PM Daily Market Commentary - 10/27/2016

By davefairtex on Fri, Oct 28, 2016 - 12:14am

Gold rose +1.70 to 1269.20 on moderate volume, while silver was unchanged at 17.62 on moderate volume also.  The trading ranges for PM were relatively narrow; both gold and silver both attempted to rally today but the rallies failed.  A medium-strength dollar rally wasn't the proximate cause of the failure, but likely it didn't help.

On the chart, gold printed a spinning top, which doesn't give us any clue as to where things go next.  Little if anything changed since yesterday; gold did manage to squeak back above its 9 EMA, but gold neither made a new high or a new low.  It was probably good news that gold managed to rally in the face of a move higher in the buck; the gold-in-Euros chart did recover somewhat, but has yet to break back above the 50 MA.

The December rate-rise projection fell 1% to 71%.

Gold open interest at COMEX fell by -992 contracts.

Silver was unchanged on the day, which automatically means a doji candle print.  SInce the trend is sideways, this print is no help as to where we go next.

The miners sold off relatively hard today, with GDX dropping -1.66% on moderate volume, while GDXJ fell -2.94% on moderately heavy volume.  The drop in the miners was fairly severe, especially given that neither gold nor silver dropped on the day.  Perhaps some of it was related to the rally in the buck.  The miners just felt heavy.  GDX ended the day below the 200 MA - this is a danger sign, and should be respected.   The "opening black marubozu" is not a reversal bar.  If this is what happens when gold is more or less flat, it suggests the miners are vulnerable to a whole lot of selling if gold actually breaks down.

Platinum rose +0.19%, palladium moved down -1.25%, making another new low, and copper climbed +1.12%.  Copper has risen for the past four days, and looks to be strengthening - possibly even back into an uptrend.  Certainly being above all 3 moving averages is a distinct improvement over where it was just four days ago.

USD rallied strongly today, up +0.26 to 98.82, apparently looking to re-test the highs at 99.  The move off yesterday's hammer-like spinning top resulted in a "confirmed bull spinning top" candle pattern (one of my own) which ends up yielding a 35-44% chance of being a low.  Any of the two-candle "confirmed" patterns tend to be fairly significant, as they show next-day follow-through.  A further breakout in the buck would probably lead to heartache for gold and silver.

Crude rose +0.37 [+0.75%] to 49.60.  The rally actually ended up printing a weak "bullish engulfing" candle print, which is a 22-27% chance of a low here.   Crude remains below its 9 EMA; while this could be a low, the bounce today doesn't look all that strong.  We could well see another leg down before a rebound appears.

SPX fell -6.39 [-0.30%] to 2133.04, following through on yesterday's drop through the 9 EMA.  Sickcare led (XLV:+0.46%) while cyclicals trailed (XLY:-0.84%).  But more worrisome than SPX was the (small cap) Russell 2000, which fell a much larger -1.23%, breaking a support level and making an ugly new low.  Armstrong likes to say that the small caps are a "domestic" indicator, while the large caps tend to be more international.  If that's true - the domestic mood is starting to turn ugly.  VIX rose +1.12 to 15.36.

TLT plunged -1.08% today, making a dramatic new low, falling alongside equities.  TLT did manage to print a hammer candle by end of day, but the bounce was only good for a 23-28% chance of printing a low.  My guess: the Chinese are selling US treasury bonds in order to keep the RMB from cratering, and that's continuing to put pressure on TLT.  Things are starting to get interesting.

JNK also fell, losing another -0.41%.  This marks three straight red days for JNK, which is something we haven't seen for months.  Although JNK remains within one percent of its all time high, JNK is now starting to give off risk off signs.

CRB rose +0.70%; in fact, all five commodity groups rallied on the day, led by industrial metals.  CRB is now back above its 9 EMA.  Its a curious outcome; rallying commodities right alongside tanking equities and bonds.

There was a fun goldbug-positive story at KWN recently; I liked it because it went against popular wisdom - or maybe just my own wisdom.  It suggests that a Trump election victory (anyone remember BRExit, which was heavily favored to lose - which I was sure would lose too) would result in an instant $100 move higher in gold.  How's that for a black swan outcome?

In the meantime, we have the 3Q GDP release tomorrow; if I had a bad attitude, I might suggest that this first estimate might be abnormally positive in order to give one last nudge to Clinton.  If this happens and manages to cause the buck to break convincingly above 99, our friendly commercials would take the opportunity to unload short - and the charts support this strategy as one that would likely work out fairly well for them.  Gold's weak rebound is an invitation to attack.  Recent selling in the miners confirms this also.

So short term - danger, but not so far in the future, the election might hold a dramatic gold-positive surprise.  I suppose after 3 weeks of feeble rebound, the takeaway is: expect volatility, and probably to the downside in the very near term.

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1 Comment

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1216
You might be on to something....

Davefairtex wrote: In the meantime, we have the 3Q GDP release tomorrow; if I had a bad attitude, I might suggest that this first estimate might be abnormally positive in order to give one last nudge to Clinton.


Q3 GDP Jumps 2.9% On Rise In Inventory And Exports, Offset By Weak Consumption And Investment

For once it appears that the Atlanta Fed, with its 2.1% Q3 GDP nowcast was overly pessimistic - although perhaps the November 8 election may have had something to do with it - and moments ago the BEA reported that in the third quarter, US GDP increased at an annual rate of 2.9%  according to the first "advance" estimate released up more than double from the Q2 real GDP of 1.4%, and beating Wall Street consensus of a 2.6% rise in the quarter.

Check for the first step of your hypothetical prognostications!


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