PM End of Week Market Commentary - 1/27/2017

davefairtex
By davefairtex on Sun, Jan 29, 2017 - 2:53am

 

On Friday gold rose +2.90 to 1193.70 on heavy volume, and silver shot up +0.36 to 17.15 on moderate volume. Gold and silver both rallied following an unexpectedly poor GDP report released at 08:30; the key fact was that the 1.9% growth rate was boosted by 1% by a build in inventories. Without the inventory build, GDP would have been 0.9%, and furthermore, those inventories will have to be worked off somehow in the coming quarter. Bad news was good news - for gold, silver and bonds.

This week was a total mixed bag for the metals, with copper leading, palladium losing all of last week's move higher, silver and the miners mostly flat, and gold down.  Most elements remain above both the 50 and the 9 EMA.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Copper $COPPER 3.10% 31.28% rising rising rising rising ema9 on 2017-01-04 2017-01-27
Silver Miners SIL 0.54% 116.83% rising rising rising rising ema9 on 2017-01-27 2017-01-27
Platinum $PLAT 0.53% 14.04% rising rising falling rising ema9 on 2017-01-20 2017-01-27
Senior Miners GDX 0.43% 67.53% rising rising rising rising ema9 on 2017-01-27 2017-01-27
Silver $SILVER 0.20% 20.44% rising rising rising rising ema9 on 2017-01-27 2017-01-27
Junior Miners GDXJ -0.38% 96.96% rising rising rising rising ema9 on 2017-01-27 2017-01-27
Gold $GOLD -1.36% 7.00% falling falling falling falling ema9 on 2017-01-25 2017-01-27
Palladium $PALL -6.06% 50.70% falling rising rising falling ma50 on 2017-01-27 2017-01-27

Gold fell this week, plunging through its 9 EMA, but on Friday the bad GDP report seemed to rescue gold right around the 50 MA, resulting in a “takuri line” candle print. Candle code really likes the outcome, giving it a 73% chance of marking a low. I'm guessing the strong volume on Friday contributed to the high rating. What is even better is that gold managed to do this on a day when the buck actually moved higher. That's a very good sign, as the opposite effect was seen on Wednesday – gold fell even though the dollar dropped too. Candle code doesn't know about the buck; we have to add that in ourselves.

The May rate-increase chances rose to 35%.

COMEX GC Open interest fell -37,773 contracts.

One final note. Friday was contract “roll day” - which means the traders sold the “front month” contract (GCG7) for the next-month contract (GCJ7).  That by itself caused a $2.70 move in gold due to the contango (G7 closed at 1191.00 while J7 closed at 1193.70), and it also might explain the rally; sometimes funny things happen near contract expiration for gold and silver. Candle code doesn't know about contract roll dates, but I believe the takuri line is still valid.

Silver spent most of the week dropping, first printing a swing high, then dropping below the 9 EMA, only to be rescued on Friday by a large rebound. On the chart we see that the 50 MA acted as support, and then that Friday's bad GDP report encouraged silver to rally right back through the 9 EMA, regaining all of its earlier losses. Candle print was just a “long white” candle, but the candle code found it relatively bullish: a 51% chance of marking a low. The gold/silver ratio also fell this week, dropping -1.11 to 69.90, with the entire move happening on Friday.

Miners were basically flat this week, with GDX printing a swing high on Wednesday, but then recovering on Friday. Candle print was a “confirmed NR7” which is bullish: a 57% chance of marking the low. GDX was just able to close back above its 9 EMA, which is also bullish. The GDX:$GOLD ratio rose this week, while the GDXJ:GDX ratio fell – we can call that a wash. Even on the days that the miners fell, there were no big high-volume selling days, which I interpret as positive.

USD

The buck was engaged in a potential bottoming process, rising three days out of five, but still managing to drop -0.17 to 100.48 on the week. Candle print on Friday was a doji, which the candle code suggests is more bullish than bearish, but the buck remains below its 9 EMA and has yet to print a swing low.  It is still in a downtrend.  The Euro may well have topped out – Euro printed a swing high on Thursday, the Yen continued to decline, and the Pound rallied sharply.

US Equities/SPX

The US equity market rose +23.38 [+1.03%] to 2294.69, breaking to new highs on both Tuesday and Wednesday. The DJIA finally broke through the much-watched 20,000 level on Wednesday after spending 6 weeks chopping sideways just below that level. Its time to break out the Dow 20k party hats! Woohoo!

VIX fell -0.96 to 10.58. You have to go back to mid-2014 to find the VIX that low, and before that, the next time was right in 2007.

You might be wondering, why is the market making new highs when the GDP (GDPC1) rating is at 1.9% - and that with 1% of the increase from an inventory build?  I have no idea.  I just work here, I'm not the boss.  Mechanically, its about money flows of course, but don't ask me to explain why the money is flowing in.

This week, sector map shows the leading sectors were materials, homebuilders, and the financials; copper took materials higher, and the financials were helped by a strong earning report from JP Morgan. Interest-sensitive sectors such as REITs and utilities fell. More than half of the sectors in the map have executed golden crosses, and are above all 3 moving averages. Six sectors have risen more than 30% over the past 52 weeks, while the defensive issues (REIT, utility, staples) were all up less than 10%. My sense last week of an impending correction: wrong.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Materials XLB 3.37% 40.15% rising rising rising rising ema9 on 2017-01-20 2017-01-27
Homebuilders XHB 2.63% 18.41% rising rising rising rising ema9 on 2017-01-23 2017-01-27
Financials XLF 2.16% 37.84% rising rising rising rising ema9 on 2017-01-24 2017-01-27
Technology XLK 1.89% 26.91% rising rising rising rising ema9 on 2017-01-03 2017-01-27
Telecom XTL 1.81% 44.23% rising rising rising rising ema9 on 2017-01-23 2017-01-27
Industrials XLI 1.66% 32.48% rising rising rising rising ema9 on 2017-01-24 2017-01-27
Cons Discretionary XLY 1.35% 16.03% rising rising rising rising ema9 on 2017-01-04 2017-01-27
Gold Miners GDX 0.43% 67.53% rising rising rising rising ema9 on 2017-01-27 2017-01-27
Healthcare XLV -0.13% 6.65% falling falling falling falling ma50 on 2017-01-27 2017-01-27
Cons Staples XLP -0.38% 5.29% falling rising falling rising ema9 on 2017-01-27 2017-01-27
Energy XLE -0.42% 31.24% falling rising rising rising ema9 on 2017-01-27 2017-01-27
Utilities XLU -0.51% 8.67% falling rising falling rising ema9 on 2017-01-19 2017-01-27
REIT RWR -1.25% 6.90% falling rising falling rising ema9 on 2017-01-25 2017-01-27

Gold in Other Currencies

Gold fell in every currency, dropping most in GBP.  Pound has rallied sharply – possibly due to the UK parliament getting a vote on BRExit. I'm just guessing the bankers in London will be dumping truckloads of money on the politicians ahead of the vote – whenever it happens.  Good news is, UK is no longer at the back of the "queue" as far as negotiating a trade deal with the US.  Gold in XDR fell -24.

Rates & Commodities

TLT fell -0.31% on the week, popping briefly above the 50 and 9 EMA but then dropping below it once again, making a new low. On Friday TLT managed to print a swing low, but the candle code wasn't so impressed; only a 24% chance of marking a low. That's a very low rating. Bonds continue to struggle.

JNK jumped up +0.68%, breaking out and making new closing highs for the cycle. The hints of bearishness from last week were totally eliminated by the breakout. JNK is saying: risk on.

CRB fell -0.30%; CRB remains in a strong uptrend, but dropped below its 9 EMA at end of week.

Crude fell -0.04 to 53.20, basically unchanged on the week. On Friday, crude printed a “spinning top” which is about equal parts bullish and bearish. On the chart, we can see that crude is forming a rough ascending triangle over the past three weeks. Crude remains above its 9 EMA, but appears to run into a whole lot of resistance every time it attempts to move above 54, which marks the top of the triangle. Still, crude was able to overcome yet another bearish-looking petroleum status report; this week showed a bearish 2.8 million barrel build in crude inventories, and a big 6.8 million build in gasoline inventories. The COT report tells me that managed money are the buyers.

Physical Supply Indicators

* SGE premium to COMEX jumped back up to $21 over COMEX.

* The GLD ETF tonnage on hand fell -10.08 tons, with 799 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1210.20 and silver closing of 17.11:

 PHYS 9.75 -0.61% to NAV [down]
 PSLV 6.52 +0.01% to NAV [down]
 CEF 12.12 -7.45% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for gold or silver .

* Big bar premiums are lower for gold [1.90% for 100 oz bars in NYC], lower for silver [+2.14% for 1000 oz bars in NYC], and lower for silver eagles at +16.39% [NYC].

Futures Positioning

COT report covers trading through Tuesday Jan 24th, when gold closed at 1211.30 and silver 17.11.

In gold, commercials added +11k shorts, and managed money closed -7.5k shorts. Managed money still has 75k short contracts remaining, which is far from any sort of high.

In silver, commercials added +3.5k shorts, while managed added +4.5k longs. No high yet for silver either.

Gold Manipulation Report

There were no spikes seen this week.

Macro Picture

If I look at my macro indicators, here is what I see:

Positive

  • Retail Sales: rising
  • Real Personal Income: rising
  • Nonfarm Payrolls: rising
  • Credit Stress: falling
  • Aggregate weekly hours worked: rising
  • NYSE Margin Credit: rising

Negative

  • Industrial Production: falling
  • Bank Credit: flat/falling
  • Auto Sales: falling
  • FTE: flat

What's are the most important indicators?  The big 4 are industrial production, retail sales, real personal income, and nonfarm payrolls.  3 of 4 are rising.  Bank credit is an important driver of the economy, and it is flat-to-falling in the last few months; going from "up" to "flat" is bad, since it is the change in credit that adds to or subtracts from aggregate demand.  Moving to flat will thus effectively subtract from aggregate demand and thus GDP.  Lastly, even the government CPI is starting to rise; right now its at 2.1% and appears to be accelerating.  Flat credit + rising costs will eventually take its toll on the other indicators.  When, I can't say.

Last point.  Trump appears to be working hard to favor labor over capital.  That's what taxing or eliminating the trade surplus is all about; more expensive consumer goods in exchange for higher domestic wages.  This policy change will be negative for corporate profits, but (theoretically) positive for US capital spending and eventually wages & salaries.  Its also wage-price inflationary; both wages and consumer product prices will rise  That boils down to the following simple equation: bad if you own stocks that off-shore, good if you have a salary.  And, most assuredly, bad if you run a country with a trade surplus with the US.

Kyle Bass explains more:

https://www.bloomberg.com/news/videos/2017-01-25/kyle-bass-trump-adds-gasoline-to-chinese-woes

"Somewhere between 'free trade' and 45% tariffs is where we're going to end up.  And with that come some profound consequences."

 

Summary

PM fell for most of the week, bouncing back on Friday after the bad GDP print, with gold lagging behind the other elements.  Buck looks to be trying to put in a bottom, SPX broke out to new all time highs, junk debt continued to rally, long bonds took another small leg lower, and crude is having difficulty moving above 54.  Its still a picture that suggests risk on - but that relatively low GDP print was a skeleton at the risk-on feast, possibly even a harbinger of doom.

Gold COT still looks bullish, with managed money owning 75k short contracts. Managed money in silver has a small short position, and managed money is going long. This buying is probably what is causing silver to move higher.

Gold and silver big bar shortage indicators still show no signs of shortage in the west; ETF premiums were mixed, and GLD tonnage rose slightly. In Shanghai, premiums bounced back higher after gold's drop. Chinese traders are buying even the small dips right now.

The Chinese government's (apparently successful) crackdown on capital outflows is starting to show up in the international property market:

https://www.bloomberg.com/news/articles/2017-01-26/world-s-biggest-real-estate-buyers-are-suddenly-short-on-cash

I'd guess that the more effectively they restrict cash outflows, the stronger the flow will be into gold.

What do I see for next week?  I suppose it depends on whether or not the bottoming process in the dollar turns into a reversal.  Trump is throwing grenades left and right, and who knows how that will affect confidence and thus money flows into the US, as well as the risk-on sentiment.  Longer term, things seem to be slowing down.  When will the market notice and move to a more risk-off posture?  Technically, with a VIX reading below 11, we are at max complacency.

Based on what happened Friday, I'm cautiously positive on PM, but we'll have to see what the buck does on Monday.  A move to risk off should be positive for PM and bonds.

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5059
must read: individual marketing technology

Ok, so this is kind of what I've been worried about RE: facebook.  Long article about how a researcher came up with the methodology that allowed one company to be able to use detailed profile information to individually target campaign ads in order to win elections.

http://motherboard.vice.com/read/big-data-cambridge-analytica-brexit-trump

The measures were radical: From July 2016, Trump’s canvassers were provided with an app with which they could identify the political views and personality types of the inhabitants of a house. It was the same app provider used by Brexit campaigners. Trump’s people only rang at the doors of houses that the app rated as receptive to his messages. The canvassers came prepared with guidelines for conversations tailored to the personality type of the resident. In turn, the canvassers fed the reactions into the app, and the new data flowed back to the dashboards of the Trump campaign.

In the Miami district of Little Haiti, for instance, Trump’s campaign provided inhabitants with news about the failure of the Clinton Foundation following the earthquake in Haiti, in order to keep them from voting for Hillary Clinton. This was one of the goals: to keep potential Clinton voters (which include wavering left-wingers, African-Americans, and young women) away from the ballot box, to “suppress” their vote, as one senior campaign official told Bloomberg in the weeks before the election. These “dark posts”—sponsored news-feed-style ads in Facebook timelines that can only be seen by users with specific profiles—included videos aimed at African-Americans in which Hillary Clinton refers to black men as predators, for example.

Steve Bannon is on the board of Cambridge Analytica, the company that provided the data.

You click "like" at your own risk.

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

4 to 1 he lasts 6 months....

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