Commodity Mauling Time

Funds are hammering nearly every single individual commodity futures market lower in today's session for some reason, a reason as to which I am still attempting to discover. There does not seem to be a safe haven, or "risk off" trade occuring in any large degree mainly because the bond market is trading nearly unchanged while the US Dollar is only up very slightly. Stocks while lower today have moved off of their worst levels of the session but the bloodbath is continuing across the commodity sector.

Evidently the computer algorithms have their panties in a wad and are jettisoning a large portion of their hedge fund owners' commodity holdings. The only commodity that I can curently find that is not lower today is the cocoa market. Too bad - maybe we could at least have eaten some cheaper chocolate as a consolation for what they are doing to the gold and silver markets.

Take a look at the following chart of the Continuous Commodity Index or CCI. It has not been able to recover from the hit it took after the FOMC fired their now infamous verbal intervention gun at the sector not long ago.

As stated here previously, the Fed wanted to entice the hedge funds out of the sector and into the equity markets and were hugely successful in so doing. You might also remember the "economy is doing better and does not need any QE3 only a period of continued low interest rates until late 2014", remarks. That was pretty much the short-term nail in the coffin for the sector as a whole based on the price action since then. Rallies are being viewed only as selling opportunities with the proceeds then being funnelled into the equity markets where they can make some gains, especially in time for the end of the quarter statement mailing time.

Gold is still holding above support near $1640 but is looking heavy currently. Bulls need to keep this level intact to prevent a drop to $1620 or lower. Until they can push it back above $1680, the new shorts are going to remain quite complacent and very confident. Should there be an upside surprise that takes it through that level, a large number of buy stops will be set off.

The flip side is that sell stops are building below $1640 - $1635. Floor locals are going to try to make a run at those especially if the fund selling does not let up any.

Silver took out support at $32.50 today as it continues its recent pattern of a large sell off followed by a couple to three days of short covering and consolidation only to experience another round of strong selling pressure. Spec longs are fleeing the Comex Silver market. It is currently sitting just above a layer of important chart support from a technical perspective, which if it fails, will see the market drop quite rapidly down towards the $30.25 - $30.00 region.