PM End of Week Market Commentary - 5/5/2017

davefairtex
By davefairtex on Sat, May 6, 2017 - 11:54pm

 

On Friday gold was unchanged at 1228.40 on moderate volume, while silver rose +0.01 to 16.34 on moderate volume also. Gold and silver both sold off early, but buyers appeared, giving silver its first positive day (by a penny!) over the last 15 trading sessions. Nonfarm Payrolls report came in relatively strong, but while the economic-bullish news did help rate-rise chances, it didn't lead to further drops in PM.

It was another bad week for the metals, with silver leading gold down, and the juniors leading the seniors down too. Gold finally broke down below its 200 MA. This leaves only palladium and copper in a longer-term uptrend.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL -1.49% 35.94% rising rising rising rising ema9 on 2017-05-05 2017-05-05
Copper $COPPER -2.76% 18.40% falling falling rising falling ema9 on 2017-05-03 2017-05-05
Senior Miners GDX -3.06% -10.88% falling falling falling falling ma50 on 2017-04-24 2017-05-05
Gold $GOLD -3.24% -4.00% falling falling falling falling ma50 on 2017-05-03 2017-05-05
Platinum $PLAT -3.46% -14.11% falling falling falling falling ema9 on 2017-04-24 2017-05-05
Silver Miners SIL -4.18% -1.01% falling falling falling falling ema9 on 2017-04-19 2017-05-05
Silver $SILVER -5.11% -5.96% falling falling falling falling ma50 on 2017-04-25 2017-05-05
Junior Miners GDXJ -6.08% -15.35% falling falling falling falling ema9 on 2017-04-13 2017-05-05

Gold fell -41.10 [-3.24%] on the week, continuing to sell off following the in-line performance of Le Pen in the French first round presidential elections. Macron's widening lead has encouraged gold holders in Europe to bail out – at least that's how it appears to me. Gold priced in Euros has fallen even faster, dropping -4.11%. Candle print for gold on Friday was a doji, which the code felt was neutral. This suggests that gold's downtrend continues, unfortunately.

The June rate-increase chances rose +12% to end the week at 79%.

Silver plunged -0.88 [-5.11%] this week, dropping 4 days out of 5. Friday's slight rally was a welcome sight for weary silver longs, who are now used to daily moves of 20 and 30 cents down. Candle print was a high wave, which the code feels is a 40% chance of marking the low. Silver avoided making a new low on Friday, which actually makes it more difficult to print a swing low next week, so that's unfortunate. Silver ended the week with an RSI7=7, which is still absurdly oversold.  If silver continues to fall, it does have some decent support first at 16, and then again at 15.75.

The gold/silver ratio rose +1.46 to 75.18.

After plunging for most of the week, on Friday the miners looked as though they were ready to bounce. GDX rose +2.13% on moderate volume, while GDXJ climbed +2.09% on moderate volume also. The real good news were the candle prints; GDX printed a two-candle swing low/bull tasuki line which added up to a 93% chance of marking the low. That's as high as it gets. GDXJ wasn't quite as enthusiastic; its bullish tasuki line was just a 56% chance of marking a bottom. The GDX:$GOLD ratio appeared to also put in a reversal this week, while GDXJ:GDX continues to move lower. Junior miners remain the red-headed stepchild, at least for now.

While the rest of the metals did quite poorly this week, Friday saw a bit of improvement.  Copper printed a bullish-looking closing white marubozu - almost a swing low, palladium did print a swing low that was quite bullish, and platinum also printed a swing low that was just mildly bullish.  It was a good end to a bad week.

USD

The buck fell -0.39 to 98.45 this week, making a new low on Friday. Once again, this was mostly about the Euro, which rose +0.92% to a multi-month high of 109.97.  Macron is doing well; the Eurozone lives!!

Longer term, the Euro remains deep in a downtrend; at minimum, it must break out above 116 to consider any sort of recovery.  Chart below shows the "Macron Effect" on the currency in a longer term context.

US Equities/SPX

SPX rose +15.09 [+0.63%] to 2399.29, with SPX breaking out to a new all time closing high on Friday. Most of the week was spent chopping sideways; Friday's rally was mostly about the recovery in commodity prices that came that same day. SPX is on the cusp of a breakout above 2400; likely if it executes a breakout, equities will continue to rally as traders try to avoid being left behind and whatever hardy (foolish?) shorts cover once again.

Sector map looked fairly neutral, with only financials and technology making some minor gains for the week.  Contrast the amount of "green" in the map with all the "red" in the PM map.  Good news for equities generally means bad news for PM.

VIX fell -0.25 to 10.57.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 1.32% 27.48% rising falling rising falling ema9 on 2017-05-01 2017-05-05
Technology XLK 1.08% 31.07% rising rising rising rising ema9 on 2017-04-20 2017-05-05
Industrials XLI 0.87% 21.08% rising rising rising falling ema9 on 2017-04-20 2017-05-05
Materials XLB 0.77% 16.79% rising rising rising falling ema9 on 2017-05-05 2017-05-05
Healthcare XLV 0.62% 9.17% rising rising rising rising ma50 on 2017-04-25 2017-05-05
Cons Discretionary XLY 0.12% 14.57% rising rising rising rising ema9 on 2017-04-17 2017-05-05
Cons Staples XLP 0.07% 4.25% rising rising falling rising ema9 on 2017-05-04 2017-05-05
Utilities XLU 0.06% 5.25% rising rising falling rising ema9 on 2017-05-05 2017-05-05
Homebuilders XHB -0.03% 13.51% rising rising rising rising ema9 on 2017-05-05 2017-05-05
REIT RWR -0.18% -3.99% falling falling falling falling ma50 on 2017-04-27 2017-05-05
Energy XLE -0.78% 2.89% falling falling falling falling ema9 on 2017-04-26 2017-05-05
Telecom XTL -1.22% 25.48% falling falling rising falling ema9 on 2017-05-03 2017-05-05
Gold Miners GDX -3.06% -10.88% falling falling falling falling ma50 on 2017-04-24 2017-05-05

Gold in Other Currencies

Gold fell in all currencies; the falling dollar did insulate US gold holders to some degree. Gold in XDR dropped -49.29.

Rates & Commodities

TLT fell -0.87% on the week, moving lower but finding support on its 50 MA. Friday's candle print was a swing low, but the candle code found it to be a very weak one, resulting in a neutral reading.

JNK moved lower, dropping -0.57%. Most of the damage came on Thursday, the day when oil suffered its big loss. Friday's bullish harami print was rated quite strong, with a 70% chance of marking a low. JNK appears to have found support on its 50 MA.

CRB dropped 2.09% this week, smashing through a previous low on Thursday, courtesy of oil's plunge. PM, industrial metals, and energy all fell. Commodities continue their downtrend, and are down 10% from the highs set back in January.

Crude was hammered this week, dropping -2.66 [-5.41%] to 46.53, and that's after a strong $1 rebound that came on Friday. The big damage in crude happened on Thursday, as crushed smashed through 47 support. Friday crude continued dropping, making a new low to 43.82, but then the buyers appeared pushing prices back up almost $3, printing a massive spinning top candle which the code found to be bullish, with a 47% chance of marking the low. That's actually pretty good for a single-candle pattern.

The crude COT report, which did not cover Thursday's big drop, shows that managed money longs have bailed out of 150k longs over the past few months, while adding perhaps 60k shorts. This week, managed money added 39k shorts and bailed out of 19k longs. This positioning is now quite bullish, and I suspect the big plunge on Thursday has only added to the situation. While I will agree that the news is horrible, somehow I think oil will find a way to rally anyway.

Physical Supply Indicators

* SGE premium to COMEX fell to +10.17 over COMEX.

* The GLD ETF tonnage on hand was unchanged, with 853 tons in inventory. GLD did not drop even through the price of gold plunged. That's unusual.

* ETF Premium/Discount to NAV; gold closing of 1228.40 and silver closing of 16.34:

 PHYS 10.02 -0.06% to NAV [up]
 PSLV 6.24 +0.57% to NAV [up]
 CEF 12.18 -6.6% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed some modest premiums for both gold and silver.

* Big bars premiums at HAA were: gold [400oz, NY] 2.26% and silver [1000oz, NY] 3.3%.

Futures Positioning/COT

COT report is through May 2nd, when gold closed at 1257.80, and silver at 16.84.

This week in gold, the commercials closed -11.9k shorts, while managed money sold -12k longs. These were relatively minor changes in position. From the COT standpoint, gold is much closer to a high than a low.

In silver, the commercials closed -21.2k shorts, a 16% decrease, while managed money bailed out of 21.3k longs, a 27% decrease. Managed money is basically fleeing silver and rushing to go short.  These were huge changes in COT positioning for silver, and the current positioning suggests we might actually be getting close to a low. Certainly we are now at the same place where silver bottomed out in mid-March.

Gold Manipulation Report

There were no meaningful after-hours spikes this week in either gold or silver.

Eurozone Status

  • French Presidential Elections: second round: Sunday. Current numbers: Macron 62.5%, Le Pen 37.5%. Macron gained this week. Perhaps the magazine cover deluge helped. While from one viewpoint this is a victory for the status quo, from another – no candidate from a major French political party made it into the final round. That's equivalent to the US presidential finalists being neither a Republican nor a Democrat.  People in France are angry, but probably not quite angry enough to vote for Le Pen this time around.  France also has a parliamentary election on June 18th.

  • German Elections; October 2017: currently the polls show Merkel 35/Shulz 29. Shulz is slowly losing ground. Both parties are pro-Euro. Non-event.

  • Greek bailout; June 2017 they need to pay 7 billion Euros. This week Greece announced a staff-level agreement with the Troika agreeing to the specifics of even more austerity. In response, Greece is now demanding debt relief, and has made debt relief a condition for actually implementing the new austerity package. The market believes it will all happen: the Greek stock market jumped 10% this week, breaking out to multi-year highs. Next meeting of the Eurogroup: May 22.

  • Turkey & the migrants: there are 2.75 million Syrian refugees in Turkey. Turkey has demanded visa-free travel for its citizens in the EU with a deadline: the end of May, or else the migrant controls come off. The EU has a tough near-term choice: accept an unlimited number of visa-free Turkish visitors, or deal with a deluge of Syrian refugees & migrants from other places currently living in Turkey.  I'm not sure how the EU wins here. Erdogan wants to either offload poor Turkish people onto the EU, or the millions of refugees from other places that are currently living in Turkey. The latest news suggests that the EC will give in to Turkey's demand.  http://www.bbc.com/news/world-europe-36188558

  • Italian Elections: Renzi is back; he was re-elected as head of the PD party this week after promising to resign from politics just five months ago after he lost the referendum. He is now comparing himself to Macron; why not try the “I'm not Le Pen” trick since the strategy worked so well for Macron in France. Elections are scheduled for May 2018, but may come earlier once everyone agrees on the election mechanism itself. M5S (5-Star Party) is polling at 28.5%, while the PD is at 27.5%.

Summary

FOMC did nothing, Nonfarm Payrolls was positive, and the metals plunged this week, perhaps finding a low this Friday.  Bullish candles were seen in crude, copper, palladium, silver, and the miners.  Is that enough of a chorus to mark a low with confidence?  Macron's likely victory could well be a "cover short" event for the safe haven asset sell-off; I think the anticipation of that may be some of what we saw happen on Friday.

COT report shows that the commercials continue to ring the cash register in silver, but not in gold. Silver's COT report is now bullish for silver; my guess is, we are much closer to a low - if not now, then probably next week.

Gold and silver big bar shortage indicators shows no shortage in the west, although the rise in ETF premiums this week suggests that people are buying this drop rather than selling it.  In Shanghai, premiums fell slightly on the week, but remain in place.

We don't have anything exciting on the calendar this week; Retail Sales on Friday is about it.  I'm guessing we will see lows in commodity prices relatively soon - if they haven't been printed already.  A significant fraction of the items I track had bullish-looking events on Friday.  Gold itself didn't do well, but given the incredibly extended gold/silver ratio, perhaps that's to be expected.  Gold may not lead a rebound - that probably falls to the oversold PM risk assets like silver and the miners.

Trend-following code says:

Uptrend: platinum, miners, natgas, SPX.

Downtrend: gold, silver, crude, long bond, USD.

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3 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 380
Dive

Nice write-up as usual, Dave.

Well, the Macron win should provide a nice catalyst for the next leg down in PMs and a nice springboard for the equity markets tomorrow.  That's my prediction.  We shall see.

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 380
Costanza Approach

Looks like the initial fallout from the election is gold and silver up nicely and stocks pretty flat in overnight futures.  Maybe I should take the George Costanza approach and think/do the opposite of my initial prediction.  We'll see what happens tomorrow.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
sell the news

Logic goes like this.  "Macron will likely win.  That will be bad for PM.  Therefore, I must sell my PM prior to his win so I don't get caught out."

By the day of the victory, everyone who is concerned like this will have sold, entirely removing any selling pressure, leaving the field to the buyers/shorts covering.

We saw clues of this on Friday.  For the first time in literally 15 trading days, silver didn't plunge.  That was a hint that the selling pressure was letting up.  Other than the ridiculously low RSI, one motivating factor could easily have been short-covering in anticipation of Macron's likely victory.

You can use your "feeling" to tune into the crowd; you assume they're feeling the same thing you are, and then you just assume they are front-running this feeling.  Nobody will wait until the day of.  They will sell ahead of time in anticipation of the event.  That's the theory anyway.

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