PM Daily Market Commentary - 4/26/2017

By davefairtex on Thu, Apr 27, 2017 - 3:13am


Gold rose +5.20 to 1270.70 on moderately heavy volume, while silver dropped -0.09 to 17.54 on extremely heavy volume. Gold chopped sideways for much of the day, with the fireworks happening during the announcement about the Trump Tax Plan (Biggest Tax Cut Ever!) which after all was said and done, ended up being PM positive.  It felt a bit like a sell-the-news event.

What was in the tax plan anyway? It was a one-page memo that drew from what Trump had promised on the campaign trail; three brackets, some deduction elimination, increasing the standard deduction, retaining mortgage interest deduction, and a 15% rate for corporations. However, “short on detail” was an understatement. No analysis could be done of the plan given the level of detail provided.

Here's my guess.  When ordered to come up with a tax plan by next week, the guy in charge of making it happen (Mnuchin) said it was impossible to do in such a short timeframe - he even said so publicly. When pushed by Trump to "just make it so", this bullet point list became “the plan.” I've seen this happen in product development when company Presidents demand that engineers “just do something” that's physically impossible. In real life, you can't sit 36 women together in a room to make a baby in one week. The best you can do is buy a doll and say “here, this is what the baby will look like 9 months from now.” A prototype-baby, as it were. And that's the Trump tax plan. It's not a baby, its just a doll. Who knows when the actual “tax plan baby” will appear on the scene, or what it will end up looking like.

Gold did not follow through from yesterday's big sell-off. Rather, it just traded sideways until the tax plan announcement came, at which point it spiked down to a new low of 1260.70, then promptly rallied $10. Candle print today was just a long white candle, which the code found to be ever so slightly bullish. That's a bit less enthusiasm than I had hoped for when I saw it play out.  Gold did seem to find buyers at the 200 MA/1260 support, and so that's a good sign.

Open interest at COMEX for GC rose +4,643 contracts.

Rate rise chances (June 2017) remains at 75%.

Silver chopped sideways in Asia, but then started to fall midway through the London session. The drop didn't stop until the tax announcement, when silver made a new low 17.35 and then bounced back relatively strongly to erase most of its losses on the day. Although the bounce off the lows was about 20 cents, the candle code wasn't impressed, finding the spinning top candle just a little more bullish than bearish. Its definitely not a reversal bar.

The immense volume we've seen over the past two weeks continues, and is even growing.  Today, the SI open interest dropped by -5,859.  The commercials appear to be - finally - ringing the cash register after smashing silver lower over the past 8 sessions.  Given today's lukewarm candle, I am not so sure today is the low, but we may be getting closer.

The gold/silver ratio rose +0.66 to 72.45. The ratio continues to climb, which is not good news for PM.

The miners followed silver lower, selling off steadily. At one point, GDX was off almost 2.5%, but the tax plan announcement pulled the miners back to mostly flat. GDX rose +0.18% on moderately heavy volume, while GDXJ inched up just +0.06% on heavy volume. Candle for GDX today was a high wave, which the code felt was bullish. The miners are oversold, with the RSI-7=24. Today's candle looks like a reversal for the GDX, but the GDX:GLD ratio did continue to drop, as did GDXJ:GDX.  Its a bunch of mixed signals for the miners.

Platinum fell -0.52%, palladium rose +1.27%, and copper climbed +0.12%. Platinum is continuing to fall, along with silver, but palladium looks ready to break out to new highs. Palladium is above all 3 moving averages, and is only a few bucks away from an upside breakout.

I ran a long term correlation to see what time series I have that correlates best with palladium. What came back was: aluminum, the broader metals index, and silver, and on a macro level, NYSE Margin loans, Index of Aggregate Weekly Hours (AWHI), and Industrial Production. Just FYI.

The buck rose +0.26 to 98.86, with most of the gains happening during the London trading session. It looked to me as though the Euro was taking a break after a long run up. Candle print on the day was a bullish harami, which the code felt was fairly bullish. The buck did back off a bit after the tax plan announcement, but was able to keep much of its gains into the close. The Euro has yet to print a swing high, so I'm not certain this is really a low for the buck just yet. The dollar remains below all 3 moving averages, in a downtrend.

Crude rallied sharply after the EIA report revealed a surprise bullish crude inventory draw of -3.6m barrels, but the rally only lasted four hours. Crude eventually lost all its gains and a little more, closing down -0.15 to 49.21. Candle print was a high wave, which the code felt was somewhat bearish. Here I was hoping for a low in crude, but it looks as though today wasn't the day. Crude remains perched just above its 200 MA, which appears to be acting as support. If buyers can keep crude above its 200 MA, that's a good sign.  Based on today's price action, crude may not be quite ready to bounce just yet.

SPX rallied early, seemed unsure how to react about the tax plan, and then sold off in the last hour of trading, ending the day off -1.16 to 2387.45. Candle print was a shooting star, which looked unpleasant but the candle code found it to be only very slightly bearish. Sickcare led (XLV:+0.55%) while consumer staples did worst (XLP:-0.81%). I'm not really sure what this combination means.

The VIX rose +0.09 to 10.85.

TLT rallied back after yesterday's plunge, moving up +0.55% and printing a picture-perfect bullish harami, which the code found to be extremely bullish: an 84% chance of marking a low here. The rally in bonds bodes well for gold, and less well for equities; it is more than hinting at risk off. If this does mark a low for bonds, we quite possibly have a low for gold too.

JNK fell -0.11%, trying to rally and making a new high but then failing, printing a spinning top candle that the code felt was neutral. It looked a whole lot like a gravestone doji, but the candle wasn't large enough to qualify. JNK remains quite near its highs.

CRB tried rallying today also, but it too failed, closing down -0.11%. CRB remains in a downtrend.

The tax announcement was a bust, at least where equities were concerned. I'm guessing here, but perhaps the market's reaction was disappointment.  After being promised a plan, all it got was a one-page bullet point list which was just a repeat of what Trump said during his campaign. Market still doesn't know when the real plan will emerge, or what it will say. The most concrete piece of news was the absence of a border tax adjustment, which did help to more carefully define winners and losers.

At the same time, I'm not seeing a string of reversal bars across the PM complex. TLT is the most positive performer, followed by GDX. These are certainly positive signs but not an indication of a real trend reversal. Silver remains under pressure, and the gold/silver ratio is climbing briskly.

Government shutdown is out.  Trump bailed on the wall (thank heaven - do we really need a $20 billion Maginot Line?) - which means everyone is back to playing nice about funding.  The "Freedom" caucus has decided to support Trumpcare, which suggests that Trump may actually get some legislative things done after all.  I think they didn't like being hung out to dry for the failure last time around.  I can't speak to the quality of public policy-making; the fact that Congress is exempting itself from the pre-existing condition changes is a hint that perhaps its not so great.

But from a market perspective, that probably doesn't matter.  If Trump starts to show signs of being able to manage the Congress, that should help the market's confidence and the reflation trade.  Debt ceiling comes next, but if he really got the "Freedom" caucus to cave on Trumpcare, he might well get them in line for the debt ceiling too.

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Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 380
Nice Fake-out

Nice EOD fake-out in the PM space yesterday.  Bloodbath continues with the miners.  Going to be some good deals on the other side of the slaughterhouse.  Maybe we'll get lucky and get all the way back near the 2015 lows and get to back the truck up again.

davefairtex's picture
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5683

So I'm not sure a 2% drop means bloodbath.  Miners are oversold.  RSI7=19 for GDX, RSi7=13 for GDXJ.  They aren't yet ready to rally but I think they're much closer to a low than a high.

If you want a bloodbath, look at OIH.  It has done a full retrace of its Nov 2016 rally.


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