PM Daily Market Commentary - 8/24/2016

davefairtex
By davefairtex on Thu, Aug 25, 2016 - 4:42am

Gold fell -13.60 to 1324.00 on moderately heavy volume, while silver was hit for -0.30 to 18.53 on moderately heavy volume.  Gold was pounded starting at 08:40 Eastern for no reason that I could discern, dragging silver down along with it.  Both metals closed at their lows for the day.

The assault on gold drove gold through 1340 support, and it appears that this was just an attempt by the commercials to drive price lower.  It succeeded, driving gold through its 50 MA, ending the day right at the lows.   The commercials attempt this sort of thing periodically (most recently: yesterday), but during the recent uptrend, it has not been very successful, in that buyers have been ready to rapidly buy the dip and take advantage of momentarily cheaper paper gold.

Today was clearly different; perhaps it was the 5-week decline in copper prices, or the four-week drop in silver prices - its hard to know for sure, but for whatever reason, buyers didn't show up to buy the dip today.

As a result, the candle print was a "closing black marubozu" which is usually fairly bearish.  As a general rule, whenever something closes at the lows, its not a reversal bar.  Sometimes a real reversal does happen off a close like this, but it feels a bit like drawing to an inside straight in five-card draw poker.  (Google shows those odds at 4/47 - that feels about right).  Gold is not yet oversold, with the daily RSI(7) at 33.40.

Gold open interest rose by 352 contracts today.

Silver followed gold lower today; I say this because gold took a big plunge first, while silver's initial drop was much more mild - and it took several minutes for silver to catch up to gold's move lower.  Still, by the end of the day, silver was down fairly substantially.  It made a new low, and printed a "closing black marubozu" just like gold.  Volume on silver's move lower continues to be heavy.

Silver is starting to become fairly oversold; RSI(7) is 19.47.  If this is just a correction during a bull market move, I'd expect a low to arrive in the next few days.  However, instead of just buying now and hoping for the best, I'd like to see an actual reversal bar before jumping in.  We might have to wait until 18 before silver finds buyers.

Miners cratered today, with GDX off -7.06% on extremely high volume; GDXJ dropped -7.77% on extremely high volume also.  Both miner ETFs endured a continuous wave of selling today, closing at or near their lows. 

On the chart, we see that GDX gapped down at the open, and more or less sold off all day long, printing a "black marubozu" on extremely high volume.  The last few times this has happened, a rally occurred the following day, but that rally ended up being a headfake - it was sold within a day or two, and a new low soon followed.  Black marubozu candles seldom mark a real low.  If you buy tomorrow morning, my advice: keep your finger on the "sell" button in case the rally peters out.

Miners are now oversold, with RSI(7) at 15.24.

Platinum fell -2.62% making a new low, palladium dropped -2.47%, and copper dropped -1.42%, also making a new low.  Copper is now at 2.08, and the chart looks horrible - it too closed at the day's low, and it has dropped hard for the past three days.  For those who imagine gold is being picked on - the fact is, gold is actually performing fairly well.  Ratios of gold vs all these metals show that gold is either holding even, or strongly outperforming the others over the past 3-4 weeks.  The copper:gold ratio has been a horror show - for copper - for the past 16 months.

The USD rose +0.25 to 94.71.  The dollar rally caused some amount of heartburn for PM but certainly the relatively sedate dollar move was not the proximate cause of gold's 08:40 drop.  That said, the buck printed a swing low today, which suggests there may be continuing pressure on commodities and PM if the dollar follows through.   What's the story with the buck?  Well, the mainstream view is that Janet Yellen might say something dollar-positive at the annual Central Banker Party at Jackson Hole, WY in her speech tomorrow.  Odds have risen to 21% of a September rate rise, at least according to the Fedwatch tool.  I don't see it happening, but I'm not the market, and its quite possible a lot of stuff could sell off just based on something that Chair Yellen says that never comes to pass.

Crude fell today, dropping -0.77 to 46.80 after the petroleum status report showed a crude inventory build of 2.5 million barrels.   Crude remains above its 9 EMA, but not by much; if oil follows through tomorrow, that might be it for the latest oil rally.  Oil equities still look relatively bullish, but they too are sitting right on their 9 EMA lines.  It wouldn't take much to flip them into a downtrend also.

SPX fell -11.46 to 2175.44, printing a two candle swing high - 24-42% chance of it being the top.  Today it was sickcare looking ill (XLV:-1.57%); my guess that's about the increasing scrutiny on MYL, the company that makes the life-saving $600 "epi-pen" that contains $1 in generic medication.  MYL is down about 15% in the past 3 days, and the attention on arbitrary drug price hikes is starting to affect their competitor's stock prices, who seem to have adopted similar "business plans" for themselves as well.  Perhaps the big reason for the move today was media darling Hillary weighing in against MYL.  It is election season after all, and even a $100k donation to the Clinton Foundation from MYL [http://dailycaller.com/2016/08/24/company-gouging-price-of-epipens-is-a-clinton-foundation-donor-and-partner/] only keeps Hillary silent for so long.  VIX rose +1.07 to 13.45. 

FWIW, candle code says XLV's breakdown today marks a very high percentage reversal: 57-85% chance of marking the top.  I don't see many candle patterns that bearish.  Maybe swindling insurance companies isn't one of those durable business models after all.

When Forbes hosts a hit piece on your business strategy [http://www.forbes.com/sites/emilywillingham/2016/08/21/why-did-mylan-hike-epipen-prices-400-because-they-could/] things are not looking great.  Apparently, 40% of MYL's operating profit is generated by epi-pen.  That's no surprise when the gross margins for the product are 99.8%.  MYL's business strategy seemed designed to soak insurance companies who cover it - this works great until customer's insurance plan happens to have a high deductible.  Just perhaps these high deductible plans will end up having a beneficial effect on drug prices (and insurance premiums) over the longer haul.  We can only hope.  I am really tired of being harvested in this way.

PBS reported the experience of one mother whose son has an extreme dairy allergy and whose insurance plan is high deductible. The price of two pens–$1,212—was more than her mortgage payment, so she turned to ampules of epinephrine and a syringe as the “rescue” med for her son.

TLT fell -0.24%; bonds are still trading more or less sideways.

JNK fell -0.30% - it too has been trading mostly sideways over the past few weeks, but it remains quite near its recent high.

CRB fell -1.40%, with every single component of the index in the red today.  CRB is now back below its 50 MA.

Today's collapse in mining share prices came as a bit of a surprise to me - I expected miners to drop further, just not this dramatically.  Once GDX lost the 50 MA, it seemed that everyone just wanted out all at once.  How long this continues is anyone's guess, but the shares are starting to look oversold at this point, so it could happen in the next few days.  Likely, it depends on what happens with gold and silver.

We're in a PM downtrend, and while I expect it to end sooner rather than later, prices don't pay any attention to what I expect.   Be careful out there.

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5 Comments

gbarr's picture
gbarr
Status: Member (Offline)
Joined: Jan 9 2012
Posts: 1
Market Mayhem

ZeroHedge reports someone decided @ 0840ET to unleash $1.5 billion of gold notional into the futures markets.... Over 10,000 contracts dumped in 1 minute...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
the 0840 assault

Yes, I show a 10,426 contract spike down.  If I had to guess, not all of those were unloaded by some evildoer.  Rather,  I suspect that a smaller number of contracts were unloaded, and the rest of the selling came from long stops that were tripped by the plunge.

On the positive side, that big assault ended up only moving the market by a (net) $6.80.  (For the 08:40 bar: Open: 1341.40, Close: 1334.60).  That says most traders aren't bailing out, and/or there are still some buyers out there willing to step up.

From my past observations, $6.80 isn't a particularly great payoff for such a large number of contracts in play.

It did, however, change the trend for the day, which is something both new and bearish.

There were two similar spikes the day before, both of which were bought relatively rapidly.  They were about 2k contracts each.  I'm guessing there weren't very many stops successfully run during those attemps.

 

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Arbitrage

I needed another anchor warp so I liquidated 10oz of Silver  at the dealer. I got Aus$125. I see the same ag going on eBay for $380.

The real market price is a lot higher than the official. Good arbitrage for the awake. Buy low sell high. 

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1761
CEF Premium is good right now

For those of us with $$ trapped in a 401k that would like to buy the gold and bullion fund, CEF, this is a good time.  The premium-to-nav is -5.9% right now.

!CEFPREM is the symbol.

http://stockcharts.com/freecharts/gallery.html?!CEFPREM

Thanks for showing me how to check this, DaveF.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5069
CEF

SP-

Ok, if we assume that Janet Yellen is NOT going to say "let's raise rates" at her Jackson Hole speech tomorrow causing the buck to shoot off into the stratosphere, I agree that now is a decent buy point for CEF, especially given the 5% discount to NAV its currently sporting.

Its always nice to get gold on sale - even if it is paper gold.

I bought some CEF myself - once I sorted through how gold did today, and my assessment of her speech tomorrow is that she probably won't upset the applecart too much prior to the election.  A rate rise could tip the stock market right over, and I don't think she'll risk that at this time.

It may be that the buyers for gold and silver have just vanished temporarily because of uncertainty heading into Jackson Hole.

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