PM Daily Market Commentary - 2/27/2017

davefairtex
By davefairtex on Tue, Feb 28, 2017 - 12:47am

 

Gold fell -4.60 to 1253.40 on moderate volume, and silver dropped -0.11 to 18.31 on moderately heavy volume. Gold and silver both made new highs as the buck tumbled but then the dollar reversed starting around noon in New York. Once the dollar reversed, so did gold and silver. For some reason, this relatively modest reversal in gold (down only $4) caused absolute mayhem in the miners; the juniors were especially hard hit.

So let's look at the disaster in the mining shares first.

GDX fell -5.35% on heavy volume, and GDXJ was crushed, dropping -9.58% on incredibly heavy volume. On the GDX chart we can see a big red candle – a relatively rare “strong line” - which very seldom marks a low. GDX closed at or near the lows of the day, with the plunge ending right at the 50 MA. The new low, the big red candle, and the heavy volume all points to more losses in the days to come.

GDX had it easy compared with GDXJ, where the losses were almost double. GDXJ also made a new low, the volume was the highest in months, candle print was also a “strong line”, and price closed at or near the lows – these are all signs of capitulation in the junior miners. Today, traders just wanted out; the buyers were very thin on the ground. What comes next? Probably more selling. The RSI7 is only 19, which isn't quite oversold enough for a major capitulation, which generally happens in the 5-7 range. Junior miners are screaming “risk off” for PM. I honestly don't know what triggered the capitulation today.

Compared to the disaster in the mining shares, the reversal in gold was relatively modest. Gold made a new high to 1264.90, but when the buck bottomed out, gold reversed, and fell steadily into the close. Candle print was a “spinning top” which the candle code assigns a 30% chance of marking the top; its really not all that bearish. Gold remains above its 9 EMA, and today's volume was a trifle lighter than normal. Gold's move today did look a bit like a failed rally, but today's reversal was just not all that dramatic.  It certainly doesn't explain what happend to GDXJ.

Open interest at COMEX for GC rose by just +325 contracts.

Rate rise chances (May 2017) remains at 44%; the chances for the March meeting have risen to 33%.

Like gold, silver made a new high too, hitting 18.54 before reversing. Again like gold, the reversal in silver was not all that dramatic; candle print was a “spinning top”, which has a 23% chance of marking the high. Volume for silver was somewhat higher than normal, but nothing too out of the ordinary. The gold/silver ratio rose +0.14 to 68.45. As with gold, this was a relatively unremarkable day.

Platinum rose +0.04%, palladium climbed +1.27%, and copper rose +0.32%. Platinum printed a shooting star, which has a 33% chance of marking the top.

As mentioned, the buck tried to sell off again today, but buyers appeared just before noon in New York pushing prices back up into the green. The buck ended the day up +0.30 to 101.08. Candle print was a “doji”, which the candle code found to be bullish. The buck remains below its 50 MA, but above the 9, apparently trying to sort out which way it will go next. The last couple of candle prints seem bullish, so right now momentum continues to point higher, but from my reading of the chart, it seems to me that the buck could easily go in either direction.

Crude climbed +0.03 to 54.04, once again unable to move higher into that 54 resistance zone. Candle print was a doji, which the candle code says is neutral. It was another failed rally today; crude reached 54.64 before being pounded back down to where it ended the day. While oil remains above all 3 moving averages, and in an uptrend, the selling pressure in that 54 zone remains very strong.

SPX rose +2.41 to 2369.75. This was only a small move, but it was enough to make another all time high. Candle print was just a “long white” candle, but the candle code does not think this marks the high. Energy led today (XLE:+0.86%) while utilities trailed (XLU:-0.56%).  VIX rose +0.62 to 12.09.

TLT fell -0.59%; the bearish tasuki line candle print wasn't particularly bearish, although if the recent past is any guide, we might see a few days of selling before the buyers show up again. TLT is above both the 9 EMA and the 50 MA, and it has been trying to put in a low for the past few months.

JNK rose +0.16%, making yet another new high. JNK continues to signal risk on.

CRB dropped -0.55%; CRB broke support today - the decline in commodities is starting to accelerate.

Today left me very confused.  Gold and silver both seem to be doing just fine, but as we can see, the miners have absolutely cratered.  Why did they do this?  I just don't have an answer.  Is it predictive of where gold goes next?  Normally I'd say yes because in the past, miners tend to lead - they are gold's "coal mine canary" since they are leveraged to the price of gold.  As it stands now, I'm just not sure.  I'm not getting any other "correction impending" signals in gold.

Just looking at the miner charts themselves, I'm not a buyer right now.  Typically after such a large drop there is either another day or two down, and/or maybe some back and forth until a low gets made.  And even then the miners might just bounce briefly, and then sell off some more.  Until the miner moves start making sense, its probably best to just watch from the sidelines.

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18 Comments

vadim_75's picture
vadim_75
Status: Bronze Member (Offline)
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Posts: 48
I dare to suggest to two

I dare to suggest to two possible explanation: 

1) Some big fund is liquidating, blood in the water, sharks are here happy to front run it, business as usual nothing to see here)

The main thing here - it's just ONE player, and it has to do it for any reason.

2) Someone big knows for sure that's a gold top (or which is the same, this is a new start for buck) and not for a couple of days, we saw it years ago and it's deja vu for me now. Unfortunately it means gold is heading far to the south.

The main puzzle for me is not the recent sell-off but previous low-volume days when gold was ripping up higher.

 

Franklopez's picture
Franklopez
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Stops triggered?

This rally in the metals has been on largely due to Asian buyers and there's been little futures long buying or GLD builds. GDX /GDXJ are largely composed of American listed miners. So my take is that American miner investors weren't buying this rally in the metals because the metals buyers were also not coming from America. That set up the negative divergence between metals and miners. 

Id say because the divergence was obvious that many miner investors had put on stops. This looks to me like a massive stop triggering event. 

davefairtex's picture
davefairtex
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nice observations

Frank, Vadim-

Some good options there.  Tactically, I agree with the stop-triggering; intraday I saw a dead cat bounce at the GDX previous low, and then once that level fell, GDX sold off hard right up until the last 5 minutes.  Losing that prior low probably led to a bunch of stops being triggered.

My theory was that the buying was happening in Europe rather than Asia.  [Let me go look at some recent intraday patterns and see what they say].  Ok, by eyeball it looks like the recent gains (since the 6th) happened during the European trading session.

Meh.  I'm still not eager to jump in there.

Cold Rain's picture
Cold Rain
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Posts: 327
Monthly Close

Any guesses as to where we close today?  I'm going to say < $1250.  Armstrong says < $1255 would be bearish.  That will probably happen.

PS: Really good thoughts above.

Franklopez's picture
Franklopez
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Dave I agree with you. The

Dave

I agree with you. The rally started with Asian buying ( majority of daily gains were during the overnight session) more recently that pattern stopped and undoubtedly there are plenty of reasons for the Europeans to start buying with elections looming and so on. 

But my point was that American PM investors have largely missed out on this rally. See recent articles by Adam Hamilton  over at Zealllc.com

http://www.zealllc.com/2017/gfutbyst.htm

we just need a decent selloff in SPX to kickstart that American buying again and then we'll off to the races for the rest of 2017

 

davefairtex's picture
davefairtex
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Posts: 5072
sick miners again

So much for the dip-buyers.  "Avoid first hour rallies after 'strong line' candle prints."

Here's a thought: this could have everything to do with Trump's speech tonight where he (potentially) announces how he plans to govern.

The White House leaks like a sieve.  What are the odds that details of the plan leaked out to some of our friendly bankers, who promptly unloaded short GDX?

Also remember, those senators and congress-people can legally trade on all sorts of inside information.  Not saying their trades move the needle in the market, but you can bet the banks & brokers who handle their accounts notice what they do...

I just talked myself into selling my CEF.

Cold Rain's picture
Cold Rain
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Posts: 327
Here we go

Right on schedule, just like clockwork.  Gold will probably close in the $1240s or lower today.  And as Dave pointed out, miners are toast. We simply can't close a month on a strongly positive day in gold.

Maybe we can get all the way back down to the 2015 lows and load the boat with some of these miners.

Jeffleonard90@gmail.com's picture
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CEF?

What does CEF stand for?

davefairtex's picture
davefairtex
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Posts: 5072
the recent rally

Frank- Thanks for the link, that guy really knows his stuff.

Here's a slightly simpler chart that makes his point perhaps a bit more clearly. Now I see what you mean about "Americans not buying the rally." In my language, that would be "Managed Money Longs" weren't the driver behind this rally. My guess is - its the LBMA doing the heavy lifting now. But its definitely not COMEX.

Crap.  Some problem - I can't attach the image for some reason.  If I can't post it later, I'll include it in my daily report tomorrow.  Its a really good observation.

DennisC's picture
DennisC
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 272
CEF

Likely Central Fund of Canada (ticker CEF).  Trading at a 9% discount BTW (http://centralfund.com).  Otherwise, some nondescript closed end fund (hence CEF).

vadim_75's picture
vadim_75
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Posts: 48
Dave, one thought. Let's

Dave, one thought. Let's assume you're right it's all about Trump's speech. But we're getting payrolls on Friday, right? What if it's gonna be weak? You wouldn't like close your big miners short on falling buck would you? What i'm trying to say if these are shorts indeed, they gonna have hell of a reason and confidence to make such a move, considering all the events ahead. 

Just thoughts.

 

davefairtex's picture
davefairtex
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Posts: 5072
risk off

Vadim-

I'm just thinking its time to reduce risk.  I don't have any special insight into what's going to happen, and the miner sell-off probably has some more room to run.  It appears to be dragging gold down at least a little bit.  I really like it better when everything lines up in one direction.  Then I feel the odds are more in my favor.  Cash is a position too.

Good reminder about payrolls.  And we have the debt ceiling March 15th, and the Dutch elections on the same day.

Once the miners start looking healthy again I'll jump back in.

Jeffleonard90@gmail.com's picture
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Thank you

Thank you

vadim_75's picture
vadim_75
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Posts: 48
Thanks, Dave, fare enough. )

Thanks, Dave, fare enough. )

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 327
Yep

Bye bye gold.  Here come the $1230s.  Been a nice suckers rally tho.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
managed money

Here's my chart: managed money wasn't responsible for the recent rally.  Normally the two lines move together, but this time is different.

vadim_75's picture
vadim_75
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Posts: 48
Interesting chart Dave! After

Interesting chart Dave!

After Dudley's appearance i tend to think that it's not the WH who is leaking but Fed to boost the March expectations. If March hike is a sure thing then it makes sense for our banksters friends to short PM.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
i agree

Vadim-

Yes, I agree with your opinion about Dudley.  Rate rise chances changed massively today.  We knew there was a reason for the sickness in the miners, something was fishy for sure, but we didn't know what the reason was.

Its a good reminder: always watch the prices.  If things are selling off, there's probably a reason, but neither you nor I are ever given a copy of the memo.

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