PM Daily Market Commentary - 12/1/2016

By davefairtex on Fri, Dec 2, 2016 - 4:19am


Gold fell -1.20 to 1173.60 on moderate volume, while silver rose +0.01 to 16.57 on moderate volume also. A sharp drop in the dollar was not enough to convince gold to rally; all it could do was pull gold back to even after a "manipulation down-spike" early in the Asia session forced gold down to a new low of 1162.20.

On the chart, gold printed a “high wave” candle, which turns out to be a very low probability reversal bar. The new low of 1162.20 was bought, but only just enough to drag gold back up to almost even.  The feeble rebound shows fairly conclusively that buyers remain thin on the ground, at least in the West.  Most likely, the largest buyers are the commercials, who probably continue to ring the cash register, slowly covering their short positions as prices continue to decline.

Rate rise chances fell to 95%.

Gold open interest at COMEX fell -4,336 contracts to 366k total, down from a high of 617k at the peak.

Silver sold off hard alongside gold, making a new low to 16.30 before rebounding, rallying, but then fading into the close. Trading range was large, and the resulting candle print was a “long-legged doji”, which in this context is surprisingly bullish – candle code gives it a 58% chance of marking the low. In fact, silver avoided making a new low, and it has been chopping sideways for the past 5 trading sessions, which is substantially better behavior than gold has shown over the same time period.

Miners fell again today, with GDX down -0.82% on moderately light volume, and GDXJ dropped just -0.20% on moderate volume. Trading range was fairly large, with the candle print being a “high wave” which the candle code says provides us no information about direction. The chart shows a clear descending triangle, which should resolve either up or down within the next few trading days.

Platinum rose +0.44%, palladium dropped -2.71%, and copper rose +0.08%. Platinum made a new low, but printed a bullish-looking “takuri line” which gives a 44% chance of marking the low. Palladium printed a swing high. The four-week palladium rally might now be out of gas.

The USD sold off relatively hard, dropping -0.44 to 101.00. Candle print was an “opening black marubozu” which, surprisingly given how large it is, is neither bullish nor bearish. The buck closed below its 9 EMA, which shows that the upward momentum of the buck has distinctly faded. Across the pond, the Euro has finally managed to squeak back above its own 9 EMA.  This could be signaling that the first impulse of the Trump election has now run its course. If so, that could take some of the pressure off gold.

Crude staged another strong rally, climbing +1.92 [+3.92%] to 50.90, following on to the OPEC decision to cut supply made yesterday. Oil equities had to endure a fair amount of selling, but the “opening white marubozu” candle on oil itself did not look at all bearish. We probably move higher from here. Today's rally ran into resistance near the previous high of 52; a break above 52 would probably cause another burst of short-covering. I'm guessing that's how it will play out; it may be the obvious trade, but managed money was fairly heavily short going into the OPEC meeting, and there may well be a bunch of short stops hovering just above 52 that are just begging to be run. Even with the big moves over the past two days, oil is not yet seriously overbought.

SPX fell -7.73 to 2191.08, dropping below its 9 EMA for the first time in four weeks. In conjunction with the recent swing high, this suggests to me that SPX is now starting to correct. Tech led the market lower (XLK:-2.06%) while financials did best (XLF:+1.73%). The tech-heavy NDX dropped a big -1.58%, which is the second strong day of selling in that index. Tech could be entering a more serious correction. VIX rose +0.74 to 14.07.

TLT sold off again today, dropping -1.06%, making a new low. The 20 year now yields 2.82%. Bonds just can't seem to rally.

JNK caught the same illness, dropping -0.38% and falling below its 9 EMA. JNK may be forming a third “lower high” at this point.  JNK debt is doing a lot better than treasury bonds, but it too is starting to weaken.

CRB continued rallying, up +1.11%, making a new high entirely because of the large move in energy – the other four sectors declined.

Gold made a new low again today; the early “manipulation down-spike” eventually did get bought, but only with a lot of help from a substantial dollar sell-off, and that was only enough to drag gold back up to even. Silver looks more positive, with the miners somewhere in between.

We have seen no conclusive low in the metals just yet. Danger remains. Until we get a higher percentage reversal signal from the price movements, buying right now remains quite risky, in spite of the big price drop that has already taken place.  It still feels as though there are longs remaining in gold that have yet to be rinsed out.

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
Nonfarm Payrolls Friday

Today is Nonfarm Payrolls Friday, with the usual excitement happening at 08:30 Eastern.

I expect a positive report will result in a dollar rally and a drop in gold - but that's just a guess.

The consensus range for the report is 150k-230k, with the average at 170k.


jtietz79's picture
Status: Member (Offline)
Joined: Sep 10 2015
Posts: 9
Dave, if you don't mind me


if you don't mind me asking, what software do you use that gives you the probability on the candles?


thanks for your good work

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
candle code

I wrote the code myself.  Its a large collection of neural nets I trained up on thousands of candle events that date back to the late 1990s.

I feed the current day's context to the proper trained candle model, the model spits out a rating, and then I look to see what the historical candles with that rating ended up doing.  That gives me the "percentage chance" of a high or a low.

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