PM Daily Market Commentary - 11/1/2016

davefairtex
By davefairtex on Wed, Nov 2, 2016 - 12:06am

Gold rose +11.30 to 1289.10 on moderately heavy volume, while silver jumped up +0.46 to 18.37 on heavy volume.  Both gold and silver started rallying in Asia, and continued right into mid-day in New York.  A big move lower in the buck seemed to help.

Gold has started to break higher, making a new high and printing a long white candle, which the candle code says is most likely not a top.  Volume on the breakout was relatively strong.  We can expect to see resistance at the falling 50 MA (1302) as well as the previous low at around 1305.  While gold is looking strong in USD, and is not yet overbought, it has yet to break above the 50 MA when viewed in Euros.  Until it does, it feels to me that much of gold's move is about currency, not about actual strength in the metal itself.

The December rate-rise projection fell to 68.4%.

Gold open interest at COMEX fell by -506 contracts.

Silver broke out sharply above its uptrend line today, rising steadily until it ran into resistance around the previous low/the falling 50 MA.  Silver's move today is one of those "strong line" candles which are generally quite bullish.  This suggests it is unlikely that silver printed a top today; silver probably has more room to run, although it is starting to become somewhat overbought, with RSI(7) = 78.  On a related note, the gold/silver ratio fell by -1.51 to 69.93, which is a bullish sign for PM overall.

The miners jumped higher, with GDX up +2.49% on moderately heavy volume, while GDXJ climbed +3.32% on moderately heavy volume also.  However, both miner ETFs printed "gap up doji" candles on the day; that means all the gains for the miners came from the gap up at the open.  While a gap-up doji isn't too bearish (11-19%), it does signify that traders were not buying the breakout, or rather, the balance of buyers and sellers at these prices were roughly equal.  It appeared as though the miners ran into selling pressure at the falling 50 MA.  So my summary: miners today were good, but not great.

Platinum rose +1.55%, palladium moved up +1.97%, and copper rose a big +1.55%, making a new high and printing an "opening white marubozu" which suggests there are more gains to come.  Copper has ended its pattern of lower highs and lower lows, and it is looking quite strong right now.  Copper's performance probably helped silver to outperform today.  It looks like we are firing on all cylinders for a PM rally at this point.

USD had a really bad day, dropping -0.72 to 97.64, selling off steadily starting just after the Japanese market closed right through the afternoon in New York.  DX printed a long black candle, which the candle code tells us is almost certainly not a low.  The buck is now well below its 9 EMA.  My guess: this is all about the US election.  Foreigners are selling US assets because of a perceived increased likelihood that we will have Crazy President Trump rather than Predictible President Clinton.  And from what the candle code says, we probably have more selling in front of us.

Crude continued to fall, dropping -0.42 to 46.34; the most optimistic thing I could say is that the pace of the decline has slowed somewhat.  Oil was looking a bit stronger at the time of the pit close at 14:30, but a very bearish API inventory report (showing an inventory build of 9.3 million barrels) brought prices right back down to their day lows.  This does give EIA some space to surprise to the upside; oil is now oversold with RSI(7) = 25 so there is a chance that the EIA (petroleum status report at 10:30) could help oil to set a low tomorrow.  Given the massive build, it wasn't all that terrible a sell-off, so maybe its an even-money bet that we might be near the lows right now?

SPX sold off today, dropping -14.43 [-0.68%] to 2111.72.  Equities drove through the important 2120 support level finally finding buyers around 2100.  There was an afternoon rally driven apparently by a rally in crude prices (XLE rallied back to flat by end of day) which pulled SPX off its lows.  Candle print was just a "long black" candle, which the code says is a 25% chance of a low.  SPX is now starting to be oversold.  If this were a normal time I'd suggest dip-buying might ensue, but its quite possible that the foreigners are looking to bail out of US assets right now, and that process may have a lot farther to go before its done.  As a trader friend of mine always liked to say, sometimes "oversold gets oversolder, then oversoldest, and that's when it drops some more."  It all depends on what is driving prices.  VIX rose +1.50 to 18.56.

TLT was flat today, rising +0.01%.  Bonds are really struggling here; if all the long bond can do is be flat on a day when VIX shoots higher and SPX breaks support - that's gotta tell you that bonds are hurting.  TLT remains in a strong medium term downtrend, below all 3 moving averages.

JNK fell for the 6th straight day, down -0.32%.  JNK is now definitely oversold with RSI(7)=19, but if traders are looking to bail out of risk, JNK will probably continue to fall.  Risk off.

CRB dropped -0.25%, tugged lower by falling agriculture product prices.  Three commodity sectors actually rallied today: industrial metals, PM, and livestock.  I guess the weighting for agriculture beats the others.

The FOMC announces tomorrow.  What will they say about the prospects of a December rate rise?  "Next meeting is live?"  I think the Fed is completely overshadowed by the election at this point.  Rate rise prospects are bouncing around between 68-74.  My question is, will the Fed raise rates if Trump is elected, money continues fleeing the US, the dollar drops, gold shoots higher, and SPX sells off?

Both Florida and North Carolina are now narrowly in the Trump camp.  Paddy power has Trump a 9/4 underdog, up from a 5/2 underdog just yesterday.  Silver has Trump with 240 electoral votes.  Here's the "winding path" graphic from 538 - its a very nice visual of what needs to happen:  http://projects.fivethirtyeight.com/2016-election-forecast/#plus

Note: this assumes the polls are legitimate, and that there are no "shy Trump voters" which I suspect are more common than during a normal election cycle.  If either assumption is false, things could be a lot more Trumpier than we see right now. This assumes we don't have a massive vote-count fraud from the electronic vote tabulating machines, of course.

The Trump Gold rally is starting to become a reality, from a price point of view.  We still have yet to break above the gold-in-Euros 50 MA, which would make it more conclusive, but silver's big jump is a decisive vote for higher PM prices.  The rest of the metals are supporting higher prices also.

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8 Comments

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1216
Piling on

This week DOE one-upped API instead of disagreeing with the oil reports. Biggest build in the 34 history of the data... Still not sure I believe any of the numbers but this can't be good for prices...except in our contrary indicator world where up is down except when it is not...

 

API

  • Crude +9.3mm (+1.54mm avg. exp)
  • Cushing +1mm (-250k exp)
  • Gasoline -3.5mm (-1mm exp)
  • Distillates -3.1mm

DOE

  • Crude +14.42mm (+2mm exp)
  • Cushing  +89k (+235k exp)
  • Gasoline -2.2mm (-1mm exp)
  • Distillates -1.8mm (-1.9mm exp)
davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
API & EIA

Mark-

My sense right now is the numbers are being gamed.  Not because I'm long oil - well, I am long oil - but because its the kind of thing I've heard them do in the past.  Namely, the big banks play games with the inventory in order to move prices around.

If you owned oil sitting in some tankers offshore, you'd need just 5 full carriers to pop the inventory numbers by 10 million barrels.  If your goal was to cause capitulation in the oil market (enabling you to buy up your favorite companies on the cheap), this would be one easy way to do this.

I would have expected the earth would open up and swallow up oil after the report today, but intraday there was plenty of support for oil around 45.  It only saw a 40 cent drop on this "worst inventory report ever."  Of course this makes no sense to me - I don't assume rank stupidity - so I therefore conclude it makes sense to someone that's just better informed than I am.

My sense is, someone is loading up on oil equities and covering oil shorts after today's EIA announcement. 

Any evidence to support this?  I see a whole lot of doji candles today on relatively high volume in the oil equity space.  Someone is buying this "worst oil inventory report ever", with oil being fairly oversold.  A perfect time to play a game like this is right about now.  Big money needs volume to enter and exit, and one way to get that is to force capitulation with horrible news.

And so the old trading rule applies: "when the market doesn't capitulate on bad news, that's bullish."

So I believe prices.  My guess: we're close to a low for oil in this cycle.  Its not a sure thing, but I think this is true "more likely than not."

Again, if you had a pretty good sense that oil supply & demand were in fairly close balance, and you wanted to load up on oil equities in order to profit from the anticipated rebound, you'd have to resort to these sorts of games to generate enough selling to allow you to get in.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
Scott Adams: final-week election messaging

Scott Adams has an interesting take on the two strategies both candidates are employing.

He's pro-Trump, so factor that bias in, but he's also quite a clever fellow at analyzing these things.  Clever in the sense that he says things I agree with, of course.  :)

http://blog.dilbert.com/post/152644376081/the-persuasion-scorecard-update-one-week-out

In summary, Clinton’s message this closing week is that Trump is politically incorrect, offensive to many people, and sexually aggressive beyond the point of appropriate social behavior. That’s all the stuff you already assumed about Trump a year ago. And it doesn’t scare you, no matter how badly it offends you. 

Meanwhile, the current news cycle along with Trump’s supporters have framed Clinton as a low-stamina liar with a drinking problem who is running a criminal enterprise (The Clinton Foundation) that sells influence to foreign countries and companies that are more interested in war than peace. While she trash-talks Putin. That stuff could get all of us killed.

Fear is the strongest persuasion. Clinton has largely abandoned her fear message in the final weeks to focus on Trump’s words and behaviors involving women. Comparing the persuasion game on both sides, I predict Trump wins in a landslide. 

thatchmo's picture
thatchmo
Status: Gold Member (Offline)
Joined: Dec 14 2008
Posts: 432
...the good ol' days....

Jeez, I'm just waiting for it to be all over, so we can go back to Dave and Jim discussing gold.....Aloha, Steve.

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1216
Hope your luck is better than mine

Dave,

I get your argument and seeing recent rumors of how far oil prices could fall may be just the contrary indicator that proves your thesis. If you are long oil you will be right eventually even if the short term works against you ....sort of like everyone with gold for the last several years(!). If you are positing that the numbers are gamed like you say then I really don't envy you trying to win bets in a rigged casino. Didn't market manipulation like that used to be illegal? You are obviously good at what you do, I just know that for me, having to assume that someone else I don't know or understand knows more than I do and just follow them on belief that they are likely right would drive me crazy.  Thanks for explaining the, I hesitate to use the word logic, perhaps thinking behind how the wacky world of today's markets work. I keep learning but am repelled, sort of like when considering how fiat currency comes into existence.

Mark

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
following tracks of big money

Mark-

We are trained in the sciences which have rules.  F=MA regardless of how much money you have, how clever you are, what news you read, etc.  Its a universal truth which isn't subject to change.

The market is people and emotion.  It therefore follows that it is vastly more chaotic and unpredictable.   Its also decision making in the face of uncertainty.  Add in fear & greed, make it a zero sum competition, and ... you get the market.

On the surface the market allegedly has rules, and math, and so on.  Under the covers, all the actors are trying to win; it is to their advantage to screw up the math, introduce noise into the signal (i.e. to lie in all sorts of ways) in order to trick the other participants to sell when they should be buying, and vice versa.

So if you want to participate in the markets, you go in knowing there is an asymmetry of information, with you at the bottom of the pile.  Reading news usually doesn't help resolve this asymmetry, especially since the big players strongly influence what items make it into the news flow.  In fact, sometimes reading news is counterproductive.

Given all of that - and the strong, strong motivation for the big players to lie - the only absolute truth in the markets is money flow.  So when there is horrible news that should cause the price to absolutely crater, and the price drops, and then holds steady, what does money-flow truth tell us?

It says the news triggered a bunch of selling - as you would expect - and then "someone" (with deep pockets) decided to step up and buy everything being sold.  Now why would someone do that?  Might that someone be the same someone that caused the news item in the first place?  Clearly someone isn't convinced by the news item.  Why might that be?  We have to assume that information asymmetry again.

We have to be humble enough to realize we are probably not the smartest guys in the room.

Trading is looking for the footprints of big money, because that's truth that cannot be lied about or otherwise disguised.  Big money moves the markets.

Big money picks up positions at or near the lows - causing the lows, actually, and then they start loading up more, and that causes prices to rebound - others jump on board, the price rises more.  Shorts bail out, moving prices higher, and finally retail feels comfortable enough to buy, pushing prices up further.  Big money then creates a new story that's wildly bullish, retail jumps in with both feet, prices goes up for a bit - and that's when big money bails out.  Price is capped by this action; if there's enough volume, big money might even go short.

Big money trader pockets his bonus.  Retail is long right there at the top.  Without big money buy-side support, price starts to drop...

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
one more way to think about it

So for us little guys, the market is not a zero sum game.  If I win, for instance, that doesn't mean you lose. What I do doesn't affect you in the slightest.

For the big guys, it is entirely different.  For them to make money, they need to take a big position.  And if they are seen taking a big position, the market will sit up and take notice.  The only way for them to get a big position without moving the market is either to accumulate shares very slowly, or to step in when a big capitulation happens that generates a ton of selling and "buy everything."

As little fish, we don't understand the things that drive them.  You want 100 shares?  You put in an order, and it just gets filled.  Easy peasy.  But for them - the system doesn't scale.  They put in an order for 1,000,000 shares, and they might get the 10,000 shares that are currently offered and then the price just takes off and they are left with 990,000 shares left to buy and the price is 50 cents higher...and they buy another 10,000 shares and the price increases another 50 cents...etc...

So how do they get a big position?  Well if they can stampede the herd into selling, they can cause a nice capitulation that lets them buy a huge number of shares - from us, and others, as we panic out - without moving price.  In fact, its either that, or just buy 500 shares at a time, very slowly, over a period of weeks.

Bottom line: we don't need volume to enter or exit.  They do.  We (as a rule) don't understand their limitations, because we don't have such limitations.  Everyone imagines that the rest of the world is like them.

So it is in their interest to get us to stampede in, or out, in order to generate enough volume so they can buy or sell the big positions they require to actually make enough money to move the needle.  And that's why they are greatly incentivized to control the news flow - to drive euphoria or panic, as necessary.

This has been "the way things work" since the world was young.  Big money makes the herd stampede and buys or sells as appropriate.  If you are a little player, you are best served by looking for the footprints of big money, since they are far better informed than you are about the overall state of the world.  Its not a perfect strategy, but it sure beats stampeding with the rest of the herd.

Make sense?

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 601
Absolutely 

Absolutely 

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