2:14 pm EDT:  30 Year Auction showed weak demand and T-Bonds temporarily broke support before bouncing back into the prior range.  They continue to refuse to die, which is ominous for equities.  We may not have a confirming move until Monday’s Retail Sales.  EuroYen smallest range since Oct 20, gold down day for the first in a long time, and the US Dollar closing very strong.  Treas. Budget did not move the markets, so with all the news in, the ES will probably revert to VWAP by close and call it a day.

11:15 am EDT:  We did not have the 1101.00 level pegged as resistance, but the ES died their early, above our sell zone, without being able to reach the daily R1s at 1102.50.  The strong US Dollar is likely weighing on equities for the moment.  With 30 Yr T-Bonds so close to a potential breakout, the 1:00 pm auction could be a market mover.  Any shorts should look to protect profits as the ES has traded down to the first potential reversal zone bounded by yesterday’s low in confluence with the daily S1′s from 1090.50 to 1091.25.  Next short target is the daily S2′s at 1085.00.

by: Damien Hoffman of Wall St. Cheat Sheet

Exclusive Interview: Jim Rogers on Gold, Bubbles, Commodites, Equities, and Roubini

Jim Rogers 

Jim Rogers is one of the most respected investors in the world. I had a chance to chat with him the other morning to get more details about some of his recent comments in the media …

Damien Hoffman: Jim, you were in the media a few times last week and I want to follow up on a few points you made. You said on Bloomberg that Nouriel Roubini did not do his homework regarding the asset bubbles about which he is now warning. Can you explain what homework he did not do?

Jim: All of it. How can you talk about a bubble when assets such as silver are 70% below their all-time high? Same for coffee, sugar, cotton, natural gas, and many more. I have a problem talking about a bubble when assets are this depressed from their all-time highs.

A bubble is when assets are screaming to new highs everyday, everyone is talking about them, and everyone owns them. Right now, virtually no one owns commodities. So for Mr. Roubini to talk about a bubble in commodities defies comprehension. It proves he does not understand markets.

I am flabbergasted at Mr. Roubini’s comment about bubbles because there is not a single market in the world making all-time highs except Gold, US Government Bonds, Cocoa, and the Sri Lankan stock market. That’s hardly reason to call for a bubble. So, I am most perplexed about this alleged bubble which is out there.

If an asset rises 100% in one year, that’s a great year, but not necessarily a bubble. Look at oil. It’s up huge off the bottom but nowhere near it’s old highs. Look at Citigroup. The stock is up 3 or so times off the bottom …

Damien: … and I doubt long term shareholders feel like they are in a bubble.

Jim: Exactly. And since Mr. Roubini thought oil would stay below $40 a barrel for all of 2009, I would love for him to tell me and the rest of the world exactly where are all the oil supplies because the International Energy Agency (IEA) — which has the best global data set on energy supplies — has no idea where is the oil. Mr. Roubini should tell us where this price suppressing oil supply is hidden. All the oil possessing countries in the world have declining reserves. All the oil companies have declining reserves. So Mr. Roubini must know something the rest of us don’t.

Damien: On another note, Gold has been reaching new all-time highs, although not inflation adjusted. You said Gold may reach $2,000 an ounce over the next decade. Can you explain what variables will push Gold to $2,000?

Jim: First, I hope you will keep Mr. Roubini’s statement where he said Gold going to $2,000 an ounce by 2019 is “utter nonsense.” I think you’re going to get a chance to call him before 2019 to ask him what he thinks of Gold at $2,000 and why he thought it was “utter nonsense.”

Regarding variables, it’s very clear there is huge suspicion about paper money around the world. This suspicion is gathering steam. Governments are printing huge amounts of money. This has always led to higher prices. Maybe I am wrong and it’s different this time. But I doubt it.

Additionally, no new large gold mines have been opened in decades. Some of those mines are over 100-years old. They are all depleting. On the other hand, central banks have huge Gold reserves above ground — and they are less interested in selling than in the past.

If you adjust Gold for inflation and go back to it’s former all-time high in 1980, Gold should be over $2,000 an ounce right now if you want to say it’s reaching new inflation adjusted all-time highs. That does not mean Gold has to get back to a true all-time high. Nothing has to. However, I suspect that given all the money printing in the world, we will see much higher prices for hard assets.

Despite Gold’s potential, I think I will make more money in other commodities such as silver, cotton, or coffee — all of which are terribly depressed.

Damien: Speaking of other assets, as an outsider living abroad, what is your opinion on US Equities?

Jim: This is one of the few times in my life I have not had shorts anywhere in the world. I have also not had a lot of longs in the stock market because I’ve chosen longs in commodities and currencies. I have kept away from shorts because there is a gigantic amount of money being printed and it has to go somewhere. I thought some of it would end up in the stock market, and it has.

How much higher can the equity markets go? I don’t know. There are a lot of problems in the economy, but I don’t know when those problems will cause a downdraft in the stock market. All we’ve done is paper over the problem, so I expect we’ll have to deal with those issues in the future. Printing and spending money we don’t have simply prolongs the problems and makes them worse in the long run.

If the world economy improves, commodities will lead the way due to demand and shortages. If the world economy does not get better, commodities are still a great place to be because governments are printing so much money. And, if the world economy doesn’t get better, they will print even more money!

Damien: Jim, thank you for taking the time to share your outlook and opinions. I greatly appreciate it.

Jim: You are very welcome. Your site is very impressive. I look forward to staying in touch.

The Precise Take – ES awakes from news siesta

Leaders Analysis:  30 Year T-Bonds pushed against the upper end of the downward sloping trend channel yesterday, but were unable to push through.  We would still take a break of this resistance as a hindrance to the equities rally, but it has not yet happened.  Conversely, a fall through support should lift equities.  The EuroYen has been in an unusually tight range, and its breakout will likely happen in concert with T-Bonds.  Gold continues to edge higher, and the US Dollar is having its strongest day this month.  All in all, slightly equities bearish, but we will watch closely for signs of any reversal.

Trading Today:  We prefer to be early sellers in the range that includes yesterday’s settlement (1096.25), the daily pivots, closing VWAP and weekly R2 (1097.50), but we will allow a break above the overnight high of 1098.25 by one point to allow for a possible bull trap.  Above 1099.00, we don’t wish to be…

Continue reading here.

Yesterday, the Pragmatic Capitalist (ht ZH) questioned who the mysterious large buyer of eMini S&P 500 futures (ES) was, when there has not been a corresponding large buyer of SPY ETF shares over the same short periods.  We decided this warranted a further investigation to assess, in the larger context, whether it is SPY or the ES that has historically had the greatest impact on the S&P 500 cash index, and the results were surprising. 

Methodology and Notes:  After normalizing the volume for both the ES and SPY over one minute periods going back to June, 2001 (when suitable data begins),  the relative difference in volume was multiplied by the change in one minute price of the Cash S&P 500, with a running total kept for the ES and SPY (similar to Effective Volume and Larry Williams A/D calculation).  The first minute of each trading day was not used so as to eliminate the effect of opening gaps.  Only SPY trading hours were used for the ES (9:30 am to 4:00 pm EDT).  The gap opening phenomenon associated with the ES futures is important, but a subject for another post.  A further caveat–S&P 500 pit futures exceeded the ES futures in total dollar amount traded until a few years ago and were more significant in influencing the cash S&P 500; however, we don’t have minute volume data for it, and it was not considered.  This preliminary study does not attempt to weigh the effects of the actual stocks that comprise the S&P 500 and implicitly assumes it is possible to lead the cash S&P with ES futures and/or SPY. 

Relative effect of ES and SPY volume on Cash S&P 500

The weekly chart, above, demonstrates that SPY volume (scaled left) has been basically on permabid since the beginning of 2002, with the ES only aiding the bulls (at least during the day session that we are measuring) from mid-2005.  The ES was showing chinks in the rally’s armor in Q4 2007 and led nearly the entire bear leg, with SPY relenting and sharing the lead down only during February 2009.  It may be worth remembering this when we get another down leg. 

In the daily chart, we’ve highlighted some interesting inflection points.  After the ES led most of the early rally from the March 2009 low, it led the June correction, after which SPY took the reins into the end of August.  Curiously, since then it’s been nearly flat, while the ES has led most of the down ward legs.  This is due to the fact that SPY’s upward and downward contributions have been netting more intraday, which suggests that either (1) the bullish firepower has been temporarily directed to the ES (though the fact that the ES’ net contribution is trending down is ominous), or (2) that there is institutional selling in SPY that is counteracting the upside firepower. 

Fortunately, there may be some trading insight to be gained here.  In future posts (free registration), we will attempt to determine if interim bottoms and tops in the S&P 500 can be anticipated and confirmed by these measures and their derivatives, especially when taking into consideration divergences between the two and by delving intraday.  Until then, it looks like SPY has picked up the slack today where the ES left off, so we should be safe until tomorrow.