PM Daily Market Commentary - 5/8/2018

davefairtex
By davefairtex on Tue, May 9, 2017 - 3:31am

Gold fell -2.20 to 1226.20 on moderately heavy volume, while silver dropped -0.11 [-0.64%] to 16.23 on moderate volume. A strong rise in the buck, and a sharp rise in rate-increase chances provided headwinds for PM today.  Macron's election victory proved to be a sell-the-news event for the Euro, which helped the dollar to rally.

Gold gapped down at the open in Asia, making a new low to 1221.00, then proceeded to rally almost $15, but the rally failed and gold sold off into the close. Candle print was a high wave, which the code felt was quite bearish. Likely we have new lows ahead for gold. There is some support at 1220, and a lot more down at the 1200 level. Gold's RSI7 is 18; gold is oversold. Viewed in Euros, gold was quite close to forming a swing low; gold actually managed a decent performance in Euros.

Open interest at COMEX for GC fell -2,414 contracts.

Rate rise chances (June 2017) jumped up to 87%. We got to hear from 7 different Fed speakers last Friday, and another 2 today. Most likely, that's what caused the change in rate increase expectations.

Silver also tried rallying, but its rally failed too, and silver just continued to fall into the close. However, the spinning top candle was seen just as neutral, rather than bearish. Silver managed to avoid making a new low. Silver has some strong support around round number 16, extending to the previous low at 15.75. Silver remains very oversold, well into capitulation territory, with RSI7=6.45.  In early Asia trading this morning, silver made a new low to 16.14.

Open interest at COMEX for SI rose +4,238 contracts.

The gold/silver ratio rose +0.35 to 75.53.

Miners sold off early, but rallied back and by end of day GDX closed off just -0.05% on extremely light volume, while GDXJ climbed +0.13% on extremely light volume also. Candle print for GDX was a spinning top/NR7, which the code felt was neutral. Print for GDXJ was also a spinning top, which the code found to be bullish.

The GDX:$GOLD ratio rose gently, as did the GDXJ:GDX ratio – the moves were very modest, but are a good sign for PM.

Platinum continued rallying, up +0.50%, palladium fell -0.67%, while copper plunged -1.77% making a new low invalidating last Friday's almost-reversal. Copper is back to looking bearish once again. This probably won't do silver any favors.

The buck put in a strong rally today, rising +0.40 to 98.85. The Euro was the primary cause, dropping -0.65% and printing a swing high. This post-French-election move appeared to be a classic case of “sell the news”; traders have been buying the Euro in anticipation of Macron's election over the past 4 weeks, and once the news broke, the buying pressure vanished. The dollar's candle print was a bullish belt hold, which the code found to be quite bullish: a 74% chance of marking a low. While today's dollar rally stopped right at the 9 EMA, I'm guessing that the dollar has now reversed direction, and will now start to move higher.

Crude traded in a fairly wide range, but ended the day little changed, up +0.09 to 46.62. Candle print was a high wave, which the code felt was equally bullish and bearish. I guess that means neutral. Oil is probably awaiting the API report due out tomorrow after market close. Oil equities took today's move as bullish, following through off last Friday's swing low: XLE rose +0.71% and is now back above its 9 EMA.

SPX fell slightly but recovered back to even, closing up +0.09 to 2399.38. I guess that's another new all-time closing high. Energy did best (XLE:+0.71%), while materials did worst (XLB:-0.80%) with sickcare not far behind (XLV:-0.62%). Copper's plunge probably hurt the materials sector.

VIX plunged -0.80 to 9.77. This is the first close in the single digits for VIX that I can remember.

TLT fell again today, dropping -0.54% and closing below its 50 MA for the first time in 8 weeks, making a new low. At this point, TLT has unwound almost half of this year's rally. TLT is signaling risk on.

JNK edged up +0.11%, moving right up to its 9 EMA. JNK remains in a long term uptrend, has almost recovered from last Thursday's plunge, and is signaling risk on.

CRB rose +0.12%; only 2 of 5 sectors rallied, but one of them was energy, and that was enough to drag commodity prices higher overall. CRB is still quite close to multi-month lows, and remains in a clear downtrend.

Now that the excitement from the French election is over, focus has returned to the Fed: the rate increase in June, and possible changes in the balance sheet. When might that second bit happen? Soon, apparently. By next meeting? Well, that would probably be a surprise – but maybe.  The gaggle of Fed speakers on Friday, Saturday, and today weren't just out talking to hear the sound of their gums flapping.  They probably do mean soon.

http://www.marketwatch.com/story/fed-officials-say-balance-sheet-could-be-cut-in-half-to-2-trillion-2017-05-05

Boston Fed President Eric Rosengren and Bullard said they wanted the Fed to start to shrink its balance sheet soon.

In the meantime, silver has been beaten like a rented mule at the COMEX, the net result of that is seen in the COT report that shows a massive drop in managed money long holdings. Good news is, if you want to buy silver, its about $2.30 cheaper than it was last month. The only fly in the ointment are falling copper prices, which will probably help to tug silver prices lower.

I'll leave you with this article, which lines up pretty closely with my views on spike attacks in both gold and silver – although these guys only track gold.  The summary for busy executives: while gold smashes are effective at moving price, they end up providing buying opportunities once the longs have been rinsed out.   I think that's where we are today in silver.

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

While such gold-futures shorting attacks quickly hammer gold, they are inherently self-limiting.  All those shorts must soon be covered with symmetrical offsetting long buying.  So following the initial multi-week selloffs after past gold-futures shorting attacks, gold enjoys strong multi-month rallies.  All the selling after the shorting attacks soon leads to gold-futures selling exhaustion, paving the way for big mean-reversion buying.

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8 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 364
Gravity

PMs continue to seemingly fall unabated for the time being, while it looks like we're going to crack 2400 on the S&P today.  And Bitcoin will probably be at least $2000 by week's end.  I'm not sure how high Bitcoin could go, but as the west starts understanding it better, you could see a mad rush into it....kind of like what everybody keeps saying about the gold sector (how it's so tiny and will really skyrocket when the "gold rush" that seems to never come comes).  There's very little manipulation capability with Bitcoin.  Sigh.

Dave,

I have a question about Armstrong's views on the US equity market, if you have time.  He routinely implies that essentially, because everyone is so bearish on the equity market, that's the fuel needed to keep it moving higher.  He is therefore never seemingly bearish on stocks.  My confusion is that I'm not sure how that idea makes sense.  If you look at the mainstream, i.e. where most people get their info and have their opinions formed, the mainstream is bullish on equities, touting all the new highs and proclaiming life is good.  AND we see the retail investor getting excited now and jumping in.  The bearishness is overwhelmingly found in the alternative space, which is the minority.  That is not to say that you don't hear the occasional bear in the mainstream, but overwhelmingly, the analysis there is bullish.  It's not until you read blogs like this or visit sites like ZeroHedge that you get more of a real picture of risk.  So from what I can tell, the majority is NOT bearish, like he claims.  So I'm not sure why he says what he does, unless I'm misunderstanding.

But I guess the bottom line is, if CBs are actively buying stocks, we'll have a very difficult time sustaining even a 5% decline on the way to 100,000 on the DOW.

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 364
And another thing...

Stockman is losing credibility.  I think the guy has some good fundamental points, but he's always calling for a fiscal bloodbath to be just around the corner.  He's become a click-bait analyst.  He's beating the shutdown and debt ceiling drum again for the end of summer.  Of course, there's no other alternative than a fiscal bloodbath and 50% decline in equities.  Except, that they always pass a CR or temporarily suspend the ceiling or increase the ceiling or any number of other things.  This notion that Trump is going to play hard ball to get his "outsider" way is complete baloney.  It's easy to see that that ship sunk in the harbor two months ago.  The swamp is the swamp.  It's not going to be drained.  Ever.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5422
watching bitcoin

Being long during a correction (or in a bear market) is no fun at all, and the PM downtrend remains in place.  But remember, PM is just a currency.  The goal isn't to get rich from your gold trade.  Its to hold value if/when things really go south.  The miners - now the goal there is to make money.

As a trade, it is much more fun to be long bitcoin and see it go vertical.  Of course, if you'd bought in last time at 1100, (does anyone remember the intensity of hype here at PP last time around?), your ride would have been substantially less fun.

As regards how the public views equities, I'm guessing that Armstrong is using some sort of "retail participation" metric; I'm not entirely sure which metric he uses.  And yeah, with central banks buying all the dips, it will be pretty hard to get a correction going.  Maybe that changes if we enter a recession, or there is some sort of banking emergency.  Armstrong is pretty confident about his private/public phase thing.  It sure has seemed to work.

As for bitcoin - I prefer my currency to have at least one of two attributes:

a) I can use it to pay either my taxes or my debts, no conversion required.

b) it must have a long history of being internationally recognized as having value.  Ideally, it must also have survived a depression and/or at least one major war.  Best case - the currency should have survived the fall of an Empire, and perhaps even a dark age.  If the currency ends up being buried with people, that's a good sign too.

Bitcoin isn't a currency, but is has been a great trade.  Its going seriously vertical.  At some point, it will retrace violently.  That's how those vertical moves always end.  The fun is always in trying to figure out when that will be.  RSI7=91 as of yesterday.  It could still keep going higher, as you say.  Maybe 2000 in a few days.  Or maybe it corrects tomorrow.  Or maybe it hits 10,000 as everyone rushes in because its the new new thing, just as you say.  I have no idea.

The stuff I put my money into falls into one of four categories:

a) its a currency (USD, or gold).  Cash is a position too.  I consider gold to be cash, just in a "foreign currency" that is viewed with suspicion by the central planners.

b) its something that I can assess the value of using normal metrics.  Rental property has a cap rate, a home has a rental-equivalent cost, a stock has a PE ratio, a bond has a yield.  I want to be able to compare it to other stuff - to see if I'm buying high, or low.

c) its a "reversion to the mean" trade.  It had a value before under (b), but its been beaten down so low that, while it doesn't have a value right now, as long as it doesn't go BK, if I wait a few years, the value will return.  Hopefully.

d) Its a leveraged play on something I follow: oil futures, gold futures, or junior/senior gold miners.

Bitcoin doesn't fall into any of those categories, so I'm enjoying watching from the sidelines, as I did during during dotcom.  I missed out on all those dotcom stocks (I could never figure them out) both on the way up, and on the way down too.  I did do a little bottom feeding in 2003, which ended badly, but my losses were modest.

I also missed out on bitcoin at $200, at $1100, and at $200 again, and now at $1600.  If it doesn't fit into one of my boxes, then I'm happy to just watch everyone else have fun.

But Pets.com at $50 doesn't mean the people who bought it were geniuses.  It just means a lot of people bought it.

jtietz79's picture
jtietz79
Status: Member (Offline)
Joined: Sep 10 2015
Posts: 9
Nice Pop for PMs this afternoon

Short covering or some news hitting? 

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 364
Agree

Dave, really good post, and I agree with you on pretty much all counts.

Re: Armstrong, he's referenced the fact, on several occasions, that the market can't crash because retail investors have not been participating in the rally that we've seen since 2009.  Now, that is either because they're still scared and are sitting all in cash or bonds, or it's because they don't have as much money to invest as they used to.  Maybe a combination of both?  I mean Boomers, which is where the retail wealth is, are going to be net withdrawers over the coming years.  And I don't think the generations that came behind them are going to be able to pick up the investing slack.  So, given that, it makes me wonder if it's even possible to see the amount of retail investment that we've seen in the past, which makes me call into question Armstrong's premise about the market can't collapse due to lack of retail participation.

I guess the other possibility is money outside the US coming in, which is definitely possible.  It makes sense that as capital controls are enacted around the world and/or global economies go into recession, money would potentially flow into US equities.  He mentions this as a possibility as well; and it's one I can see.  But these kinds of things have happened in the past, and we've always seen corrections come, even if only for a brief time.

But none of that really addresses his view that the masses are still bearish on the market.  I don't really get that, because I don't see it anywhere.

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 364
jtietz79 wrote: Short
jtietz79 wrote:

Short covering or some news hitting? 

Kinda seemed to coincide with the market sell-off (of a whopping 36 points!!!!!!) on the Dow, which seemed to coincide with North Korea comments about turning US assets to ashes or something like that.  Not sure why the market would respond to that, though.  They've said a lot "harsher" things than that.

dryam2000's picture
dryam2000
Status: Gold Member (Offline)
Joined: Sep 6 2009
Posts: 292
It's all about the USD/JPY

So goes the USD/JPY so goes the prices of gold & silver in an inverse fashion, much more so than anything else.  The weakening JPY has prompted more japanese citizens to buy bitcoin.  Much of the recent run up in BTC has coincided with big inflows from Japan.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5422
JPY

JPY did make a large move about the same time SPX sold off and TLT/gold/silver jumped higher.  Most of the currencies moved at that time, but the JPY move was the strongest - and it moved as though JPY was the safe haven, which was a bit of an oddity.

 

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