PM Daily Market Commentary - 8/18/2016

davefairtex
By davefairtex on Fri, Aug 19, 2016 - 2:34am

Gold rose +3.60 to 1353.30 on moderate volume, and silver climbed +0.06 to 19.76 on heavy volume.  The buck had another fairly large down day which probably caused the small rally in gold and silver.

The weak dollar helped gold move higher today, but the size of the move in gold was substantially smaller than the drop in the buck.  That is, the buck dropped a lot, and gold rose just a little.  This isn't a very good recipe for higher gold prices because at some point, the dollar move will end, and then what will support higher gold prices?

On the chart, we see gold continuing to move slowly higher, on declining volume.  A rally on declining volume is not so bullish - you want a rally to occur on rising volume, which indicates increasing interest from the buyers.  That chart looks all right, but its a lot less exciting in light of the "gold-positive" moves in the dollar.

Gold open interest fell by by -2,266 contracts today.

Silver was not able to confirm yesterday's hammer candle - instead, today's move higher looked more like a failed rally.  The "spinning top" candle rarely provides directional information, and this one is no exception.  The heavy volume on a failed rally is generally bad news.  Silver remains below its 9 EMA, and it remains in a downtrend.

Miners recovered today; GDX rose +1.25% on light volume, and GDXJ rose +1.99% on moderate volume.  GDX confirmed yesterday's takuri line candle, also printing a two-candle swing low - 44-47% chance of this being a low.  Yesterday I guessed that traders would buy the miner dip.  It was a good bet; they did, just as they have been doing for the past 8 months.  It doesn't take a genius to realize that traders generally buy dips during uptrends.  GDX is now back above its 9 EMA.

Can the miners make new highs if the gold rally starts to peter out?  I think we may find out relatively soon.

Platinum rose +1.66% and printed a swing low, palladium rallied +3.14%, and copper was up +0.72% - copper's rally took it back above its moving averages, but the copper downtrend is still not over yet.

The USD fell -0.55 to 94.14, making a new low as well as closing quite near the day lows.  Perhaps this is follow-through from the FOMC meeting minutes which provided no hope for a September rate hike (current probability based on the CME Fedwatch tool: 15%).  My guess is 0%, mainly because its an election year, and such an act could well tip the equity market over into correction.

WTIC staged yet another rally today, up a big +1.41 [+2.99%] to 48.52.  My price for crude is a synthesis of the two front month futures contracts and right now, they are about to roll, so you'll see differences between what I quote and what your trading app might show; stockcharts has WTIC at 48.89 - it is using the Sept CL contract.  Crude seems unstoppable right now - it is up six days straight.  Oil equities celebrated (XLE:+2.06%) breaking out to new highs.  They had been lagging a bit; it felt as though they didn't really believe in the oil rally.  Now equities appear to be on board.  Oil is starting to become more overbought; it might need to take a rest fairly soon to work that condition off.

SPX rose +4.80 to 2187.02, printing a two candle swing high, confirming yesterday's hammer candle.  That's probably the "low" for SPX (47-55%).   Energy led, as well as utilities (XLU:+1.23%), with financials bringing up the rear.  Its tough for SPX to drop with energy doing so well.  VIX plunged -0.76 to 11.43.  Puts are cheap, but the equity market appears teflon-coated right now.  What's more, if oil can move convincingly above 50, energy-related equities may well just explode higher, dragging the whole market with them.  (But that's me also talking my book, so take it with a grain of salt).

TLT rose +0.16%, a bit surprising considering the equity rally and the dollar plunge.  Bonds are still just moving sideways.

JNK broke out to new highs, up +0.38% - it sure liked the oil rally.  Risk on.

CRB jumped sharply higher as well, up +1.31%, closing above its 50 MA.  Most every CRB component rose today.  Mostly this commodity rally is just energy, but energy does seem to be dragging the other items higher, at least to some degree.

The buck had a big drop today, and that drop didn't really make it over to gold and silver.  Volume in gold is starting to decline.  If an 0.55 point drop in the buck only gets you three dollars of price move in gold, that's a bad sign.  If this sort of behavior continues, once the buck stops dropping, we will probably see gold correct, and from the way things look, silver will be the thing leading us lower.

It could also be that money is flowing from PM into oil.

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