as the dollar rises and makes crude more expensive for investors holding foreign money. The U.S. Dollar Index, which measures the dollar against other major currencies, rose 0.8 percent amid concerns about Europe's debt crisis.

Empty Your Pockets With A Handshake And Smile

If you feel like a dog chasing its tail in gold, silver, even stocks, it’s time for a new strategy. Certain players will empty your pockets while you shake their hand in gratitude for 'good' information. You’re either a buyer or seller. Fence sitters make for easy targets.

Russell 2000 (IWM) and the Commercial (C) Less Nonreportable (NR) Traders COT Futures And Options Stochastic Weighted Average of Net Long As A % of Open Interest


SP 500 And Equity Diffusion Index (DI)


Sell in May and go away? Unfortunately, the game is not that simple.

Headline: Stocks: 'Sell in May' likely to continue

Investors have taken the old Wall Street adage of "Sell in May, then go away" to heart this year, and the stock market's slump is likely to persist during the last week of the month.

The Dow (INDU), S&P 500 (SPX) and the Nasdaq (COMP) have each lost more than 2% during the past three weeks, pressured by the latest round of economic and corporate news, which are suggesting that the economic recovery may be slowing.

355Print Last week, reports on housing starts and existing home sales came in weaker than expected, and regional manufacturing activity slowed to the lowest level since October.

Source: money.cnn.com

A More Detailed Analysis of Silver Money Flows

Denny,

Short answers, no and no.

Follow the money and watch the cycle dates. Silver is an extremely wild market, so the base formation will be bumpy.

Connected money has been aggressively long buying into weakness despite constant headlines pushing fear and doubt. This aggressive buying is illustrated by the mini flagpole in the L%WA (green line) in the chart below.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Long & Short As A % of Open Interest


The inflows into silver are already the fifth strongest since 2001 (see chart below). In other words, this is no minor push into silver by connected players. The public will once again come to realize that money does not move like this without substantial expectations.

Silver London P.M Fixed and the Commercial Traders COT Futures and Options ZScore Weighted Average of Net Long As A % of Open Interest


Regards,

Eric

Eric,

Silver:

1. Does the diffusion index have to rise above 38 to have a bottom?

2. If the DI goes higher into mid June does that mean silver has to
decline in price?

-------

Looks to me like silver has hit its bottom but needs more up and down
to complete the process. I can see some big swings in here over the
coming 4 weeks!

Thanks,Denny

Illinois on the Brink of Financial Disaster

Illinois, California, Wisconsin, New Jersey, New York, etc. are all near brink of financial disaster. Cutting spending as the economy rolls over is political suicide. This means the economic can will be kicked down the road, i.e. issuing more debt through support of QE(n), despite a growing number of voices suggesting change. The public will once again come to realize that the market will force the necessary changes, and it won’t be pretty.

States shorten duration for unemployment benefits

Yet another reason QE(n) will continue.

Some of the states that have drained their unemployment insurance funds are cutting the number of weeks that a laid-off worker can count on those benefits. Legislators are trying to limit tax increases for businesses to replenish the pool and are hoping the federal government keeps stepping in when the economy slumps.

Michigan, Missouri and Arkansas recently reduced the maximum number of weeks that the jobless can get state unemployment benefits. Florida is on the verge of doing so. Unemployment in those states ranges from 7.8 percent in Arkansas to 11.1 percent in Florida.

The benefit cuts come as legislatures deal with the damage that the recession inflicted on state unemployment insurance programs. The sharp increase in the number of people who lost their jobs drained the reservoir of money dedicated to paying out benefits.

Source: finance.yahoo.com

Major Cycle Date Approaching & Money Is Moving

As long as the public embraces flavor-of-the-day analysis as explanation for short-term price action, they will never acquire the vision to anticipate trend inflections. Trend inflections are a study of TIME and movement of money despite loud, consensus lip-flapping.

Today, I have decided to reveal the entire COT data money flow data because of the scope, strength, and clarity of the message coming from the markets. The information contained within this table (or the next few subsequent tables) have the potential to be the most important of 2011.

The composite message is parsed as follows:

• Silver (P), gold (P) and most industrial metals (IM): Impressive and decisive inflows, poetry in motion for those that analyze operations of control, reflect the market's true bullish intentions.




• Bonds (b): The concentration of bonds towards the bottom of the table with extremely low DI readings suggests the severity of the bearish setup. Watch this one close, because this will become a problem for the perpetual bond bulls in 2011-2012.

COT Money Flow Data Table:


Stay tuned for the possibly of further comments on individual markets within the table.

The Correlation Between Gold and Gold Stocks Breathes Over The Short-Term

Thanks for sharing Noah

The only opinion that matters is the message of the market. The market is bullish on gold and miners. This means I am bullish on gold and miners until that message changes.

TA’s “three taps and out” has been complete. This suggests that the breakout is already underway. While geometry suggests that the shortest distance between two points is a straight line, this truism often does not see practical application within the markets. Fear and greed, i.e. emotional states combined with leverage, create ebb and flow despite the technical breakout and clear up trend.

The correlation between gold and the gold shares also ebbs and flows. While the historical correlation between the two is strong, fear and greed will stretch it over the short-term. Smart money, possessing the nerve and discipline to act against the consensus, knows that these divergences provide excellent buying opportunities.

The following charts reveal how the correlation between gold and the gold shares breathes over time

Historical Correlation: Gold Stocks and Gold

2009:12


2010:12


2011:04


Best Regards,

Eric

Eric,
I really like your site because no matter what you maintain your bullish position, especially with respect to the miners. I think we're at a critical juncture here once again with the whole sector. I too believe in much higher prices for the metals and I still feel that the mining stocks should be much higher. Recently you did a great piece on the historic undervaluation of the stocks versus the metals themselves. Right now the mining stocks (GDX for example) are riding above a major support line going back from the peak from before 2008. The GDX broke through that level around 54 last year, ran up and hit 64, then got smashed by the shorts down to 53 in January. Now here again, we got another beat down to around 53 again and got support. We are still oversold. I did liquidate some big positions but held core positions. My mistake was getting back in too early, but I'm reloaded now and I still feel that these stocks need to ramp up in a big way. It seems way, way overdue. I like your historical analysis that we could be pushing away from shore after a 30 year consolidation! What I'd like you to do is periodically post the GDX to Gold ratio even more often, especially now as we enter into what could be a huge rally in the shares as I do believe in your "Three taps and out" thesis. Once we get this rally up to 64 in GDX again, and then through that mark as I anticipate, this is where your posting of the ratio will be very helpful as next time I will be selling into that big rally as I would like to miss out on some of these selloffs! It's unbelievable how they can beat these shares down! The manipulation is just crazy. I think that part of this bull market that will drive these shares higher is the day that some of the big ETFs like GLD and SLV start having some big issues that J.S. speaks of in his book. If that happens, it will first and foremost be wonderful but it will also possibly be a key to unlocking the miners into a new phase of their bull market. You've been a great help and I look forward to more great info. Do you think we're on the cusp of the big breakout rally at long last in the shares?
Sincerely,
Noah

Home Sellers Provide Last-Resort Loans

An increasing number of desperate buyers and sellers are reaching agreements that traditional, non-securitized lending conduits would not touch. Signs of credit strain are everywhere to be seen for those willing to look.

Sue and Douglas Reed knew no bank would give them a mortgage -- not with a bankruptcy and two foreclosures fresh in their credit history. They turned to Hilarie Walters, whose childhood home on 15 acres in Marshall, Mich., had been on the market since 2009, a year after she inherited it. Walters agreed in December to sell the property to the Reeds for $105,000. She also consented to a risky payment plan that in effect makes her the couple's mortgage lender. "They're paying me interest every month, but I'd rather have the money and be done with it," says Walters, an unemployed single mother who is using their payments to cover the mortgage on her Battle Creek (Mich.) residence. "It does make me nervous."

Source: finance.yahoo.com

Hey Gold Bugs There's Strength In Numbers

1.3 billion Chinese and 1.1 billion Indians are buying physical gold. The game of perception uses labels such as gold bugs and ‘out-of-touch morons’ (read between the lines on F-TV or similar) to create an emotional response despite the message of the market. It’s an effective game that discourages physical ownership through the human tendency/desire for group acceptance.

Emotions have nothing to do with interpretation the message of the market. Often the difference between connected and retail money is knowledge and discipline. The later lacks both.

The trend is up and there’s Chinese and Indians are providing new meaning to the old phrase strength in numbers.

Headline: China Is Now Top Gold Bug

Chinese investors are snapping up gold bars and coins, buying more than ever before in the first quarter of 2011 and overtaking Indian buyers as the world's biggest purchasers of the metal.

China's investment demand for gold more than doubled to 90.9 metric tons in the first three months of the year, outpacing India's modest rise to 85.6 tons, the World Gold Council said in its quarterly report on Thursday. China now accounts for 25% of gold investment demand, compared with India's 23%.

The report underscores the rising appetite for gold among the growing middle-class in China. Fears of the country's soaring inflation, as well as a search for new investments, is luring investors to gold, and marketing of the precious metal has also increased in recent months.

"I think people will be surprised by the strength in the Chinese demand, but we think this is a trend that is set to continue," said Eily Ong, an investment research manager at the gold council.

Source: finance.yahoo.com

Mailbox - Unlimited FDIC Insurance

Hello Eric - I always read your emails.

For your information, there is unlimited FDIC insurance on all checking and non-interest bearing accounts in US banks through December 31, 2012:

On November 9, 2010, the FDIC issued a Final Rule implementing section 343 of the Dodd-Frank Wall Street Reform and Consumer Protection Act that provides for unlimited insurance coverage of noninterest-bearing transaction accounts. Beginning December 31, 2010, through December 31, 2012, all noninterest-bearing transaction accounts are fully insured, regardless of the balance of the account, at all FDIC-insured institutions. The unlimited insurance coverage is available to all depositors, including consumers, businesses, and government entities. This unlimited insurance coverage is separate from, and in addition to, the insurance coverage provided to a depositor’s other deposit accounts held at an FDIC-insured institution.

fdic.gov

I believe that, in the summer or fall of 2010, the US authorities came to the same conclusion you did. Thus, the insurance limit for these accounts has been upped from $250,000.00 to infinity.

Never mind that the FDIC is bankrupt. The Fed will print and cover all deficiencies. What that paper money will be worth is another topic for discussion. But, at least all consumers and business will be able to continue to function when the big banks are officially or un-officially declared to be insolvent.

Regards,

Peter

Silver Will Rise To Throw Hands Again

Critical support tends to be tested as resistance.

As expected, a technical kiss of previous support as resistance is underway in the gold to silver ratio (GSR). Silver transformation from investment darling to pariah in the eyes of many traders, experts, and various flavor-of-the-day analysts has been swift and decisive. Fear not, the seeds of hyperinflation have been sown. After some technical repair (and quiet repositioning of money by strong hands) silver will rise to throw hands with them. Money flows and TIME will push retail money to the short side and setup the next advance.

Gold to Silver Ratio (GSR), Monthly Average Price:


Silver London P.M Fixed and the Silver Diffusion Index (DI2)