PM Daily Market Commentary - 10/11/2016

davefairtex
By davefairtex on Wed, Oct 12, 2016 - 1:45am

Gold fell -7.00 to 1254.40 on moderately heavy volume, while silver fell -0.18 to 17.48 on moderately heavy volume also.   A strong rally in the buck pulled both gold and silver lower; mostly that was about the near-collapse of the pound, which hit a new low today of 120.91 - the high prior to BRExit was 151.34.  That's a 25% drop in just three months.  The UK is on sale.

Considering how strongly the dollar rallied, gold actually did all right today.  Gold doesn't look so great in dollars, but gold printed a swing low today in Euros.  On the USD chart, gold printed a "closing black marubozu", but the candle code wasn't too worried - it didn't feel the candle was particularly bearish.  Gold did close below the 200 MA, but because gold sank less than the percentage rise in the buck, gold's drop was entirely a currency effect.  Gold rallied in both Euros and Pounds.

December rate-rise projection is at 64%.

Gold open interest at COMEX rose 2,211 contracts.

Silver also fell - a bit harder than gold, but printed a relatively innocuous spinning top candle.  Silver avoided making a new low, and silver remains above the 200 MA.  There was no major breakdown in silver's chart today.

The miners fell a bit more substantially; GDX fell -2.50% on moderate volume, and GDXJ dropped -3.44% on moderate volume also.  GDX looks the most ill of the PM components; it made a new low, it has closed below its 200 MA, and if gold continues to sell off, the miners are in danger of a much more substantial breakdown.  My guess: the near-term fate of the miners depends on what happens to the buck tomorrow.

Platinum fell -1.75%, palladium dropped -3.05%, and copper moved down -0.30%.   Both platinum and palladium made a new low.  Platinum looks especially sick; it is back to underperforming gold.

As previously mentioned, the buck staged a strong rally today, up +0.78 to 97.69, breaking out to a level last seen nine months ago.  This was caused by the Euro dropping -0.76%, and the pound plunging -2.38 [-1.93%] to 121.24.   The pound's RSI(7) is right around 7.  Once the RSI moves into the mid-single digits, that is pretty much a "capitulation" level; it doesn't guarantee an instant rally tomorrow, but in my experience this means that the odds favor at least a short-covering rally within the next few days.

Crude traded in a fairly wide range today, first attempting to rally, then plunging, and finally closing down just -0.30 [-0.59%] to 50.86.  Crude printed a bearish harami on the day, just a 13-22% chance of marking the high.  That doesn't seem very bearish to me.  The strongly rallying dollar helped to pull crude prices lower, but crude actually held up relatively well; its percentage loss was less than the rise in the buck.  Because of the holiday on Monday, the petroleum status report will come out Thursday at 11:00 Eastern; that's probably when the market will decide if crude will break out above 51.60 or if crude will retrace.

SPX fell -26.93 to 2136.73, with sickcare (XLV:-2.51%) plunging the most.  SPX broke below 2140 support and it appears to be headed lower.  The selling started as soon as the market opened, and it ran into the afternoon.  Alcoa started off earnings season by reporting weaker than expected earnings and promptly cratered, falling 11%.  Several other companies warned on earnings also.  It appears that earnings may actually be starting to matter for US equities.  As a result, I would not be long right now.  If the 2120 support level fails, SPX could fall quite a ways before it encounters support.  VIX jumped up +1.98 to 15.36.

http://www.marketwatch.com/story/alcoa-stock-slammed-by-earnings-disaster-as-season-gets-off-on-the-back-foot-2016-10-11

TLT fell -0.23%; this pathetic performance on a day when SPX dropped sharply, the dollar rallied, and while bonds are in an oversold condition really underscores the weakness right now in bonds.  Normally TLT would have rallied at least +0.50% if not a full percent. 

JNK dropped -0.57%, printing a two-candle swing high; a 25-40% chance of marking the top.  While it remains above its 9 EMA, this is a warning sign for junk.

CRB fell -0.59%, pulled lower by falling energy.  CRB is in a medium-term term uptrend, and today's drop does not change that picture.

US assets did relatively poorly today: both equities and bonds dropped.  It looked as though traders were moving to cash.  If the buck keeps rising, the miners are at risk of another potentially large leg down.  Silver might or might not follow.  SPX looks as though it is on the ragged edge of a substantial decline.  If we have more negative earnings surprises, SPX will probably tank.  There is an outside chance of a very rapid move lower, if all the traders who were long suddenly race for the exits at once.

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