PM End of Week Market Commentary - 9/23/2016

davefairtex
By davefairtex on Sat, Sep 24, 2016 - 8:03am

On Friday gold rose +0.40 to 1341.10 on light volume, while silver dropped -0.17 to 19.77 on moderate volume. 

On the week, gold rose +27.90 [+2.12%], silver climbed +0.94 [+4.99%], GDX moved up +4.08%, and GDXJ +3.42%.    Platinum shot up +4.17%, palladium was up +5.06%, and copper rose +3.37%.  It was a really good week for the metals.

The week was dominated by the FOMC - once again, they did nothing, but a whole lot ended up happening as a result.  While Friday may have left a bit of a sour taste, gold rallied all five days this week with the biggest move happening on the day of the FOMC announcement.  Last Friday gold was hovering around 1310 and we wondered if it was about to break support.  Today, gold is right up against its downtrend line.  A break above the downtrend line would probably lead to a re-test of the highs at 1375.

On the chart, we see that gold printed a strong swing low on Wednesday, smashed through its 9 EMA, and ended the week resting just above its 50 MA.  The two-month downtrend line remains intact, at least for now.

This week, open interest fell by -14,714 contracts.

Silver printed a swing low on Monday, and then broke sharply higher on Wednesday.  Silver was unable to close above its downtrend line (although it did manage to move briefly above it on Thursday), and on Friday it printed a low-rated two candle swing high; the candle code suggests its not too serious: 22-37% chance of the high.  Both silver and gold are at a decision point; if they can get through the downtrend lines, there's a decent chance we could see new highs.  If not, PM will probably sell off right back down to support - encouraged by the commercials, no doubt.  Its hard to know which way it will go, but until we get some sort of signal, there's no sense in making a move.

Miners

The miners launched through the 9 EMA on Wednesday right along with gold and silver, but printed a swing high on Friday which is actually relatively bearish: 32-55% chance of being the high.  On the chart it appears that the 50 MA acted as resistance, while on Friday the 9 EMA did provide some measure of support.

Miners ended the week a whole lot weaker than either silver or gold, but they have definitely broken above their downtrend lines, and if gold and silver break higher, miners will probably follow.  Are the miners providing us with the next direction for PM - i.e. down?  They could be.

The USD

The USD fell -0.67 [-0.70%] to 95.38; there were repeated directional changes all during the week, but by the close on Friday the buck was below all three moving averages and is most likely heading lower.  The high for the week was set on the day of the FOMC meeting - it was a spike high following the BOJ announcement, which then reversed once participants realized that BOJ actually ended up doing nothing.

US Equities/SPX

The US equity market rallied +25.53 [+1.19%],  with most of the action happening on Wednesday, following the FOMC announcement.  That sounds FOMC-related, but a good chunk of it was about oil.  On Friday, SPX sold off -12.49, printing a low-rated swing high (18-24% chance of it being an actual high).  VIX cratered, dropping -3.08 to 12.29.

The sector map shows a return to reach-for-yield, with all the interest-sensitive items doing very well.  Energy brought up the rear - oil continues to have real problems moving higher.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
REIT RWR 4.23% 20.12% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Gold Miners GDX 4.08% 91.64% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Utilities XLU 3.41% 23.53% rising falling rising falling ma50 on 2016-09-21 2016-09-23
Telecom XTL 2.54% 24.28% rising rising rising rising ema9 on 2016-09-14 2016-09-23
Industrials XLI 1.96% 18.07% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Homebuilders XHB 1.74% -3.18% rising falling falling falling ema9 on 2016-09-22 2016-09-23
Cons Discretionary XLY 1.48% 7.89% rising falling falling falling ema9 on 2016-09-21 2016-09-23
Healthcare XLV 1.39% 7.59% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Materials XLB 1.18% 19.43% falling falling rising falling ema9 on 2016-09-23 2016-09-23
Cons Staples XLP 1.04% 15.16% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Financials XLF 1.00% -12.31% falling falling falling falling ma200 on 2016-09-14 2016-09-23
Technology XLK 0.59% 20.87% rising rising rising rising ema9 on 2016-09-15 2016-09-23
Energy XLE 0.28% 11.15% falling falling rising falling ema9 on 2016-09-23 2016-09-23

Gold in Other Currencies

Gold rallied in every currency this week; it was up +26 in XDR.

Rates & Commodities

TLT rallied sharply this week, up +1.54% with most of the gains coming the day of the FOMC announcement.  Bonds continue to under-perform high-yielding equities; for example, XLU regained its 50 MA on Wednesday, but TLT has yet to do so.

JNK rallied +1.02%; JNK is not far away from a new all time high, although it had a bit of trouble Friday because of the big oil sell-off.  JNK is still out-performing its cousin IEF, although less so this week.

CRB rallied +1.28%; it was actually up substantially more until the big oil sell-off on Friday.  CRB closed the week right at its 50 MA.  It is trying hard to move back into an uptrend, but at least so far, oil is not cooperating with the plan.

Crude actually rallied +1.26 [+2.91%] to 44.59, which sounds good except that crude ended the week on a big drop, losing -1.49 on Friday alone.  FOMC and a bullish petroleum status report seemed to have launched crude into a new uptrend, but on Friday crude was unable to rise above its downtrend line, and sold off hard.  OPEC has a meeting next week; there is probably a certain level of worry that they will not reach an agreement, and/or there will be some news over the weekend that will be oil-negative.  Regardless, the big red candle on Friday was definitely bearish.  We might get some positive oil news over the weekend, but if not, oil probably retests 43 quite soon.

Physical Supply Indicators

* Shanghai closed at a -0.39 discount to COMEX.

* The GLD ETF tonnage on hand rose +8.61 tons, with 951 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1341.10 and silver 19.77.

 PHYS 11.07 +0.26% to NAV [down]
 PSLV 7.54 +0.07% to NAV [down]
 CEF 14.05 -5.48% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed a slight discount for both gold or silver.

* Big bar premiums are lower for gold [2.04% for 100 oz bars in NYC], lower for silver [+2.83% for 1000 oz bars], and lower for silver eagles at +12.95%.

Futures Positioning

COT report covers trading up through Tuesday September 20th.

Gold commercials covered -17k shorts and added +3k longs, while managed money bailed out of -26k longs and added +4k shorts.  The coverage period did not include the day of the FOMC - so it appears as though the commercials covered short going into the meeting, while managed money bailed out.  Oops.  Still, managed money is at a very low level of short interest right now; this tells me that almost all the price movement in gold is about adding to or bailing out of long positions.

There were negligible changes in the positions for silver for both the commercials and managed money.

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

Some good gains this week in the PM space; most items have regained their 9 EMA, and both silver and gold are back above the 50.  It is still a work in progress, however, and the more volatile leading elements (the junior miners and silver miners) have not yet recovered.  That's a fly in the overall ointment, and suggests the trend reversal is in doubt.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver SI.V 4.99% 30.79% rising falling rising falling ma50 on 2016-09-21 2016-09-23
Silver Miners SIL 4.65% 125.63% falling falling rising falling ema9 on 2016-09-23 2016-09-23
Platinum PL.V 4.17% 11.03% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Senior Miners GDX 4.08% 91.64% rising falling rising falling ema9 on 2016-09-21 2016-09-23
Junior Miners GDXJ 3.42% 122.41% falling falling rising falling ema9 on 2016-09-23 2016-09-23
Gold GC.V 2.12% 16.28% rising rising rising falling ema9 on 2016-09-21 2016-09-23

Gold Manipulation Report

There were no meaningful after-hours spikes for PM this week.

Summary

To paraphrase the Tao, the FOMC did nothing, but many things were accomplished.  Gold and silver snapped out of their short term downtrends, US equities returned to its hunt for yield, and in general things returned to the status quo as it was prior to Fischer's "clarification" of Yellen's speech at Jackson Hole.  You can be forgiven if this all sounds like its about the Fed 24/7...because it does seem to be that way.

The gold/silver ratio fell -1.76 to 67.73, which is bullish. The GDX:$GOLD ratio rose slightly but remains bearish, while the GDXJ:GDX ratio fell slightly but remains bullish.  Ratios have moved slightly more into bullish territory.

The gold COT shows the commercials covering and managed money bailing out going into FOMC; silver COT shows no change.  Both positions are down from their highs, and if the current levels are the "new normal" it might be enough of a drop to mark a low.  Maybe.

Gold and silver big bar shortage indicators show no signs of shortage; popularity of paper gold appears undiminished at the moment.  Shanghai moved back into discount on the big gold rally.

Gold is at a decision point right now; will buyers jump in and push prices higher through that downtrend line?  Only if they really want gold here.  The easy money was buying the FOMC no-change decision.   What will cause the next leg higher?

Possible catalysts for gold from the usual sources:

  • RMB enters the SDR basket
  • COMEX Default
  • Dollar turning to confetti
  • the gold actually runs out
  • hyperinflation [next year for sure]
  • people suddenly deciding they don't like paper gold

Or, my take:

  • Steadily increasing bad economic news [Dec rate increase odds: 48%; has a long way to fall]
  • Renzi loses referendum - NO is currently leading - vote is late Nov/early Dec 2016 [https://en.wikipedia.org/wiki/Italian_constitutional_referendum,_2016]
  • DT makes progress towards being elected President [Nov 8th 2016]; first debate: Tue Sept 27th.  That's next week!
  • China pulls the trigger on their debt restructuring; possibly driven by running out of treasury bonds to sell.
  • Turkey demands no-visa access to Europe; upon refusal, pulls the plug on migrant suppression; migrant second wave overruns Europe.
  • Other EU grey swan: Italian bank debt, problem at DB, eurosceptic government in Spain
  • French National Elections: April/May 2017.  Marine LePen.
  • German National Elections: Aug/Oct 2017.  AfD vs Merkel.

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3 Comments

Penny551's picture
Penny551
Status: Silver Member (Online)
Joined: Nov 8 2012
Posts: 149
SMA vs Aema

Hey Dave,

I haven't postd for a while, but been reading your column everyday. Really outstanding work!

So, on my stock charts account I've been experimenting w/ different indicators, overlays and MAs.  I noticed you use the 9EMA and the 50/200SMA.  Any reason in particular you don't use the EMA for all three?  I suppose it's best to use what most people (machines) use and that seems to be the SMA for the 50/200... 

Thx again!

Steve

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
EMA vs SMA

Steve-

Funny thing, when I explored which averages mapped to the best signals (crossings, etc), the EMA just didn't work as well as the SMA did.  I can't tell you why.  I use the 9 EMA out of habit, and it seems to work ok as a basic short term signpost.

In truth, a pair of moving averages are a better trading signal than one MA by itself.  And of course, which ones work best changes over time and trend.  What worked during for daily gold 2008-present (MA crossing 5/25, ROI $1082, 114 trades) is still ok from 2012-present, but MA crossing 18/51, ROI $979 23 trades did a whole lot better.  Long uptrends or downtrends = longer moving averages keep you out of trouble.

Here's a magical one for gold.  Weekly MA crossing 13/31.  That has a $1500 return from the period 2005-present, with only 17 trades.  That's better than a poke in the eye.  Strategy assumes you go short on the down-crossing, and you go long on the up-crossing.

A similar gold "weekly" strategy uses the simple MA 44.  $930 since 2005, on 32 trades.  That MA 44 strategy would have kept you long from 2009-2011, and you'd have missed the 2013 smash.

Interesting.  Weekly ROIs are a whole lot better ROI than the dailys.  Perhaps there is too much noise in the daily charts.  Maybe I should write a weekly commentary instead.  :)

And checking the monthly charts: SPX likes the MA 12.  (the EMA 8 has more trades, and provides you a lower ROI).  A slightly more efficient combo is the MA 5/23 - fewer trades, better ROI.  Gold likes the MA 21, or the MA combo 11/16 - again, the combo gives you fewer trades, better ROI.  Just as an example, MA 12 gives you a 2762 point ROI from 1970-present.  But again, it wants you to go short on the down-crossings.

Right now with SPX, with MA12, you are long on the monthly chart, and with the MA53 on the weekly, you're also long.

I should do a table for this one.  I think it would help me too.  :)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
gold with MA44

Here is gold with the MA44 overlaid;  Blue dots signal "buy", red dots signal "go short".  It may be a tad hard to read, but this gives you an idea.  Note that only the weekly closing prices are used, so if price knifes through the MA but recovers by end of week, no trade is made.

 

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