PM Daily Market Commentary - 4/5/2017

davefairtex
By davefairtex on Thu, Apr 6, 2017 - 3:08am

 

Gold fell -0.40 to 1257.60 on moderate volume, while silver was unchanged at 18.32 on moderately heavy volume. Gold and silver were hammered lower about an hour before the US market opened, with gold down more than $10 at one point, but gold screamed higher shortly after the release of the FOMC minutes at 2pm, regaining all its earlier losses.

The initial drop in gold came alongside a surprisingly strong ADP employment report which suggested a strong current labor market. With Nonfarm Payrolls coming on Friday, this report was probably viewed by the market as a predictor of a strong payrolls report, which would (probably) encourage the Fed to raise rates more rapidly.

However all that was unwound after the FOMC minutes were released at 2pm. In the minutes, the Fed revealed that “most participants saw a change in their reinvestment program sometime this year” – translated from Fed-speak, it means the Fed will be reducing its balance sheet by keeping the cash when their bonds mature, rather than buying new bonds with the proceeds. This would end up contracting the money supply.

As soon as this hit the tape, gold promptly screamed higher, the buck fell off a minor cliff, and SPX immediately started unwinding its substantial rally of the day. Interestingly, long term treasury bonds actually rallied too, after an initial dip lower.

Gold was already headed lower prior to the ADP report, but the report coincided with a big, high volume spike that hammered gold down $5 in 1 minute right at 08:15. Gold eventually bottomed out shortly after the NY market open, chopped sideways into the FOMC report, and then rallied sharply following the release of the minutes.

Candle print for today was a doji candle, which the code felt was mildly bullish. Uptrend apparently remains in place. On the chart we see that gold's drop off the ADP report took gold through the 9 EMA. Had that move held, it would have been a swing high, a drop through the 9 EMA, and would generally have been quite bearish.

Open interest at COMEX for GC rose +568 contracts.

Rate rise chances (June 2017) rose 4% to 66%.

Silver initially followed gold lower, but was generally more successful in resisting the selling pressure following the ADP report at 08:15. The rally after the FOMC minutes release was quite similar to gold. Candle print for silver was a dragonfly doji, which the code felt was mildly bullish. Silver's uptrend also appears to remain in place.

The gold/silver ratio fell -0.02 to 68.65.

Miners were under pressure for much of the day, but once gold and silver decided to rally after the FOMC minutes release, GDX followed along. However, GDX was unable to keep its gains through end of day, dropping about 1% in the last 30 minute sof trading. GDX closed up +0.13 on moderately heavy volume, while GDXJ fell -0.35% on moderate volume. Candle code found the spinning top candle to be relatively bullish. The miners appear to be preparing to break above the 50 MA resistance zone.

Platinum rose +0.04%, palladium rallied +0.19%, and copper jumped up a big +2.20%. Copper's big rally took it back above the 9 EMA and back up to the 50, printing a swing low which the candle code felt was bullish (52%).

The buck staged a strong rally following the ADP report at 08:15, only to reverse course sharply following the FOMC minutes release at 14:00. The early rally took the buck clean through the 50 MA, but the subsequent pullback ended up dragging the buck back to almost even; USD closed up just +0.02 to 100.43. Candle code found the doji candle to be neither bullish nor bearish. Buck remains in an uptrend, but momentum has pretty clearly stalled out just below the 50 MA.

Crude rallied strongly in Asia and London, however the EIA report showed a slightly bearish 1.6 million barrel inventory build. The modest build didn't seem like much to me, but it caused crude to drop all its gains for the day and then some. Crude eventually closed down -0.29 to 50.93. The spinning top candle print was seen as mildly bearish. The print looks uglier than that to me; perhaps that's because I saw crude drop another 50 cents once the FOMC minutes were released. From the technical standpoint, we probably need a confirmation tomorrow before getting too bearish about crude.

SPX rallied higher following the ADP report at 08:15, peaking out at about +16 shortly after the market opened. Once the FOMC minutes were released, however, SPX started selling off, with velocity picking up int the close. SPX ended the day down -7.21 to 2352.95. Candle print was just a long black candle, which the code felt was bearish. SPX closed below its 9 EMA. Financials led lower (XLF:-0.76%) while utilities rallied (XLU:+0.56%). It was a risk off day.

VIX screamed higher, up +1.10 to 12.89.

TLT had a bit of trouble after the ADP report, seemed a bit confused after the FOMC minutes release, dropping initially, but then it rebounded and ended the day up +0.31%. TLT remains above its 9 EMA, and is at the upper end of its recent trading range. TLT is suggesting risk off.

JNK moved higher along with SPX, but then sold off after the FOMC minutes, eventually closing down -0.14%, ending the day just below its 9 EMA. Candle code thought that JNK's closing black marubozu looked bearish.

CRB rose +0.30%, mostly on the strength of the rally in industrial metals. CRB is slowly moving higher.

After hearing that the party might really be coming to an end in 2017, the instant reaction of traders today was to sell. The specific motivation of the traders is speculation on my part – the market's reaction is not.

The prospect for a “change in reinvestment policy” was positive for gold, silver, miners, and to some extent TLT. It was negative for SPX, crude, and JNK.

Now we have to wait until tomorrow to see if this has any legs.

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1 Comment

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 377
Rebound
DaveFairTex wrote:

Now we have to wait until tomorrow to see if this has any legs.

The rebound in stocks appears to be on. I closed my DAX short this morning at 12150. It looked like the snapback was imminent once it couldn't break below 12100 so I just tightened my Stop Loss and walked away - if nothing else it means more pennies for the next attempt :)

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