PM Daily Market Commentary - 11/10/2016

davefairtex
By davefairtex on Fri, Nov 11, 2016 - 1:44am

Gold dropped -19.40 to 1258.60 on very heavy volume, while silver rose +0.13 to 18.61 on heavy volume.  The continuing dollar rally and the apparent collapse of a "safe haven" mood is continuing to cause problems for gold; this is borne out by a decent rally in silver on a day when gold fell significantly.

The market is saying "Trump isn't a catastrophe", but its also saying, "there is probably a whole lot of inflation coming soon."

After the fuss from the election was over, I spent too long looking at that massive doji.  Today's gold sell-off turns out to be fairly alarming from a technical viewpoint: its both a two candle swing high, as well as a "confirmed bearish doji" (both candle patterns of my own creation) which the new candle code finds quite bearish.  Probably the size of the doji is one reason for this - it would take a lot to get gold to jump over 1338 within the next 20 days - which is what "bearish" (or "marking the top") actually means. 

I re-trained my candle model, and the new version is a bit more black-and-white.  I'll have to see how well it works in practice.  The current model says "1338 is the top" with a 90% likelihood, at least for the next 20 days.  Hmm.  Maybe I should come up with one that asks the question: "will gold drop further from here" rather than attempting to determine if today's pattern happens to be a reversal bar.

But I digress.  Gold bounced off 1250 for now, but if it penetrates the 1240-1250 support zone, gold could be in a whole lot of trouble as the next support area is down around 1200.  Gold is now convincingly below all three moving averages, and its right on the edge of a big breakdown.  Commercials are licking their chops; buyers better appear soon or else!

Rate rise chances have dropped 9% down to 72%.

Gold open interest at COMEX fell -4,468 contracts.

Silver tried to stage a strong rally, touching 19 for the second day in a row, but it was not able to hold on to most of its gains.  Still, silver managed to remain green on the day.  The day ended with silver closing back above its 50 MA, and printing yet another spinning top candle, which probably doesn't mark the high.  The gold/silver ratio fell by a big -1.53 to 67.65.  Silver is really starting to outperform.  While the commercials are probably loading up short here, it appears as though the longs retain the advantage.  The volume is testimony to a fairly violent battle going on, which the longs appear to be winning.

I believe the gold/silver ratio - along with bonds - is beginning to project a policy-driven inflationary cycle on the horizon.  Remember: gold isn't really an inflation hedge, its a hedge against monetary disaster and a collapse of confidence in government.

The miners were crushed today, with GDX hit for -7.43% on very heavy volume, while GDXJ dropped -7.43% on very heavy volume also.  It turns out yesterday's black candle was just the prelude; today, GDX printed a two-candle swing high, which the new candle code rates as a high percentage top (about 90%, similar to gold).  GDX is right at support.  A break below support will lead to a big sell-off, I suspect, with no clear support visible on the chart until about 19 - which is about 15% below the current price.

GDX is below all three moving averages, and it is yet to be oversold.  It could fall a long way before support materializes.  It feels to me as though money is flowing other places.  This isn't about making America great, its about doing a whole lot of deficit spending, and money is moving rapidly to take advantage of the anticipated future flow of goodies.

Platinum fell -2.61%, palladium jumped +2.21%, and copper rallied AGAIN, up +3.21% to 2.54.  Yours truly is kicking himself for missing out on the great copper rally.  Mining company FCX is up more than 40% in the past four weeks, but did I buy?  I did not.

Crude plunged -1.05 to 44.29, printing a "bearish tasuki line" candle pattern on the day.  Its probably not a top (36%) but it does call into question how rapidly oil will rally off its lows.  Oil really needs to move through its 9 EMA to signal a rebound.  Until it does, it remains in a downtrend.  Curiously, oil equities still managed to rally even though oil itself had a bad day.

SPX rallied +4.22 to 2167.48.  Candle print today was "northern doji" and the volume was extremely high.  While doji normally is indecision, the high volume suggests to me that there are a whole lot of sellers out there and that a fair number of traders have used this post-Trump bounce to exit their equity positions.  The doji requires confirmation tomorrow; confirmed dojis are typically fairly high percentage reversal bars.

Once again, the sector map shows a strong divergence between the different sectors.  Financials & Industrials did quite well, while Utilities and Consumer Staples sold off.  It all added up to very little change, but lots of money was violently moving from sector to sector - at least to judge by the day's volume.

VIX rose +0.36 to 14.74.

TLT had another bad day, dropping -1.48% which at another time would be a "disaster" but after yesterday's collapse is just follow-on damage.  Bonds are heavily oversold (RSI-7 = 13) but ... when traders are fleeing something, its best to stand aside until the freight train shudders to a stop.

JNK cratered, dropping -1.42% and printing a very nasty looking black marubozu candle.  There is more dropping in JNK's future, I predict.  JNK not only has a quality problem, it has a duration problem - it is chock full of long term junk debt, and with TLT being thrown off the lifeboat, JNK is being dragged right along with it.  So even if oil were rallying - which it isn't - JNK would still have a problem based on the expectation of higher long rates ahead.

CRB fell -0.36%; it is still trying to put in a low.  Looks like falling energy prices had the deciding vote in today's CRB direction.

Ok.  Here's the story:

We have general inflation on the way, something we haven't seen since 2011, courtesy of Trump's massive tax-cut-and-spend plans.  Krugman is going to get his fiscal stimulus just like he wanted, at the cost of a much higher national debt.  So what are the implications?

I'll go out on a limb here, but this is just based on what prices are saying after two days:

1) The reach for yield trade is over.  And when I say over, I mean ITS OVER!  Run, don't walk away from all that high yielding stuff you held for the past six years!  Run run run!  :)  Well, maybe just sell the rallies.

2) Gold/silver ratio will (probably) plummet.  This says silver is better than gold, palladium is better than platinum.  And while I wouldn't buy copper at these levels (RSI-7=98!!), that's probably good too.

3) Bonds are in trouble.  The losses in the bond funds will be immense.

The market is in the process of preparing itself for a big flood of government money, lining up behind those assets most likely to benefit.  There will be inflation.  Yes, me, Mr Deflation, is telling you that inflation is on the way.  Inflation!

Not hyperinflation or some other goldbug-fantasy of a massive collapse in confidence where the buck turns to confetti, just a barrel-full of new money being injected into the real economy in a way that only deficit-funded governments can do best.  As in, a CPI-U of maybe 4-5%.  The Fed will get its wish, and then some.  Boy will that upset some apple carts.

Long term bonds back up to 4-5% again?  That's a 30% loss to your favorite bond fund.

So that's what I'm projecting based on what I see now.  YMMV.

In the meantime, if you have gold or miners: be careful out there.  Money is flooding elsewhere right now.  That's what the charts are telling me right now.

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18 Comments

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
The 3 factors driving the market:

Nationalism,reflation and deregulation.Good for U.S equities and the dollar,bad for the 10 and 30 year.And as expected,the billionaires boys club lead by Anthony Scaramucci let the downtown crowd know ahead of time that he would be leading the charge...First order of business,undoing the last 8 years of protecting the public.When they show you,believe them...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
Nationalism, Isolationism, & proliferation

Yes, the nationalism piece is there too, lest I forget.  That's why those foreign currencies aren't doing so well.

Saw a piece where a European asked the question, "How can we have a free Europe without the US security umbrella?"

A fascinating question.  If the US suddenly decided to just mind its own business, how would the world change?  Those who want the US to be internationalists would call this isolationism; others might call it avoiding blowback from ill-considered meddling in a bunch of no-win situations.

I'm not sure what I think.  What would a world be like where the US decided to stop attacking everyone?  Would it collapse into a free-for-all?  Or would there be more peace overall?

I guess we'll never know how many petty (and perhaps, not-so-petty) wars between neighbors didn't happen because the US stepped in and told everyone not to fight.

We certainly see all the wars that are going on because we think we know what's best.

If the US stepped away from its current role, nuclear proliferation would happen pretty rapidly.  Many, many countries would immediately embark on nuclear weapons programs.  Japan, Korea, Saudi Arabia, Iran, Iraq, Taiwan, Germany, perhaps Poland, certainly Turkey, Australia, perhaps Vietnam, hmm...I think the list would soon become quite long.  Maybe the answer would be "almost everyone with the capacity to do so."  And those that didn't, might well just buy nukes from those who already have them and who are in need of cash.

Our nuclear monopoly is maintained largely through the threat of force.  That, and lots of places don't feel the need to have nukes, because we do and they are our allies - and the rest, we pressure into not letting them develop nukes.  Do we think this makes the world a safer place?  At first glance, I'd say it does.

Its just a thought.  Maybe I'm just infected with the usual American exceptionalism.  What do you think?

 

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 309
Respectfully

I will not go down that road.The neo con hornets nest is still sleeping.And for all the Veterans that served,Thank You...

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5568
Wow...look at TLT

This bond carnage is amazing.  I'm not sure if equities can really persist in this environment for very long given the extreme degree of corporate leverage.  We shall see.

Losing 8% in a week given the duration environment is a pretty big deal.

That's gotta be creating shock waves.  I guess we always knew that reversing the interest rate environment was going to be expensive, and now we get to find out if that's true.

At any rate, I think this is a much bigger deal than is being appreciated in the public court of opinion obscured as it has been by the screaming headlines about a new ALL TIME HIGH for the Dow.

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1428
If bonds are crashing, gold

If bonds are crashing, gold should be going up.   The market is truly crazy. 

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Bond market closed..

Great day for a Gold hit. 

http://www.zerohedge.com/news/2016-11-11/gold-crashes-5-month-lows-someo...

We just need the phys to run out.. it already has in India.

http://www.silverdoctors.com/gold/gold-news/modi-india-war-on-cash-golds...

   

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
Gold & Silver

Looks like they're going much, much lower.  Just an absolute bloodbath out there.  Silver down nearly 5%.  Gold down over 2%.  Miners getting slaughtered.  They look like they want to give up most, if not all of their gains on the year.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
gold broke support

Yeah gold broke support, and in this environment, it leads to a lot of selling.  My sense is, buyers are scarce right now because traders feel that Trump is going to Make America Great (i.e. no need for flight-to-safety) and so the commercials get to have their way with prices once again.

No buyers = "market subject to large downward moves" when the commercials have large short positions.

Buck has also rallied +0.55 since the lows at 08:00.  That just adds fuel to the fire.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5568
Getting close to a "sell Everything"

TLT (bonds) now negative.

Indexes red.

Oil deep red.

Gold/silver deepdeepdeep red.

EM deeply red (-3%)

++++++++++

Dollar green

Okay, this is a "sell everything" signal of the sort you get when dollar carry trade funded speculation gets unwound.  Will it be orderly, or not?  

This may be the exact opposite of the "America will be great again" trade.  

First the implosion (dollar up, everything else down), then the explosion.  It's a possibility here.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
Increasing Deficit & Ballooning Debt

Are these factors not bullish for PMs?  I always thought that ultimately, they were.  There's no way a Trump administration will undertake a massive infrastructure project and cutting taxes without inflating both...substantially.  Is that bearish for PMs?

It makes me wonder if the entire rally we've seen since the end of last year has been mostly manipulation.  Nothing fundamentally about the fiscal environment has changed.  Both Trump and Clinton wanted massive infrastructure projects.  Trump seems to want to cut taxes more.  I doubt the Fed is going to embark on a tightening cycle under Trump any more than they would under Clinton.  Either way, the currency supply is going up.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
could this be the final unwind of the smart money shorts?

http://www.zerohedge.com/news/2016-11-10/single-biggest-trade-trigger-la...

Maybe inflation is really coming.. that's what bonds are saying.  The cartel needs to get out of as many of it's shorts as it can before the real action begins.  India is dry of Gold right now.  East:West arb differentials are screaming, $13 on Gold, and a massive $1.12 on Silver.  I will be watching for signs that phys is getting scarce. 

sand_puppy's picture
sand_puppy
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1754
What is the dollar carry trade you speak of

Chris (or DaveF),

Could you explain the unwinding of the dollar carry trade that you are suspecting here?

Talk like you are visiting the 3rd grade class .....   Then I will get it!

Thanks

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
It Continues

Gold down now $45 or roughly 3.5% and Silver down a whopping $1.42 over 7.5%!  Race is on to get back to even on the year!  Pretty amazing decline.  Shorts are killing it today.

Cornelius999's picture
Cornelius999
Status: Gold Member (Offline)
Joined: Oct 17 2008
Posts: 373
When you put it as

When you put it as succintly as that Dave I say to Uncle Sam keep talking softly and carrying the big stick. I'm too old to learn Russian.

MJB's picture
MJB
Status: Silver Member (Offline)
Joined: Jan 5 2016
Posts: 117
Time to Buy?

Doesn't seem like a bad weekend to visit my local PM shop.. Anyone buying the physical on this free fall?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
time to buy?

I think buying actual metal is fine, as long as the premiums aren't too obnoxious, but in terms of mining shares, we might have some more downside come next week.  The big red candles that show no buyers and close at the lows tend to have follow-through for a while longer.  Retail people wake up the next day or three, look at their account and say "holy crap my miners got hosed", and sell.

Could be a day or two, might be 3-5 before the actual low gets made.

 

Coda's picture
Coda
Status: Member (Offline)
Joined: Jul 5 2016
Posts: 7
Yeah I was hmming and

Yeah I was hmming and harring about going to my local to pick up an ounce (I'm a small fry, me :P) but I really think that buying last moment on a Friday is a bad idea. I bought a lot of ozs a few months ago on a Friday when I thought we were at the bottom, only see it start plummeting Sunday evening... I need my sleep. crying   

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Failed investor advice

Just from what I see, I think I wouldn't buy anything for about a month...  maybe more. 

I'm looking at a widening triangle downwards on palladium, and it looks like the next sweep will take it down to 580 at least, maybe to 550.  If palladium's getting hit, I suspect they'll all get hit. 

It's the 11th...  I'd expect the next big rise maybe after the electoral college.  There might be a lot of uncertainty about that time. 

That said, let me offer a huge caveat:  I have never made money in any investment with anyone else.  I have ALWAYS lost money.  (Past results are not an indication of future... malarky).

 

 

 

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