Zinc gains on supply concerns, dip in dollar

* China zinc market shows signs of supply tightness

* Dollar weakens against currency basket, supports metals

 

(Reuters) - Zinc prices rose on Tuesday, supported by a strike at a Peruvian mine, concerns over expected tight supplies and a slightly weaker dollar.

 

London Metal Exchange data showed zinc inventories declined by 2,050 tonnes to 691,725 tonnes on Monday, extending two months of almost daily falls. 

 

Also, workers at Peru's Antamina mine, its largest for both zinc and copper , began an indefinite strike. 

 

Supporting metals markets, the dollar dipped against a basket of currencies, making dollar-priced copper and other metals cheaper for non-U.S. buyers.

 

"The mine supply side for zinc is going to be tight next year but more recently smelter output expectations in China have become more muted. We see zinc prices averaging above $2,300 a tonne next year," Macquarie analyst Vivienne Lloyd said.

 

Three-month LME zinc closed up 1.1 percent at $2,269 a tonne. Zinc prices are up about 10 percent this year on expectations of a deficit.

 

In China, ShFE zinc stocks fell by a fifth on Friday to five-year lows of 111,761 tonnes, while ShFE cash prices have traded at a premium against third-month prices.

 

In other metals, LME copper ended 0.5 percent firmer at $6,692 a tonne. Copper prices have fallen 10 percent this year.

 

Chile's Codelco, the world's top copper producer, has lowered its term premium by 3.6 percent to $133 a tonne for 2015 term shipments of the metal to China. The premium is in step with the Chinese spot market, where the surcharge has more than halved this year.

Russia, China Sign Second Mega-Gas Deal: Beijing Becomes Largest Buyer Of Russian Gas

As we previewed on Friday, when we reported that "Russia Nears Completion Of Second "Holy Grail" Gas Deal With China", moments ago during the Asia-Pacific Economic Cooperation forum taking place this weekend in Beijing, Russia and China signed 17 documents Sunday, greenlighting a second "mega" Russian natural gas to China via the so-called "western" or "Altay" route, which as previously reported, would supply 30 billion cubic meters (bcm) of gas a year to China.

Among the documents signed between Russian President Vladimir Putin and Chinese leader Xi Jinping were the memorandum on the delivery of Russian natural gas to China via the western route, the framework agreement on gas supplies between Russia's Gazprom and China's CNPC and the memorandum of understanding between the Russian energy giant and the Chinese state-owned oil and gas corporation.

“We have reached an understanding in principle concerning the opening of the western route,” Putin said. “We have already agreed on many technical and commercial aspects of this project, laying a good basis for reaching final arrangements.”

RIA adds, citing Gazprom CEO Alexei Miller, that the documents signed by Russia and China on Sunday define the western route as a priority project for the gas cooperation between the two countries.

"First of all these documents stipulate that the "western route" is becoming a priority project for our gas cooperation," Miller said, adding that the documents provide for the export of 30 billion cubic meters of Russian gas to China annually for a 30-year period.

Miller noted that with the increase of deliveries via the western route, the total volume of Russian gas deliveries to China may exceed the current levels of export to Europe in the medium-term perspective. In other words, China has now eclipsed Europe as Russia's biggest, and most strategic natural gas client. More:

Miller, who heads Russia's state-run energy giant, told reporters that "taking into account the increase in deliveries via 'western route,' the volume of supplied [natural gas] to China could exceed European exports in the mid-term perspective."

This came after Russian and Chinese energy executives signed on Sunday a package of 17 documents, including a framework deal between Gazprom and China's energy giant CNPC to deliver gas to China via the western route pipeline.

Miller said Gazprom and CNPC were in talks on a memorandum of understanding that would see Russia bring gas to China through the western route pipeline, as well as a framework agreement between the two state-owned companies to carry out the deliveries.

The western route will connect fields in western Siberia with northwest China through the Altai Republic. Second and third sections may be added to the pipeline at a later date, bringing its capacity up to 100 billion cubic meters a year.

The facts and figures of the Altay deal are broken down in the following map courtesy of RT:

Also of note, among the business issues discussed by Putin and Xi at their fifth meeting this year was the possibility of payment in Chinese yuan, including for defense deals military, Russian presidential spokesman Dmitry Peskov was cited as saying by RIA Novosti. More from RIA:

Russia's President Vladimir Putin and China's President Xi Jinping have discussed the possibility of using the yuan in mutual transactions in different fields of cooperation, Kremlin spokesman Dmitry Peskov said Sunday.

"Much attention has been paid to the topic of mutual payments in diverse fields ... in yuans which will help to strengthen the yuan as the region's reserve currency," Peskov said commenting on the meeting held between Putin and Xi on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in Beijing.

On October 13, Russian Economic Development Minister Alexei Ulyukayev announced that Russia was considering Chinese market to partially substitute access to the financial resources of the European Union and the United States.

The European Union and the United States have imposed several rounds of economic sanctions on Russia over its alleged involvement in the Ukrainian crisis, a claim Moscow has repeatedly denied. The restrictions prohibit major Russian companies from seeking financing on western capital markets.

Meanwhile, as China and Russia keep forging ahead in a world in which the two becomes tied ever closer in a symtiotic, dollar-free relationship, this is how the US is faring at the same meeting: "China, U.S. Parry Over Preferred Trade Pacts at APEC: Little Progress Made on Separate Trade Deals at Asia-Pacific Economic Cooperation Forum."

The U.S. blocked China’s initiatives because it worried that launching FTAAP talks would impede progress on a separate trade deal, the Trans-Pacific Partnership. The ministers’ statement said that any FTAAP deal would build on “ongoing regional undertakings”—a reference to TPP and other regional trade deals.

“The Chinese got all they could expect—a reaffirmation that we all share in the vision of having a regional integrated model” for trade, said U.S. Chamber of Commerce Executive Vice President Myron Brilliant.

U.S. Secretary of State John Kerry said Saturday that negotiating the TPP “is a battle that we absolutely must win.” Ministers from the 12 TPP nations met Saturday afternoon to try to narrow differences, including disputes between the U.S. and Japan over agriculture and auto trade. On Monday, the leaders of the TPP nations are again scheduled to discuss the trade deal, although no breakthrough is expected.

The U.S. is trying to tie an ITA deal to progress on other trade deals with China, as a way to increase its leverage with Beijing. “How the ITA negotiations proceed is an important and useful data point” on China’s ability to negotiate an investment treaty with the U.S., Mr. Froman said.

Trade analysts say the U.S. also hopes to use China’s desire to have the Beijing conference produce concrete results as leverage. This is the first major international summit held in China since Xi Jinping took over as Communist Party chief in 2012, and the government wants to use the session to affirm China’s greater role in the world.

Good luck trying to "increase US leverage with Beijing" using a trade conference being held in Beijing as the venue.

In other words instead of actual trade agreements, the US merely jawboned and "shared visions."

Then again, as noted here since 2010, in a world in which one can merely "print one's way to prosperity", what is the need for actual trade? Surely, which China and Russia are expanding their commercial ties at the expense of Europe, the US can continue to pretend it is the world's only superpower and has no need for either Russia or China. After all, Mr. Chairmanwoman can always go back to work and print some more of that "world reserve currency."

What The Swiss Gold Referendum Means For Gold Demand

The referendum for the Swiss Gold Initiative is scheduled for November 30th and the propaganda war - between the Swiss National Bank (SNB) and the Swiss Parliament on one side and the Swiss People's Party (SVP) on the other - has begun and we expect it to escalate as the day draws ever nearer. Having already questioned the 'location, location, location' of Switzerland's current gold stash, and examined the initiative in great depth here, JPMorgan notes that not only might the forthcoming Swiss gold referendum stabilize gold prices at a time when Gold ETF demand continues to decline, but warns, it also appears that markets under-appreciate this event.

As JPMorgan explains,

Gold ETF flows continued to bleed losing $4bn or 6% of AUM cumulatively since the end of August.

Gold Miners ETFs, which have held up relative well up until recently also suffered over the past two weeks (Figure 7).

The downtrend in Gold ETF flows represents a headwind for gold in the face of subdued physical demand recently.

The latest data from China Gold Association, reported physical gold demand by Chinese investors of only 185 tonnes in Q3, down from 246 in Q2 and 322 in Q1.

While Chinese physical demand remains subdued...

[ZH - a point we note is very much in the eye of the newspaper holder]

Who do you choose to believe?

h/t @sobata416

 *  *  *

The forthcoming Swiss gold referendum could stabilize gold prices at a time when Gold ETF demand continues to decline.

It also appears that markets under appreciate this event.

If the referendum is passed, the Swiss National Bank (SNB) will be forced to increase reserves by around 1,500 tonnes over five years, i.e. 300 tonnes per year.

This 300 tonnes per year accounts for 7.5% of annual gold demand of 4,000 tonnes per year.

*  *  *

As Grant Williams noted previously, with the establishment being unable to actively campaign AGAINST the Initiative, all has been quiet for many months; but with the dawning awareness that this little campaign might actually grow some legs, a few members of that establishment have been getting a little antsy...

(Centralbanking.com): ...Now, with less than two months until the vote, the central bank is intensifying its communication. It opened a “dossier” on its website yesterday where it will post materials outlining why it “reject[s] the initiative”.

“Monetary policy transactions directly change our balance sheet. Restrictions on the composition of the balance sheet therefore restrict our monetary policy options,” [SNB Vice-chairman Jean-Pierre] Danthine explained.

“A telling example is our decision to implement the exchange rate floor vis-à-vis the euro... with the initiative’s legal limitation in place, we would have been forced during our defence of the minimum exchange rate not only to buy euros but also to buy gold in large quantities.

 “Our defence of the minimum exchange rate would thus have involved huge costs, which would almost certainly have caused foreign exchange markets to doubt our resolve to enforce the rate by all means.”

Sometimes I think these people are completely delusional.

So, let me get this straight: gold is a relic which restricts your ability to do such vital things as... oh, I dunno, promise to print unlimited amounts of your currency in order to peg it to another, failing currency and thereby debase it by 9% in 15 minutes? Or it might mean the market doesn’t have complete faith that you might be completely relied upon to do really smart things like that?

Disaster!

Somebody. Please? Make it stop.

The Swiss establishment has been reliant upon the public’s ignorance in these matters, but now they are up against a formidable opponent in Egon von Greyerz. Not only that, but they can clearly see that, as elsewhere around the world, the public is fast becoming disenchanted with the status quo; and that is potentially very dangerous for these people.

What is important to understand here is that if the initiative passes it will be part of the Swiss constitution IMMEDIATELY — not in two years, as many blogs and websites are suggesting. This means that the government and parliament cannot touch it. Only another referendum can change it. This is proper democracy for you.

The closer we get to the vote on November 30, the bigger this story is going to become, and the bigger it becomes, the higher the chance that the yes vote wins.

Should that happen, it will undoubtedly set off alarm bells throughout the gold market, as yet more physical gold will need to be repatriated and another sizeable, price-insensitive buyer will enter the marketplace.

China Aims For Official Gold Reserves At 8500 Tonnes

China should accumulate 8,500 tonnes in official gold reserves, more than the US, according to Song Xin, President of the China Gold Association, General Manager of the China National Gold Group Corporation and Party Secretary. He wrote this in an opinion editorial published on Sina Finance July 30, 2014. Gold is money par excellence in all circumstances and will help support the renminbi to become an international currency as “gold forms the very material basis for modern fiat currencies”, Song notes. In the short term the Chinese will not back the renminbi with gold (establish a fixed renminbi price for gold), but

The previous President of the China Gold Association (CGA), Sun Zhaoxue, was also the General Manager of the China National Gold Group Corporation, these jobs are apparently connected. Song took over from Sun as CGA President and Manager of China National Gold in February 2014. Remarkably, when Sun was in office he wrote equally candid articles (in Chinese) about the importance of gold for China’s economy. Sun’s most renowned article is titled “Building A Strong Economic And Financial Security Barrier For China”, published on August 1, 2012, in Qiushi magazine, the main academic journal of the Chinese Communist Party’s Central Committee (click here for a translated version). From Sun:

The state will need to elevate gold to an equal strategic resource as oil.

Currently, there are more and more people recognizing that the ‘gold is useless’ story contains too many lies. Gold now suffers from a ‘smokescreen’ designed by the US, which stores 74% of global official gold reserves, to put down other currencies and maintain the US Dollar hegemony. Going to the source, the rise of the US dollar and British pound, and later the euro currency, from a single country currency to a global or regional currency was supported by their huge gold reserves.

Individual investment demand is an important component of China’s gold reserve system, we should encourage individual investment demand for gold. Practice shows that gold possession by citizens is an effective supplement to national reserves and is very important to national financial security.

 Song’s vision is in line with these statements which confirms the strategy of the Communist Party of China to aggressively accumulate official gold reserves and to stimulate individual gold investment in order to strengthen the Chinese economy and protect it from internal and external shocks.

Note, Song is the President of the CGA that for political reasons largely understates Chinese gold demand figures in order to conceal China’s true hunger. Though clearly expressing his point of view in the next article, he could not disclose deviant data regarding CGA demand numbers. Actual Chinese wholesale gold demand in 2013 was 2197 tonnes, as is confirmed numerous times.

Translated by LK, gold investor from Hong Kong.

Gold Will Support Renminbi As It Moves To Join World

By Song Xin, General Manager of the China National Gold Group Corporation, Party Secretary and President of the China Gold Association.

2014-05-06 edition 6

For China, the strategic mission of gold lies in the support of RMB internationalization, and so let China become a world economic power and make sure that the “China Dream” is realized. 

Gold is the only thing carrying the dual mantels of a commodity as well as a monetary substance. It’s both a very ‘honest’ asset and forms the very material basis for modern fiat currencies. Historically, gold has played an irreplaceable role in responses to financial crises and wars as it comes to protecting a country’s economic security. Because of this, gold carries with it an honored and divine-given strategic mission in the ascend of the Chinese people and the pursuit of the “China Dream”.

The Important Function Of Gold

Gold is the world’s only monetary asset that has no counter party risk, and is the only cross-nation, cross-language, cross-ethnicity, cross-religion and cross-culture globally recognized monetary asset. Gold is the last protection for a country’s economic security; it safeguards a nations sovereignty in times of crises. A textbook example happened in 1997 during the Asian financial crisis. To work through Korea’s severe debt problem, the IMF’s condition for a rescue package was to sell large enterprises. In the end, the Korean government had no choice but to call on its people to donate gold to settle the foreign debt, and it was only through this act that the chaebols at the center of the country’s economy and independence survived.

From our country’s point of view, gold has played an irreplaceable role in the development of our economic society. In the wars during the Revolution [1921-1937] gold provided strong support in the economic development of the liberated zones and achievements in reforms; in the three years of natural disasters, the nation used gold reserves to obtain information on living and production conditions and took actions to alleviate hardship. At the start of the great Reforms (1980’s), gold boosted our foreign reserve levels and helped the promising private sector and it advanced society. After 1989, we suffered economic sanctions from Western countries for a while and the PBOC used our gold reserves to enter into swap agreements to obtain needed foreign currencies. Right now, gold is still serving its functions to protect against economic risks; contributing in ever more important ways to our financial security. For the moment, although in general the international scene is peaceful, conflicts can develop in certain regions. If there should be a blockade or regional war, there could be only one method of payment left: gold.

The strategic Mission Of Gold

Since the 18th People Congress, general secretary Xi Jinping brought up the goal to revive our nation, to realize the “Chinese dream “. One important part of this dream is to have a strong economy. Though China is already the world’s second largest economy, there is still a long way to go to become an economic powerhouse. The most critical part to this is that we don’t have enough say in matters such as international finance and matters regarding the monetary system, the most obvious of which is the fact that the RMB hasn’t fully internationalized.

Gold is a monetary asset that transcends national sovereignty, is very powerful to settle obligations when everything else fails, hence it’s exactly the basis of a currency moving up in the international arena. When the British Pound and the USD became international currencies, their gold reserve as a share of total world gold reserves was 50% and 60% respectively; when the Euro was introduced, the combined gold reserves of the member countries was more than 10,000 tonnes, more than the US had. If the RMB wants to achieve international status, it must have popular acceptance and a stable value. To this end, other than having assurance from the issuing nation, it is very important to have enough gold as the foundation, raising the ‘gold content’ of the RMB. Therefore, to China, the meaning and mission of gold is to support the RMB to become an internationally accepted currency and make China an economic powerhouse.

In this view, our gold reserves are very low, both in terms of a nominal level as well as a percentage of official reserves. From the nominal level, the total official reserves of gold in the world stands at 30,000 tonnes, of which the USA has been occupying the first place at 8133.5 tonnes – 26 % of the world total. Germany has 3387.1 tonnes and Italy and France both hold more than 2,400 tonnes. Ours is 1054 tonnes at the sixths place – only 3.4% of the world total. As a percentage of a country’s total reserves, US gold reserves amount to 71.7 % and European nations have kept their levels between 40% to 70%. The average of the world is about 10%, but for us it’s only 1%.

That is why, in order for gold to fulfill its destined mission, we must raise our gold holdings a great deal, and do so with a solid plan. Step one should take us to the 4,000 tonnes mark, more than Germany and become number two in the world, next, we should increase step by step towards 8,500 tonnes, more than the US.

All-round, Multi-channel Increases In Gold Levels. Fulfill Our Part In Enabling Gold To Accomplish Its Strategic Mission.

How to achieve growth in our gold reserve? Apart from the PBOC directly buying in the open market, we should use also use the following strategies:

1. Relax gold import controls, grant large scale gold enterprises permits to import gold. In 2013, our gold consumption reached 1176.4 tonnes. Compared to the 426 tonnes of local production, there is a shortage of 750 tonnes. To meet this gap, we presently let the 12 commercial banks with gold-trading rights import standard gold ingots. But these banks lack the ability to refine and assay gold, they can only import standardized gold, missing the large amount of non-standardized gold and wasting the international resources that we could reach. By relaxing import controls, the large-scale gold companies can then obtain this gold and use their own technology to refine it into standard quality gold. This can help meet demand in the market, or turn gold into official reserves as required.

2. Establish a gold reserve building fund. This can be seeded using capital from the State Treasury, and open it for participation by private-sector capital in the public. It should be controlled by the State and used to target diverse off-shore gold resources, acquire mines and raw gold and in so doing, extend our reach beyond our borders and add a layer of opaque reserves to otherwise standard reserve numbers.

3. Establish a Gold bank. We need to establish our gold bank as soon as possible, and enable it to break the barrier between the commodity and monetary world. It can further help us acquire reserves and give us more say and control in the gold market. It may be guided under the PBOC and led by the China Gold Association, involving leading gold industry companies and commercial banks, and it’s business would include: gold pricing (fix), gold financing and leasing, gold-guaranteed payments, gold saving accounts, gold lending, gold production chain financing and issuance and trading of paper gold and other gold investments. This gold bank can then naturally use market-oriented methods to change commodity gold into monetary gold reserves, thus help us increase our strategic gold reserves.

Koos Jansen via BullionStar.com,

Speculators Have Never Been More Long The Dollar

After a brief hiatus the previous week, speculators have piled back into the most-over-crowded trade in the world - Long The US Dollar. As Goldman Sachs notes, overall USD speculative net long positioning increased $2.0bn to $45.7bn - a new record high.

However, as JPMorgan reports, there is some divergences in the types of funds who are long or long-er...

We have used two indicators in the past to gauge investor positioning in currencies: 1) spec positions based on CFTC/IMM data as shown above1 and 2) the beta of currency hedge fund returns to daily currency changes as shown in Chart A18 in the Appendix in the case of the US dollar. The latter is calculated as the rolling 21-day beta of currency hedge fund daily returns to daily changes of the JPM Dollar tradable index. We use the Barclay index to proxy currency hedge fund returns.

Chart A18 shows some recent divergence between the two suggesting that currency hedge fund USD longs are not as extreme as those of CFTC reporting spec investors. This broader universe of spec investors reported by the CFTC includes, beyond currency hedge funds, macro hedge funds and asset managers. In other words, macro hedge funds and asset managers appear to be more overweight the USD than currency hedge funds. With the caveat that the currency hedge fund betas are volatile and are based on a small sample of currency hedge funds, Chart A18 suggests that the message we get from CFTC positions that USD longs are very extreme should be somewhat diluted.

*  *  *

King Dollar, however, is not all sunshine and rainbows, as SocGen's Michala Marcussen warns, beware the strong dollar paradox...

Recent currency movements have triggered nostalgia of the pre-crisis world when dollar strength was synonymous with a prosperous global economy. Hope today is that a strong dollar will cap US inflation, delay Fed tightening and boost exports to the US. To make an impact on US inflation significant enough to slow the Fed, we estimate, however, that EUR/USD would drop to 1.10, USD/JPY to 120 and USD/CNY to 6.50 to significantly shift Fed expectations. To our minds, moreover, such a scenario would only materialise if the growth gap between the US and the other major economies were to widen further.

Should recent dollar appreciation, moreover, breed complacency amongst policymakers elsewhere, this risk scenario could become a very painful reality. The paradox is thus that a strong dollar tantrum could be a more worrying scenario than a Fed tightening tantrum.

...

Several EM economies set to growth at a slower pace than the US: While the consensus growth outlook for the US has improved further in recent months, the opposite has been true for several other major economies, including the euro area, Japan and China. Moreover, our own forecasts remain generally below consensus with the exception of the US, where we are above. This view underpins our expectation of further dollar appreciation. Today, moreover, several EM economies are growing at a slower pace than the US. This is a notable difference from the pre-crisis era and has several implications. First, this lower global growth configuration is one reason why we believe that elasticities linking currency depreciation to growth may now be lower. The correlation between commodity prices and the dollar has also shifted. Finally, we note that capital flows are now moving in a very different pattern.

Dollar and commodities: The link between the dollar and commodity prices has seen several shifts over time. Already prior to the latest moves in currency markets, commodity prices were trending lower in parallel with Chinese growth forecasts. More recently, it seems that dollar depreciation may have been an additional factor driving prices lower. For commodity importers, this is helpful; for exporters, this marks yet a headwind.

Fed tightening may be a better scenario than a very strong dollar: Pre-crisis, in a simplified summary, the strong dollar can be described as having been driven by a global savings glut (mainly from the official sector in emerging economies) seeking a home in US Treasuries and, at the same time, US investors seeking risky capital abroad to profit from strong EM growth. It is also worth recalling that QE1 drove the dollar stronger and supported risky US assets as Treasuries rallied. QE2, on the other hand, saw dollar depreciation as US investors sought return in higher yielding asset abroad, and notably in emerging economies. As discussed above, we believe that a significant appreciation of the dollar relative to our baseline would be consistent with much weaker growth elsewhere.

In such a scenario, dollar would equate to further capital outflows, placing further pressure on already vulnerable economies. Indeed, a “dollar tantrum” scenario could well prove more painful than a “Fed tightening tantrum”, assuming the later comes with better growth in the rest of the world.

*  *  *

The Long USD Trade...

If you are a trend follower, the trend is your friend.

If you are a contrarian, you might want to go short the USD ...

One Chart, One Question

Just for fun, let's look at one chart and ask one question: is this stock continuing its downtrend or is it in the process of reversing? To avoid any bias, I've removed any clues to its identity.

Glancing at three common indicators, MACD, stochastic and RSI (relative strength), we note they have all turned up or are starting to turn up.

We also notice that what looks like a key line of support/resistance was broken sharply to the downside, and price has reverted equally sharply back up to that line.

So far, this could be interpreted as a bounce back to resistance, a move that will be followed by a resumption of the downtrend, or it could be interpreted as a classic Bear Trap, a sharp move below support that sucks in all the Bears who are anticipating a further collapse in price.

Which interpretation is most likely to be correct? It's too early to say, but the possibility that price has traced out a falling wedge suggests that the Bear Trap/reversal scenario might well be in play, as falling wedges are classic reversal patterns.

Now that we've conducted an unbiased overview, I can reveal the mystery stock: it's actually not a stock, it's a commodity: bat guano, a highly valued natural product.

Like many of the commodities, bat guano has been in a free-fall, and the majority of financial pundits have been calling for further declines. Even bat guano Bulls have reluctantly conceded the inevitability of further large declines.

Very few bat guano analysts are calling for a reversal here.

The sentiment, in other words, is uniformly negative--everybody's on one side the boat in the bat guano trade.

Add the overwhelmingly negative sentiment to the falling wedge/Bear-Trap spike down/recovery, and it seems the majority (Bears) might be surprised by a major reversal here.

OK, the chart isn't actually bat guano. That was another way of maintaining an unbiased view. As far as I know, there is no bat guano index.

So what's this chart of? Everybody's favorite emotional trade: Gold.

Charles Hugh-Smith of OfTwoMinds blog,

About That "S&P 500 Will Be 2,150 By Christmas" Call...

So this megaphone playing out again is just plain crazy.

Back on October 13, when the stock market was in free-fall, I prepared this chart showing a potential megaphone pattern. With major indicators (such as the MACD and stochastics) looking decidedly bearish, the idea that a rally would soon return the S&P 500 to the 2,030 area seemed crazy:
 

Three weeks later--ding-ding, we have a winner! The SPX has touched the top line of the megaphone drawn back in mid-October.

Now here's another crazy idea: the megaphone pattern continues to play out, and the SPX reverses here and crashes 200 points down to the 1,800 level. I marked up this chart last weekend (chart is dated 10-31-14).

At this moment, this megaphone projection looks as crazy as the projection for a massive rally back to 2,030 did in mid-October. Right now, many pundits are projecting SPX 2,150 by Christmas as a done deal. Heck, why not say 2,300? Just extend the rally line a few more weeks.

The euphoria is palpable: sentiment is pegged to the top of the charts, expectations of central bank easing are pegged to the top of the charts, profit expectations are pegged to the top of the charts, complacency is pegged to the top of the charts, the expectations of further declines in the yen are pegged to the top of the charts, and so on.
 

There is literally nothing standing in the Bulls' path at this point--everything is going the Bulls' way.Just like it was going all the Bears' way in mid-October.

That spot of bother is now being written off as Ebola-inspired nonsense, never to be repeated. Perhaps.
 

But there is still a substantial list of things that could disrupt profits, capital flows, volatility, sentiment and central bank omnipotence.
 

Back on October 13, I discussed the notion that the Fed (and its central bank cronies) would not let the stock market crash before an election: Will the Fed Let the Stock Market Crash Before an Election?
 

Voila. That script played out rather well.
 

Yes, the Bank of Japan had to step in and do the heavy lifting, and Mario Draghi had to repeat his now-tiresome stand-up routine of the ECB will do whatever it takes to blah, blah, blah, save central banking from itself, restore the imploding remnants of European Imperial glory, or whatever. But the idea that central banks coordinate their stick-saves and we're gonna-save-the-world-yet-again media spew is not exactly new.
 

So this megaphone playing out again is just plain crazy. No way can the market retrace its well-deserved rocket-launch to 2,030 and change. That is impossible.
 

Glad we got that settled: the pundits all agree: don't just buy the dip, buy the new all-time high and everything in between.
 

Note: this stew of conjecture and sarcasm is not a recommendation to do anything but laugh heartily at the insanity of "rational" markets.

Sourced from Charles Hugh-Smith of OfTwoMinds blog,