PM End of Week Commentary - 7/22/2016

davefairtex
By davefairtex on Sat, Jul 23, 2016 - 2:49pm

On Friday, gold fell -7.60 to 1323.40 on moderate volume, while silver fell -0.13 to 19.69 on moderately light volume.  A strong dollar rally and weak commodity prices dragged gold and silver prices lower.

On the week, gold fell -14.30 [-1.07%], silver fell -0.61 [-2.99%], GDX dropped -3.65%, and GDXJ declined -6.07%.  Platinum fell -0.96%, palladium shot up +5.52%, and copper rose +0.11%.   Both PM and industrial metals generally faded this week - palladium was the outlier.

Gold spent the week drifting lower, with the 9 EMA acting as resistance.  Gold did manage to find support at 1310 on Thursday - a spike lower was met with buying, and price moved back above 1320.  The pace of the decline is starting to slow, and it feels as though the bulk of the selling based on the flight-to-safety unwind is tapering off.  That said, gold's downtrend remains in place.  Gold needs a close above that 9 EMA to reverse the trend.

Silver broke below 20 this week, dropping below its 9 EMA and moving more clearly into a downtrend.  Looking back to prior downtrends, we see one that lasted 5 weeks and went from 18 to 16, while another moved mostly sideways and didn't quite last two weeks.  So far we're down a little less than a buck in this move and it has been about two weeks.

Copper will have an influence on where silver goes next; I'd guess copper is closer to a peak than a valley.  Based on that, we may have some more downside for silver yet to come.  Likewise, the gold/silver ratio appears to have put in a low and is now starting to rise again.  That's bearish for silver.

Miners

Miners broke down out of the recent consolidation zone, plunging dramatically on Wednesday on massive volume, and ending the day convincingly below the 9 EMA.  The subsequent rally recovered some of the losses but miners ended the week clearly below the 9 EMA.  If gold can put in a low here in the next few days, miners will probably rally back through the 9 EMA.  Otherwise, I'd be looking for miners to drop down to the 50 MA support, the way they did back in late May

The USD

The buck rose +0.95 to 97.52, breaking above the 200 MA after having been stuck there for the past three weeks.  The ECB meeting ended up with no new action taken; all we got to hear was some positive vibes from Chairman Draghi on the subject of taxpayer-funded bank bailouts and how the cranky old free market was unfairly pricing the 360 billion in failed loans.  See, the banks value them on the books at 40 cents, and those crazy old hedge funds think they're worth just 20 cents.  Being a cynical fellow, I figure they'll get the taxpayer to pay 40.  That's what always seems to happen.  Generous taxpayers buy up all those bad loans at above-market prices, which rescues Italian PM Renzi from political disaster, none of the bankers have to lose their jobs, and the EU elite get to avoid having to deal with the Five Star Party.  Everyone is a winner!  [*]

[*] Except the taxpayers.  As usual, they are asked to sacrifice for the good of the European Project.

US Equities/SPX

The US equity rally slowed this week, up just +13.29 [+0.61%] to a new all time high of 2175.03.  Price action was largely flat for the last three days of the week.  VIX fell -0.65 to 12.02.  Puts are cheap once again.

The smart money is now extremely pessimistic; we haven't seen levels like this since 2012.  Usually its wise to follow the smart money, but sometimes this situation can persist for a week or two before something breaks, and even then, there is often no immediate cliff-dive that follows but rather just the start of a descent process.  Sentiment just says we're much more likely to be closer to a high than a low and caution is warranted.

Here's the sector map: last week's utility dip was bought, naturally, while energy and the gold miners suffered.  Looks like yield-chasing is back.  MSFT had a good quarter which helped tech.  After four weeks of rally, everything is green except energy and the miners.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
REIT RWR 1.92% 21.01% rising rising rising rising ema9 on 2016-06-28 2016-07-22
Technology XLK 1.82% 9.18% rising rising rising rising ma50 on 2016-06-30 2016-07-22
Utilities XLU 1.46% 28.19% rising rising rising rising ema9 on 2016-07-21 2016-07-22
Homebuilders XHB 1.31% -3.62% rising rising rising rising ma50 on 2016-07-06 2016-07-22
Healthcare XLV 1.23% -1.18% rising rising rising rising ema9 on 2016-06-29 2016-07-22
Cons Discretionary XLY 0.77% 4.74% rising rising rising rising ma50 on 2016-07-06 2016-07-22
Financials XLF 0.68% -5.06% rising rising rising rising ma50 on 2016-07-12 2016-07-22
Materials XLB -0.25% 7.33% rising rising rising rising ema9 on 2016-07-08 2016-07-22
Cons Staples XLP -0.36% 13.21% rising rising rising falling ema9 on 2016-07-22 2016-07-22
Telecom XTL -0.67% 8.15% rising rising rising rising ema9 on 2016-06-29 2016-07-22
Industrials XLI -0.68% 10.57% rising rising rising rising ma50 on 2016-07-06 2016-07-22
Energy XLE -1.31% -3.60% falling rising rising rising ema9 on 2016-07-21 2016-07-22
Gold Miners GDX -3.65% 113.12% falling rising rising rising ema9 on 2016-07-19 2016-07-22

Gold in Other Currencies

Gold continued lower this week, dropping -12.40 in XDR - and it fell in most other currencies save for the Ruble; Ruble did poorly this week, probably because of the drop in oil prices.


 

Rates & Commodities

Bonds (TLT) spent week trying to put in a low, eventually rising +0.30% and printing a swing low on Friday.  TLT remains below its 9 EMA, but it may be sniffing out a top in equities.  On the weekly chart, TLT remains in a strong uptrend.  TLT is hinting at risk off.

JNK rose +0.69%, completely ignoring the big drop in oil prices and printing a new closing high for JNK.  That's risk on.  JNK remains in a strong uptrend.

CRB fell five days out of five, dropping -3.15%.  The commodity downtrend continues - all of the commodity groups fell this week; perhaps PM did best.

Using the CLU16 contract as the metric, oil fell -2.79 [-5.94%] to 44.19, and on the single-contract chart crude is now below its 200 MA for the first time in three months.  Crude made a new low on Friday of 43.74.  While the Petroleum Status report on Wednesday showed a bullish-looking inventory draw, it was only good for a one-day rally.  The oil downtrend remains firmly in place; I don't see a lot of support until perhaps the 39-41 level.  Maybe the status report next Wednesday will help oil to put in a low.  Oil back at 40 sure won't help shale.  Rumor has it that a number of wells from the "fracklog" were put into production in recent weeks because of the move to $50/bbl.

Physical Supply Indicators

* Gold at Shanghai is selling at a -0.46 discount to COMEX.

* The GLD ETF tonnage on hand rose +0.29 tons, with 963.14 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1323.30 and silver 19.69.

 PHYS 10.96 +0.52% to NAV [down]
 PSLV 7.48 -0.40% to NAV [down]
 CEF 14.06 -4.56% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premium for gold or silver.

* Big bar premiums are slightly higher for gold [2.15% for 100 oz bars in NYC], and lower for silver 1000 oz bars [2.90% for 1000 oz bars in LA], and lower for silver eagles at +12.08%.  HAA's premiums for silver were quite high; I used premiums from other physical dealers this week instead.

Futures Positioning

COT report covers trading up through Tuesday July 19th.

Gold commercials covered -13.8k shorts, while managed money sold -8.7k longs.  The change was relatively modest.  While there was some reduction in the large commercial short overhang, commercials remain heavily short by at least 100k contracts.

In silver, commercials increased their shorts by +2.5k contracts and sold -3.6k longs, while managed money added +6k longs.  Both sides in this drama continue to throw money into the fray.  It is interesting that managed money continued to buy even while price was dropping.  Positions remain at very extended levels; things got worse this week, not better.

The Copper COT report shows a low concentration of managed money short positions, and a fairly large number of commercial shorts; this is the usual setup for a top in copper (as it is with gold, and silver too).    But unlike PM, the copper COT seems to still be behaving "normally."  If copper takes a 2-3 week leg down as suggested by the copper COT report, it might cause some extra grief for silver.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Early PM downtrend in place: juniors leading senior miners lower, silver leading gold.  All elements have dropped below their 9 EMA.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum PL.CW -0.93% 11.30% falling rising rising falling ema9 on 2016-07-22 2016-07-22
Gold GC.CW -1.11% 21.57% falling rising rising falling ema9 on 2016-07-14 2016-07-22
Silver SI.CW -2.98% 34.59% falling rising rising rising ema9 on 2016-07-19 2016-07-22
Senior Miners GDX -3.65% 113.12% falling rising rising rising ema9 on 2016-07-19 2016-07-22
Silver Miners SIL -4.34% 140.92% falling rising rising rising ema9 on 2016-07-20 2016-07-22
Junior Miners GDXJ -6.07% 148.64% falling rising rising rising ema9 on 2016-07-19 2016-07-22

Gold Manipulation Report

There were no material after-hours spikes this week in either silver or gold.

I did see distinct signs that someone was trying to move prices lower, mostly on Wednesday, but to my eye it felt like the attempts were largely unsuccessful.  Price did drop, but there was no massive capitulation, and price rallied the very next day.

Summary

The US market continued moving higher, Chairman Draghi ended up doing nothing except trying to grease the skids for a taxpayer-funded Italian bank bailout (new concept: free money for bankers!), oil took another leg down, the buck broke higher, and both gold and silver have tipped over into a downtrend.

The gold/silver ratio rose +1.30 to 67.22; it may be starting to reverse, which would be bearish for PM.  GDX:$GOLD fell this week, as did GDXJ:GDX.  Both miner ratios have an early bearish tone to them, as does the potential low in the gold/silver ratio.

COT report for gold shows that the commercials are continuing to slowly cover, but the reverse happened in silver - managed money is continuing to buy, and the commercials are continuing to go short.  If managed money refuses to bail out, it will be hard for the commercials to force prices lower.  Fly in the ointment: a possible top for copper as suggested by the copper COT report.  That could still be a week or two away, but its something to watch.

Gold and silver big bar shortage indicators show no signs of shortage.

We have a general commodity downtrend right now; all commodity components are dropping.  At the same time, the dollar has broken out to new highs.  This isn't a great combination for PM.  As we saw in 2013-2015, falling commodity prices usually tugs gold and silver prices lower.

How will this commodity downtrend interact with the upward pull from the negative interest rate environment?  That's hard to say.  I'm more positive for gold than silver; partly because of the copper COT report.  Although there seems to be a fair number of buyers for gold out there right now, its a good idea to honor the downtrend.  We do not know how long it will last.  Translated: use your stops and bail out quickly if you end up being wrong

Next week we have the latest FOMC meeting.  These things just keep coming.  Press conference on Wednesday at 14:30.  No doubt it will move the market; be prepared.

Current view from the computer:

  • Uptrend: SPX, DJIA, copper, USD.
  • Downtrend: gold, silver, miners, crude, platinum, treasury bonds.

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3 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
50/200 Cross

Hey Dave,

Excellent analysis, as always.

Quick question; on your MA Trends graph, you show the 50/200 "golden cross" for gold as "falling."  I always thought that referred to whether the 50/200 spread was widening or narrowing.  It still appears to be rising on gold.  Am I mixed up (likely!) or is that a typo on your graph?

Thx.

Steve

    

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
50/200 spread

Steve-

Yeah that was the 50/200 spread.  Here's the chart of the specific combination.  It just happened to drop on Friday.  I suppose I should do the math on a weekly basis rather than a daily basis.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
insider buying

The SEC requires all insiders at companies (typically officers and directors) to file SEC form 4 whenever they make a trade involving stock at their company.  This information is collected and provided to the public at Edgar - but there are various sites out there which aggregate the information - some of which are free.  Yahoo does this as a part of their finance.yahoo.com offering, but the presentation is a bit confused.  Here's an example of another site which I like a bit better: this link highlights WNR, that refinery I bought the other day.  Scroll down and you can see green lines (buys), along with yellow and red lines (sells).  Note: the sales all took place with the stock in the $40s, while the buys took place in the $20s.  The buys are recent, and total some $16 million - real money - and the stock is trading at slightly below where the insiders recently bought.

http://openinsider.com/screener?s=WNR

Insiders sell for many reasons, but they buy for only one reason: they think they will make money.  And they have a mandatory six month holding period - they can't sell within six months of a buy, and vice versa.  (Sometimes a bunch of insiders decide they will "paint the tape" by buying small amounts of stock as an attempt to make things look good in a failing company; to sort out the real buys from the fake ones, look at the % ownership change, plus total dollar amount.  Even the slimy insiders won't sign up to lose tons of money just for cosmetic purposes).

My backtested studies (from 2005-present) have shown me that if you want to buy stocks that are cheap, if insiders are buying too, your trades become a lot more profitable.  As in, your ROI will almost double (over a 2 year holding period) if there are a number of insider purchases that happen relatively proximate to the buy signal.  In my test, I ended up filtering out 90% of the "cheap" stocks with no insider buys; the remaining group of cheap stocks that had insider buys outperformed the no-insider-buy stocks by almost double.

While much of the US market is expensive right now, some stocks are cheap.  Not every sector is making new highs.  WNR is an example of a stock that is down 50% from its highs set just 18 months ago.  If Martin Armstrong is right and we're going to have a flight to private (equity and bond) assets when the sovereign debt starts to default, it might make sense to pick up the cheap stuff rather than (say) NFLX, AMZN, or FB, which I can't bear to buy anyway.

If the banks all fail, and the system grinds to a halt and all our IRA accounts vanish into the maw of a forced purchase of government debt, all this will have been a useless exercise.  But if financial accounts still exist going forward, figuring out which "real things" to buy with the IRA money still has merit to it.  I still have IRA money - and I don't want to put it all into PHYS.  :)

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