PM Daily Market Commentary - 4/20/2017

davefairtex
By davefairtex on Fri, Apr 21, 2017 - 3:38am

Gold rose +1.50 to 1283.50 on moderately heavy volume, while silver dropped -0.12 to 18.01 on extremely heavy volume. Silver was pounded through support twice; once at around 09:05, and a second time at approximately 11:50. Gold fell momentarily in sympathy, but dip-buyers showed up and kept gold from moving lower. Silver was not so fortunate. My guess is, the heavy volume in silver represented a large number of managed money longs being stopped out.

The big news of the day came from Goldman's Treasury Secretary Mnuchin, who promised that the tax reform bill much anticipated by the equity market will be released “soon, very soon.” A bit short on details, he said, “It will be sweeping, it will be significant and it will create a lot of economic growth.” What's not to like about that? About a week ago he said that tax reform was unlikely to happen by August. What to believe? You tell me. There is also chatter that some sort of compromise health care reform will be put before the House next week.

This put the Trump reflation trade right back on.

In other news, a police officer was killed in Paris by an ISIS-inspired jihadi using an automatic weapon. Presidential candidate Fillon, who has been slowly rising in the polls from 4th place, immediately took the opportunity to suggest that the entire national election should be postponed. What will voters think of this obviously self-serving proposal? It seemed tacky to me. Who does this attack help most? Probably Le Pen.

Lastly, the Fed continued to beat the drum about reducing its balance sheet. Today's drum-beating operation was far more subtle than some Fed speaker – and to my mind, more credible – since it was done by Fed staff surveying bond fund managers on how the Fed should communicate its exit strategy. When “the engineers” are called in to plan the execution, that's a much clearer sign that it might actually happen.

https://www.bloomberg.com/news/articles/2017-04-20/fed-intensifies-balance-sheet-discussions-with-market-players

Gold mostly chopped sideways today, with some dips due to the assaults on silver, but every time price dropped, buyers appeared and pushed prices back into the green. Bid remains strong under gold right now, in spite of the immense selling pressure on silver today. The candle print was a bullish harami, which the code felt was slightly bullish. Gold remains above its 9 EMA, and in an uptrend.

Open interest at COMEX for GC rose +9,915 contracts.

Rate rise chances (June 2017) rose a huge +14% to 62%. Most likely, this was due to Mnuchin's statements about the timing for tax reform legislation, although the Fed balance sheet reduction might have contributed too. Gold did surprisingly well given these two gold-negative influences.

The selling pressure on silver was intense today, as the shorts hammered silver through two support levels; once at 09:05 as silver was driven through 18.10, and once more at 11:50 when silver was pounded through round number 18.00. On the spike through 18, silver made a new low to 17.84, but the rebound saw silver return back up to round number 18 which is where it closed. The candle print for the day was a spinning top, which the candle code felt was bullish: it was a very highly rated spinning top, with a 47% chance of marking the low. Code seems to like high volume days with decent-sized rebounds; today's bounce-back was 16 cents, and volume today was immense. Although the commercials have forced price lower over the past four days, a bid remains under silver – even if its not as strong as the bid under gold. Silver ended the day below both its 200 MA as well as the 9 EMA. That's a bearish sign. As I've mentioned before, the COT report shows that the commercials have a massive short position in silver, which means they have a big interest in seeing the price of silver decline.

The gold/silver ratio rose +0.57 to 71.27.

Miners rallied, with GDX up +0.81% on moderate volume, while GDXJ fell -0.55% on moderately light volume. Mostly, the miners chopped sideways today, with GDXJ looking a bit weaker than its cousin. Candle print for GDX was a bullish harami/NR7, which the code felt was neutral. GDXJ printed a doji/NR7, which the code felt could be bullish. No strong signal yet from the miners; if I were to believe the bullish call on GDXJ, i'd also like to see the GDXJ:GDX ratio climb, which it didn't do. After yesterday's big drop, miners still look a bit ill, and today's prints didn't look to me like reversal bars.

Platinum rallied +1.29%, palladium surged a massive +3.42%, and copper moved up +0.67%. Palladium printed a clear reversal bar today, which the code felt was quite bullish. Copper it was more cautious about; copper's spinning top was just somewhat bullish. All three metals looked relatively good today, which supports the thesis that the move lower in silver is just a game being run by the commercials to flush out managed money longs. Gotta love those commercials, always there to ensure free and fair price discovery.

The buck rallied +0.05% to 99.64, printing a doji candle on the day. Not much happened today; the code felt the doji is somewhat bullish. So why did the buck move up so tepidly today given all the dollar-positive news (tax reform, rate increases, etc)? That I don't know. I'd have expected a better move in the buck if rate increase chances rise 14% the way they did today. Maybe equity traders believed Mnuchin, but the currency traders weren't convinced?

Crude continued dropping today, down -0.24 to 50.73, printing a spinning top candle on the day. While the drop was much more modest today, buyers were still thin on the ground. The candle code felt the spinning top was mildly bullish – but certainly not enough to be a reversal bar. Reading the tea leaves, I'd say that crude could find support at round number 50. Best case is a sell-off that finds buyers at 50, and then bounces back up to print some positive-looking reversal bar.

SPX staged a strong rally, closing up +17.67 to 2355.84. Looking at the sector map, we see clear signs that the Trump reflation rally is back; market was led by financials (XLF:+1.69%), followed by industrials (XLI:+1.21%) and then materials (XLB:+1.10%). Utilities trailed (XLU:-0.39%). SPX was able to close above its 9 EMA for the first time in three weeks, but it remains below its 50 MA. XLF printed a swing low today.

VIX fell -0.78 to 14.15.

TLT fell -0.39%, falling in mirror image to the rally in SPX. The drop in TLT wasn't all that dramatic, especially given the sharp rally in equities. It feels as though there is still a bid under bonds. They remain well above their 9 EMA. I'm not sure the bond traders believe in the reflation story being back on just yet.

JNK jumped higher, up +0.30% rising to the top of its recent trading range. JNK looks ready to stage a breakout higher, and its signaling risk on.

CRB continued dropping today, down -0.48%. 4 of 5 groups fell, led lower by agriculture. The industrial metal group was the sole positive sector today.

Gold remains well bid, silver less so, and the miners are in a downtrend.  Trump reflation trade re-appeared today and the effect was strong enough to send SPX above its 9 EMA.  A June rate-rise is back in the cards, and the talk about reducing the balance sheet has become more serious.  Perhaps the Fed really isn't kidding after all.  The bond market isn't sure it is ready to buy the story just yet.

If Trump starts to get the Congress to do things (the funding bill coming up within the next 5 days will be a test case), then that likely will inspire another risk on move, and Stockman's disaster scenario will be off the table.

Tomorrow is Friday, the last trading day before the French first round elections.  If two boring mainstream candidates are selected, I'm guessing that gold will sell off hard, as the safe haven trade gets unwound.  That might even happen with a Le Pen victory - a case of "sell the news" - unless she ends up doing substantially better than expected.  Here's where we get to measure just how significant "the shy Le Pen voter" really is.

This is a case where TA isn't useful, because the news will end up driving price more than anything else.  If, against all the odds Melenchon and Le Pen end up winning, I expect gold will scream higher, but I don't think that's a likely outcome.

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2 Comments

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 122
shrinking the balance sheet

Peter Bockvar the CIO at Lindsey group recently did an interview with Grant Williams on RealVision. He claimed that for every 1 trillion the FED printed it was the equivalent of a 50 basis point rate cut. Where he got those numbers, I don't know,  but, if he's right and the FED is trying to reduce it's balance sheet back to 1 trillion from the current 4 trillion-ish, that's 150 basis point equivalents in rate hikes alone just to shrink the balance sheet. So, they claim they're going to raise rates 3-4 times this year, 3-4 times next year, and shrink the balance sheet, the equivalent of 6 .25% rate increases without causing a recession? I'm not so sure about that. 

BTW, Chris has a great interview with Grant on RealVision. 

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1317
Re: shrinking the balance sheet
lambertad wrote:

Peter Bockvar the CIO at Lindsey group recently did an interview with Grant Williams on RealVision. He claimed that for every 1 trillion the FED printed it was the equivalent of a 50 basis point rate cut. Where he got those numbers, I don't know,  but, if he's right and the FED is trying to reduce it's balance sheet back to 1 trillion from the current 4 trillion-ish, that's 150 basis point equivalents in rate hikes alone just to shrink the balance sheet. So, they claim they're going to raise rates 3-4 times this year, 3-4 times next year, and shrink the balance sheet, the equivalent of 6 .25% rate increases without causing a recession? I'm not so sure about that. 

BTW, Chris has a great interview with Grant on RealVision. 

For some reason I have a vision of a drug addict running out of drugs.

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