PM Daily Market Commentary - 9/6/2016

davefairtex
By davefairtex on Wed, Sep 7, 2016 - 3:58am

Gold rose +25.80 to 1350.80 on heavy volume, while silver climbed +0.63 to 20.07 on heavy volume also.  Because of the labor day holiday, today's numbers and the chart combine two trading days into one.  Tuesday, an unexpectedly bearish ISM Non-Manufacturing PMI report caused a huge drop in the buck, and that helped drive both metals up sharply.

Gold was actually doing fairly well prior to the ISM release, but the bad numbers threw the buck right off a cliff, and gold just drove higher relentlessly after that.

So where are we regarding a rate rise?  Well, we had a weak Manufacturing ISM on Thursday, a somewhat weak payrolls on Friday, and a surprisingly weak Non-Mfg ISM report today.  That's a fair amount of bad news in a short amount of time.   Right now, a rate rise looks very unlikely.  We have the ECB in a few days, and retail sales comes next week, either of which can move the markets.

On the chart, we see a large white candle - candle code identifies this as a "bullish strong line", which is a relatively rare (and bullish) candle print; to qualify as a strong line, the candle must be three times larger than the "average candle size" in the past month or so.  Gold blew through the 50 MA without any difficulty, and it is now looking forward to the previous highs at 1374 and 1377.  Volume is increasing, which is bullish.

Gold open interest at COMEX rose by +4,952 contracts.

Silver also did very well today; on the chart we see silver printed its own "bullish strong line" candle, just like gold.  Silver is also through its 50 MA.  Best of all, the gold/silver ratio fell by -1.27 today; it has been steadily dropping over the past 10 days.  In fact, if you look back, silver's out-performance in the week prior to the breakout was quite possibly the "tell" for this whole PM rally.

Miners shot higher today, with GDX up +4.86% on heavy volume, while GDXJ jumped up +6.56% on very heavy volume.  While we see that the senior miners have not yet crossed their 50 MA, the juniors did so today; this suggests the seniors are lagging to some degree.  Sure its a complaint, but not a very big one; in three days, miners have wiped out about half the losses from the correction.  Perhaps some of the longs who missed out on the previous miner rally are coming in to buy now.  The volume for the past three days looks quite bullish.

Platinum jumped +3.34% on heavy volume, palladium rose +4.02%, and copper climbed +0.97%, the first seriously positive move for copper in three weeks.  Copper appears to be putting in a low here at 2.075.

The USD was stomped today, down -1.03 to 94.76, printing its own "bearish strong line" candle.  The day's move was all about the bad Non-Mfg ISM report; traders fled the buck in panic in the first hour following the report, and then slowly sold off for the remainder of the day, closing right at the lows.  The main winners were the commodity currencies (CAD:+1.23%, AUD:+1.38%) and the yen (JPY:+1.68%).  The action of the buck shows the level of importance the market assigned to what this particular report was saying: the buck actually rallied off the mediocre payrolls report last Friday, but it was smashed today at the thought of a weakening services sector.

Crude rallied +0.68 [+1.54%] to 44.88, moving higher as a result of the large move down in the buck.  Today's candle print was a combination of two days of price action; on Monday, the market was first excited at the thought of Russia-Saudi cooperation, but then sold off after it learned that the two countries were just talking about yet another "production freeze" - when you are already producing flat out, a production freeze means nothing.  Tuesday's rally appears to be mostly a currency effect, although oil equities (XLE:+1.51%) had a fantastic day regardless.

SPX rose +6.50 [+0.30%] to 2186.48, managing to rally even though a bad services report should be forecasting a bad quarter for the majority of US-based business.  Partly it was the big energy sector rally (XLE:+1.51%), as well as utilities (XLU:+1.09%) which bounced back after a six-week drop.  As for the rest of it - I guess no rate rise means the equity party can continue.  I am surprised we didn't see more foreign selling with the buck down this hard.  VIX rose +0.04 to 12.02.

TLT rallied +0.73%, a nice move that pulls TLT back above its 50 MA and the 9 EMA also.  TLT's move was all about "no rate increase" relief.  TLT remains in a tightening trading range.  Most likely, when TLT decides which way to go, the longer it has moved sideways, the more violent the eventual break.

JNK rose +0.11%, making a new all-time high on the day.  That's risk on.  Go junk!

CRB rose +0.50%; it printed a swing low, but the particular candle combination isn't all that bullish-looking.  At least CRB found support at its 200 MA, so there is that.

I believe the Fed is trapped in a prison constructed by their own words; if you live by being "data driven", you also die by that as well.  Market now clearly believes there will be no rate increase in September; the odds have dropped down to 15% following the weak ISM report today.

The good news is, all the prior fuss about rate increases did drop those miners down about 20%, which allowed some of us to pick up a few of our favorites at a nice discount.  Same goes for paper silver and gold.  So its not all bad.  After all, gold is now in an uptrend.  Buy dips during uptrends, that's the way you're supposed to do it.

ECB meets on Thursday, announcing their latest attempts to sustain the unsustainable at 07:45 Eastern, with Dragi's press conference following at 08:30.  If Draghi pushes rates even more negative, most likely gold makes new highs.  It might make new highs regardless.

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