WTI Tumbles To 29-Month Lows After Saudi Price Cut

After initially jerking higher after Saudi Arabia released its new 'lower-prices-for-the-US' strategy, it appears the market began to realize that in fact - as we warned - Saudi Arabia may be willing to accept prices "lower for longer." WTI futures are trading below $78.50 - the lowest since June 2012 (and its dragging Trannies lower today)...

As Bloomberg reports, confirming our note over the weekend,

Saudi Arabia, the world’s biggest oil exporter, is telling the market it won’t cut output to lift crude back to $100 a barrel and that prices must fall further before it does so, according to consultant FACTS Global Energy.

Swelling supplies from non-OPEC producers drove Brent crude into a bear market on Oct. 8 amid waning demand from China, the world’s second-largest importer. The Organization of Petroleum Exporting Countries meets Nov. 27 to consider changing its production target in the face of the highest U.S. crude output in almost 30 years.

“Production of shale oil in the U.S. will not be hit as hard as the Saudis think” by the price decline, FGE Chairman Fereidun Fesharaki said at a conference today in Doha, Qatar. Producers in the U.S. “can withstand a lot of pressure” by reining in their operating costs before they curb investment in new wells and production, he said.

CHART: Silver price weakness won't last

Silver futures managed to eke out modest gains on Monday after a more than 6% tumble last week to lows last seen early in 2010.

At around $16.10 an ounce, silver is down 17% this year and nowhere near the contract high of just over $48 an ounce in April 2011 (or the Hunt-induced spike to $48.70 in 1979).

Capital Economics is not alone among analysts expressing surprise at the weakness in the silver price this year "given that industrial metals prices have been more resilient and industry accounts for about 60% of global silver usage."

At around 73 the gold/silver price ratio is now close to levels last seen at the height of the global financial crisis and the independent researcher expects the ratio to be trimmed to a more normal 60.

Capital Economics predicts a rise in the silver price to $20 an ounce by end-2015 and $23 by end-2016 and "with the risks on the upside."

Japanese Candlestick Charting

Candlesticks is a Japanese trading technique invented in the 18th century by rice traders.Today this technique is called candlestick charting and is widely used when drawing stock charts. Candlestick charts use the same price data as bar charts (open, high, low, close). However, candlestick charts are drawn in a much more visually identifiable way typically resembling a candle with wicks on both ends. The high and low are described as shadows and plotted as a single line. ABOUT PATTERNS Candlesticks form interesting patterns which give excellent clues above market trend and direction. Patterns are independent of time frame and can even clubbed! I have listed my favourites patterns here. These are reliable and the reliability increases dramatically if the previous move is strong. BULLISH PATTERNS: Morning Star: Occurs after a sustained downtrend. The 2nd day gaps lower, but trades in a small range. The gapdown indicates panic but bulls step in (buy on panic declines) thus limiting the downside. The bullishness of this indecision is confirmed by the higher close of the 3rd day. Bullish Tristar: Occurs after a sustained downtrend. This formation is rare, so always be suspect of the data. This pattern is not reliable for stocks with low volume. The huge amount of indecision created by these three dojis must not be ignored by traders. This level of indecision strongly suggests that the trend is about to change. Bullish Doji: The downtrend is in full force with a strong 1st day. All confidence built up by the bears from the 1st day is destroyed when the 2nd day's gap down closes near it's open. Short covering will quickly appear if the next day opens higher. Bullish breakaway: The down trend is accelerated by a gap down. The next few days trend down, however start to run out of steam. The last day of the formation shows a breakout and close above the previous 3 days, however the gap created on the 1st day remains unfilled. Since the gap is not filled and the trend is obviously deteriorating, this implies the reversal signal. Hammer: The long tail and small real body at the top of the trading range indicates strong buying by bulls (buy on panic declines). Bears wonder if this is the end of the downtrend and take measures to cover shorts. Bullish Engulfing: Gapdown opening but close above previous days highs. This damages the spirits of the shorts and brings into question the bear trend which prompts additional buying in the coming days. Bullish Low: Getting two days with equal closes should alert the shorts that an important support level may have been found. Higher prices may be ahead in the days to come. A higher close the next day would serve as confirmation of the reversal. Bullish Tails: Alerts to possible bottoming out. Even though markets are making lower highs and lower lows, buying at lower levels kicks in so markets close towards days highs. 3 Inside Up: Inside day represents volatility compression. Break of 2 day swing high happens on 3rd day which confirms trend reversal. 3 Outside Up: utside day represents great volatility as bulls and bears get active. Break of days high on 3rd day confirms trend reversal. Bullish Side-by-Side: The last 2 days price action shows that markets are holding above their previous lows (support). The uptrend remains intact as long as the support holds (stoploss). Bullish Continuation: Markets take a breather before continuing it's uptrend. Notice that a new low is not seen during the 4 remaining days of this formation. This gives little confidence to the bears, making way for bulls. BEARISH PATTERNS: Evening Star: Occurs after a sustained uptrend. The 2nd day gaps higher, but trades in a small range. The gapup indicates extreme greed but bears step in (sell when others are greedy) thus limiting the upside. The bearishness of this indecision is confirmed by the lower close of the 3rd day. Bearish Tristar: Occurs after a sustained downtrend. This formation is rare, so always be suspect of the data. This pattern is not reliable for stocks with low volume. The huge amount of indecision created by these three dojis must not be ignored by traders. This level of indecision strongly suggests that the trend is about to change. Bearish Doji Star: The uptrend is in full force with a strong 1st day. All confidence built up by the bulls from the 1st day is destroyed when the 2nd day's gap up closes near its open. Profit takers will quickly appear if the next day opens lower. Bearish Breakaway: The up trend is accelerated by a gap up. The next few days trend up, however start to run out of steam. The last day of the formation shows a breakdown and close below the previous 3 days, however the gap created on the 1st day remains unfilled. Since the gap is not filled and the trend is obviously deteriorating, this implies the reversal signal. Inverted hammer: The long upper shadow and small real body at the bottom of the trading range indicates strong selling by bears. Bulls wonder if this is the end of the uptrend and take measures to protect their gains. Bearish 2 Crows: The gap created on the 2nd day gets filled by the 3rd day. This quick pull back does not bode well for the bulls. This price action indicates a short term top. Bearish Engulfing: Gap up opening but close below previous days low. This damages the spirits of the longs and brings into question the bull trend which prompts additional selling in the coming days. Bearish Tails: Alerts to possible topping out. Even though markets are making higher highs and higher lows, selling at higher levels kicks in so markets close towards days low. 3 Inside Down: Inside day represents volatility compression. Break of 2 day swing low happens on 3rd day which confirms trend reversal. 3 Outside Down: Outside day represents great volatility as bulls and bears get active. Break of days low on 3rd day confirms trend reversal. Bearish Side-by-Side: The last 2 days price action shows that markets are trading below their previous highs (resistance). The downtrend remains intact as long as the resistance holds (stoploss) Bearish Continuation: Markets take a breather before continuing it's downtrend. Notice that a new high is not seen during the 4 remaining days of this formation. This gives little confidence to the bulls, making way for the short sellers.

Freeport Indonesia union cancels planned one-month strike

Workers at Freeport-McMoRan Inc's Indonesian copper mine have cancelled a planned one-month strike due to start next week, a union official said on Friday, after reaching an agreement with the company's management following two days of talks.

Three Freeport unions representing almost 11,000 workers had agreed to take strike action from Nov.6 until Dec. 6, demanding changes to the local management following the death of four workers in a Sept. 27 accident.

"Strike cancelled," a union spokesman Juli Parorrongan told Reuters.

"Through intensive, informative and constructive dialogue, we successfully reached a win-win solution for everyone," senior union official Sudiro said in a statement. "Our goal is to create a safe and productive work place at Freeport Indonesia for all workers."

Freeport Indonesia, which employs around 24,000 workers, did not immediately respond to a request for comment.

Chart Of The Day: US Decouples From The Rest Of The World... And From The US Itself

The global economy is like a jetliner that needs all of its engines operational to take off and steer clear of clouds and storms. Unfortunately, as Nouriel Roubini tells The Guardian, only one of its four engines is functioning properly: the Anglosphere (the United States and its close cousin, the United Kingdom). AsRoubini continues, the question is whether and for how long the global economy can remain aloft on a single engine. Weakness in the rest of the world implies a stronger dollar, which will invariably weaken US growth. The deeper the slowdown in other countries and the higher the dollar rises, the less the US will be able to decouple from the funk everywhere else, even if domestic demand seems robust.But it's not just the rest of the world that is decoupling from US growth... as the following uncomfortable chart shows, so is a crucial pillar of monetary policy transmission, consumer wealth perception, and economic stability - the US housing market itself.

The decoupling... globally (China, Europe, and Japan all seeing GDP estinmates slashed)

For the moment, at least, Barclays notes it appears that the momentum of the U.S. and the rest of the world will continue to move in different directions.

 The end of QE could create risks for credit, but the divergence in growth suggests that those risks are likely to be experienced more keenly outside of the U.S.

But as Roubini concludes, serious challenges lie ahead,

Private and public debts in advanced economies are still high and rising – and are potentially unsustainable, especially in the eurozone and Japan. Rising inequality is redistributing income to those with a high propensity to save (the rich and corporations), and is exacerbated by capital-intensive, labor-saving technological innovation.

This combination of high debt and rising inequality may be the source of the secular stagnation that is making structural reforms more politically difficult to implement.If anything, the rise of nationalistic, populist, and nativist parties in Europe, North America, and Asia is leading to a backlash against free trade and labour migration, which could further weaken global growth.

Rather than boosting credit to the real economy, unconventional monetary policies have mostly lifted the wealth of the very rich – the main beneficiaries of asset reflation. But now reflation may be creating asset-price bubbles, and the hope that macro-prudential policies will prevent them from bursting is so far just that – a leap of faith.

Fortunately, rising geopolitical risks – a Middle East on fire, the Russia-Ukraine conflict, Hong Kong’s turmoil, and China’s territorial disputes with its neighbors – together with geo-economic threats from, say, Ebola and global climate change, have not yet led to financial contagion. Nonetheless, they are slowing down capital spending and consumption, given the option value of waiting during uncertain times.

So the global economy is flying on a single engine, the pilots must navigate menacing storm clouds, and fights are breaking out among the passengers. If only there were emergency crews on the ground.

*  *  *

Which leaves us with The Chart of the Day...

But now the decoupling from reality is happening domestically! (real Fixed Private Residential Investment dropped 1.1% YoY... GDP didn't)

Completely destroying the 'US is strong' meme...and, as The Global Macro Investors' Raoul Paul pointedly remarks, this is starting to smell as if a shit-storm is brewing...

The meme of US economic strength and decoupling from the world has consequences...

At some point very soon the dollar is going to break out and EVERYTHING you know is going to change. Everything you’ve understood to be normal and stable in your investment portfolio is going to be as risky as hell. All of your core assumptions are going to be tested and thrown out as false assumptions. Yield trades, once the safe haven, are going to kill you. Anything that has any carry element or any exposure to currency moves will create huge losses.

Why am I so damned alarmist? Well because as ever, we’ve seen it all before.

The reason it is going to happen rapidly and maybe in a disorderly fashion is because if the dollar moves much higher, we will begin to see an unwind or THE unwind of the biggest carry trade in history. This is the flip side to all that QE. This is the flip side to the China miracle too. Multiple trillions of dollars are going to need to be bought or extinguished in this unwind, and that is going to create complete chaos.

...

Sadly, there is no such thing as free money in the real world. There is always a price to be paid. Self-reinforcing virtual circles eventually become the spiral of doom.

I think we find ourselves at the tipping point of the spiral of doom.

*  *  *

zerohedge

"It's Not About Earnings" Edition

During the month of October, three things happened that destroy any credibility that 'believers' had about the stock 'market' being an efficient discounter of fundamental earnings. Stocks began the month weak on geopolitical fears, concerns about the end of QE, and falling earnings; then Bullard unleashed his "but but but we might do QE4" words and stocks exploded higher. But a funny third thing happened as this malarkey occurred... analysts kept on slashing EPS estimates - in fact they slashed them by more than double the average EPS downgrade of any quarter in the last 10 years... So, if earnings are the mother's milk of the market, central bank promises are the Human Growth Hormone, EPO, Steroid cycle of all-time highs.

Fundamentals or Central Bank liquidity!

As Factset reports,

During the month of October, analysts lowered earnings estimates for companies in the S&P 500 for the fourth quarter. The Q4 bottom-up EPS estimate (which is an aggregation of the estimates for all the companies in the index) dropped by 2.7% (to $30.96 from $31.82) during the month. How significant is a 2.7% decline in the bottom-up EPS estimate during the first month of the quarter? How does this  decrease compare to recent quarters?

During the past year (4 quarters), the average decline in the bottom-up EPS estimate during the first  month of the quarter has been 1.3%. During the past five years (20 quarters), the average decline in the  bottom-up EPS estimate during the first month of the quarter has been 0.6%. During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of the quarter has been 1.8%. Thus, the decline in the bottom-up EPS estimate recorded during the course of the first month (October) of the fourth quarter was higher than the 1-year, 5-year, and 10-year averages.

However, most of the reductions to earnings estimates have occurred in the commodity-based sectors. As noted in last week’s report, the Energy sector (-10.8%) has recorded the largest decline of all ten sectors in terms of bottom-up EPS, followed by the Materials sector (-7.5%). No other sector has recorded a decrease in bottom-up EPS of greater than 3.3% through the first month of the quarter.

In terms of price, the value of the S&P 500 has increased by 1.1% (to 1994.65 from 1972.29) during the month of October. This marks the 7th time in the past 12 quarters that the bottom-up EPS estimate has  decreased while the price of the index has increased during the first month of the quarter.

Gold to avg $1,170 an ounce in 2015: Natixis

Gold prices are likely to average $1,170 an ounce next year and $1,180 an ounce in 2016, said Natixis in its Metal Review.

Since the month of June, the price of gold has been steadily declining and in September prices breached the $1,200 an ounce mark. Behind this drop has been a strengthening dollar throughout Q3, supported by higher yields as the US bond market gradually priced in imminent rate hikes. Throughout this period, gold consumption in both China and India has been weak, while investment and central bank demand has remained limited.

According to Natixis, events in the US are expected to exert the biggest impact on gold prices. As the US economy improves, so investors’ need for a safe haven dissipates. With this economic improvement comes a strengthening dollar as the US bond market pushes yields higher in anticipation of interest rate hikes. These factors are expected to have a mildly negative effect upon gold prices over the forecast horizon, given the substantial rally in the dollar and rise in US yields that has already taken place so far this year.

On the producers’ side, there is a risk that miners may return to hedging future output if gold prices threaten to fall below cash costs of production. Due to aggressive cost cutting by gold producers, all-in sustaining costs of production have fallen to somewhere around $960 an ounce. That said, there are still many mines operating at higher costs that could potentially need hedging. This represents a potential source of supply in the market, which could help to accelerate any decline in prices.