PM End of Week Market Commentary - 5/19/2017

davefairtex
By davefairtex on Sun, May 21, 2017 - 2:57pm

On Friday gold moved up +8.90 [+0.71%] to 1255.70 on moderately heavy volume, while silver rose +0.27 to 16.84 on moderate volume. A big drop in the buck [-0.76%] helped gold and silver to rally; the buck made new lows, and gold recouped more than half of Thursday's losses, but the move was just a currency effect. Gold in euros remains weak.

This week the metals did relatively well with the exception of palladium which was crushed, dropping 5 days out of 5, down -5.90%. I don't know why this has happened to palladium, but it has clearly moved into a downtrend. The rest of the metals group all managed to move above their 9 EMA lines. Gold actually looks best, as it is now above all 3 moving averages.  As mentioned, most of this rally was driven by the plunge in the dollar.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 2.49% 3.81% rising rising falling rising ma50 on 2017-05-12 2017-05-19
Copper $COPPER 2.35% 25.32% rising rising rising falling ema9 on 2017-05-19 2017-05-19
Silver $SILVER 2.31% 2.00% rising falling falling rising ema9 on 2017-05-19 2017-05-19
Gold $GOLD 2.27% 0.00% rising rising falling rising ma50 on 2017-05-19 2017-05-19
Platinum $PLAT 2.05% -7.51% rising rising falling rising ema9 on 2017-05-12 2017-05-19
Senior Miners GDX 0.62% -4.59% rising rising falling rising ma50 on 2017-05-19 2017-05-19
Junior Miners GDXJ 0.22% -10.68% rising falling falling rising ema9 on 2017-05-11 2017-05-19
Palladium $PALL -5.90% 35.51% falling rising rising falling ma50 on 2017-05-17 2017-05-19

Gold shot higher this week, managing to close +27.90 on the week in spite of the pummeling it received on Thursday. Friday's candle print was a white marubozu, which the code felt was mildly bullish. When viewed in Euros, gold remains above 1120 support, but has not been able to rally. Almost all of gold's move this week was due to the large drop in the dollar.  Still, gold is now through all 3 moving averages, which is definitely a bullish sign.

The June rate-increase chances fell to 74%.

COMEX GC open interest rose 8,194 contracts.

Silver rose +0.38 [+2.31%] this week, making a new high, then a swing high on Thursday, followed by a substantial rally Friday. The candle print on Friday was a bullish harami, which the code felt was quite strong – a 68% chance of marking a low. Silver ended the week above the 9 EMA, which is a positive sign, especially welcome after the pounding silver took on Thursday, which to my eyes had all the hallmarks of a deliberate assault that was designed to force prices lower.

The gold/silver ratio fell -0.03 to 74.57.

COMEX SI open interest fell -2,028 contracts.

Miners were mixed this week; GDX made a new high, but then fell back, Friday's short black/NR7 candle ending up looking neutral. GDXJ printed a short black candle also, which the code felt was also neutral. The only miner group to rally were the silver miners, which actually managed to move up +2.49%. Both GDX and GDXJ remain above their 9 EMA lines, while SIL is actually above its 50 MA too. The GDX:$GOLD ratio fell on the week, as did the GDXJ:GDX ratio. That's bearish.

USD

The buck was crushed, plunging -2.12 [-2.14%] to 96.91, making a new low as a result of uncertainty regarding Comey's firing, and the legal implications for Trump. Friday's candle was an opening black marubozu, which the code felt was bearish. The Euro ended up +2.57%, closing at 112.07, a level it hasn't seen since October 2016, while JPY was up +1.85%, and the pound +1.15% - closing above 130 for the first time since September.

There should be some support for the buck around 96, if it gets that far. RSI7 for the buck is 23, which says the buck is now oversold.

US Equities/SPX

SPX fell -9.17 [-0.38%] to 2381.73 on the week, dropping hard on Wednesday but managing to recover most of its losses by Friday. The rally on Friday was a swing low, which the code assigns an 83% chance of marking a low. While concerns about Trump has sent money fleeing out of the buck, the worry does not seem to be bothering equities very much at all.  Can that last?  We'll see what happens on Monday now that Comey has agreed to testify.  Its hard to have a Trump reflation rally if Trump himself isn't in office.

Although SPX managed to rally back, the sector map still shows signs of the unwinding Trump reflation rally; REITs (RWR:+1.26%), consumer staples (XLP:+0.71%), and utilities (XLU:+0.68%) managed to gain – these are all mostly safe haven items. Telecom, financials, and consumer discretionary led the market lower.

VIX rose +1.64 to 12.04 – but the high this week for the VIX was 15.71.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
REIT RWR 1.26% 0.07% rising rising falling rising ema9 on 2017-05-18 2017-05-19
Cons Staples XLP 0.71% 5.57% rising rising rising rising ema9 on 2017-05-19 2017-05-19
Utilities XLU 0.68% 8.09% rising rising rising rising ema9 on 2017-05-17 2017-05-19
Gold Miners GDX 0.62% -4.59% rising rising falling rising ma50 on 2017-05-19 2017-05-19
Energy XLE 0.49% 3.51% rising falling rising falling ema9 on 2017-05-19 2017-05-19
Homebuilders XHB 0.32% 15.17% rising rising rising rising ema9 on 2017-05-19 2017-05-19
Industrials XLI -0.21% 20.84% rising rising rising falling ema9 on 2017-05-19 2017-05-19
Materials XLB -0.32% 14.12% falling rising rising falling ema9 on 2017-05-17 2017-05-19
Healthcare XLV -0.33% 8.66% falling falling falling falling ma50 on 2017-05-19 2017-05-19
Technology XLK -0.58% 30.84% rising rising rising rising ema9 on 2017-05-19 2017-05-19
Cons Discretionary XLY -0.70% 15.62% falling rising rising rising ma50 on 2017-05-18 2017-05-19
Financials XLF -0.89% 24.75% falling falling rising falling ema9 on 2017-05-17 2017-05-19
Telecom XTL -1.03% 25.01% falling rising rising falling ema9 on 2017-05-17 2017-05-19

Gold in Other Currencies

Gold rose in every currency except the Euro; gold in XDR was up +16.47.

Rates & Commodities

TLT rallied more strongly this week, with most of the gains coming on Wednesday, the day of the big move lower in SPX. In spite of the SPX rally on Thursday and Friday, TLT continued moving higher.

JNK was mostly unchanged on the week, rising +0.09%, sinking with SPX on Wednesday and rallying back at the end of the week as SPX recovered. The candle code thinks the swing low for JNK on Friday is very bullish.

CRB rose a big +1.86%, managing to close back above its 50 MA – which it had not done for 4 weeks. Commodities are recovering nicely after the swing low printed two weeks ago.

Crude rallied very strongly this week, up +2.86 [+5.96%] to 50.84, driven higher by several events: a bullish EIA report which showed inventory draws across the board, and a report from Algeria's oil minister that most OPEC members support extending the OPEC supply restrictions for another 9 months. Yay OPEC. (The alternative: oil in the high 30s, which would be a distinctly unpleasant outcome for the members). Friday's white marubozu candle was rated as bullish. Crude is now cleanly through round number 50, as well as above all 3 moving averages.

Physical Supply Indicators

* I was not able to get SGE data this week..

* The GLD ETF tonnage on hand was unchanged, with 852 tons in inventory.

* ETF Premium/Discount to NAV; gold closing of 1255.70 and silver closing of 16.84:

 PHYS 10.23 -0.73% to NAV [down]
 PSLV 6.40 +0.07% to NAV [down]
 CEF 12.59 -5.7% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed some modest premiums for silver, but none for gold.

* Big bars premiums at HAA were: gold [400oz, NY] 2.19% and silver [1000oz, NY] 3.5%.

Futures Positioning/COT

COT report is through May 16th, when gold closed at 1236.80, and silver at 16.84. The coverage period did not include the large rally on Wednesday.

This week in gold, the commercials closed -13k (5%) shorts, while managed money bailed out of -19k longs (14%) and added +11k shorts (16%). Commercials are still a ways from fully unwinding their short positions. However, managed money is almost there.

In silver, the commercials closed -4.7k shorts (-4%) and added 7.2k longs (+13%). Meanwhile, managed money went heavily short, adding +16.2k shorts (+31%). Both commercials and managed money are well within range of a marking a low from the perspective of the COT report – at least, that's what it looks like to me. Managed money is especially overextended on the short side. Once silver starts to rally more seriously, it should be quite the move.

Gold Manipulation Report

There were no after-hours spikes, but there were several spikes during market hours; one on Wednesday at a little after 3pm, and a couple more on Thursday, all of thich seemed to pull prices lower.  Friday there were no spikes, which seemed to allow silver to recover most of its losses.

Eurozone Status

  • German Elections; October 2017: currently the polls show Merkel 38/Shulz 26. Shulz continues to lose ground. Both parties are pro-Euro. Non-event.

  • Greek bailout; July 2017 they need to pay 7 billion Euros. Greek parliament passed a raft of yet more austerity measures to please their masters in Brussels. Eurogroup meets this Monday, May 22nd, where debt relief and another round of bailouts will be discussed. Greece is back in recession.

  • Turkey & the migrants: no news on the migrant deal, or visa free travel for Turks this week.

  • Italian Elections: it was a quiet news week in Italy again this week. M5S (5-Star Party) is polling at 28.8%, while the PD is at 28.4%.

Summary

This week prices were driven by the fallout from the sacking of FBI Director Comey, and the follow-on demands for drawing up articles of impeachment on President Trump. While SPX mostly recovered from its initial drop, the buck, TLT, and possibly gold are suggesting to us that the trouble is not yet over. There were a flurry of swing highs in the metals and the miners on Thursday, while Friday saw a partial recovery leaving the near-term future of the metals somewhat uncertain. Commodities did very well for a second week in a row, managing to cross the 50 MA, which is a bullish sign.

Gold COT report shows that the commercials continue to cover, but are not yet at a point where we might consider them finished. In silver, everything seems set for a rebound; managed money went heavily short this week, which – probably – will lead to disaster for them, while providing fuel for the inevitable silver rally.

Gold and silver big bar shortage indicators shows no shortage in the west; ETF premiums fell and GLD tonnage didn't move much. In Shanghai, premiums rose as gold fell.

I think silver's big move down on Thursday was a managed move. The selling was very intense, and it moved contrary to several other things that are generally correlated with silver. Plus, the structure of the COT report suggests that silver is due for a move higher.

Comey is going to testify before Congress after the Memorial day weekend. That should be good for some excitement; I'm guessing PM will rally, TLT will rally, and SPX will sell off when the futures market opens Sunday evening in Asia.

Boy, there really is no end to the number of black swans flapping around out there.  Now that Europe has gone quiet, the focus is back to the US.

According to Armstrong, the net effect of all this activity results in a steady decrease in the confidence in government, which peaked in late 2015.  As the man in the street becomes less confident in government, the bid for gold should get stronger.

His interpretation of Macron's election (and Merkel's likely re-election) is that Brussels will now see no reason to reform at all; he sees this as a guaranteed hard landing for Europe, since Italy and the rest of southern Europe ultimately have no choice but to leave since the currency is imposing perpetual deflation on them.  As a result - this current Euro rally is just a head-fake.

For what its worth, anyway.

Trend-following code says:

Uptrend: gold, silver, copper, miners, platinum, crude, natgas, long bond, SPX.

Downtrend: USD.

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8 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
SPX: most-unloved bull market in history?

CR asked the question, where does Armstrong get his information that "this bull market is the most hated in history?"

The answer: survey data.  In terms of public participation, we are bouncing off the bottom, since the question was first asked back in 1999.

You could claim that "wealth has been destroyed to the point where they simply don't have it anymore" - but remember during 1929...shoeshine boys bought shares.  If the public thinks prices are going to go up, they'll gamble, even if it is just with $500.

If he is correct, and the major trend is out of "public assets" and into "private assets" (as confidence in the government declines - supposedly it peaked in 2015), then money should migrate from government bonds to equities, commodities, real estate (as long as it isn't over-taxed by desperate state & local governments), and other non-government places (crypto-currencies?).

Survey data shows there are plenty of people in the US who are on the sidelines.  All this price move has been institutions and (probably) central banks.

Data here: http://www.gallup.com/poll/190883/half-americans-own-stocks-matching-record-low.aspx

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 146
Interpretation of the COT Report

Hi Dave,

thanks for the End of Week Commentary.

Just one point re interpretation of the COT Report. This chart I use to follow the Silver COT indicates that Commercials are still net short '-57'. 

While they have certainly reduced their net short position over recent weeks, '-57' is still historically a major short position. If you look on the chart prior to 2016, their net short position rarely reached '-50'. Wouldn't this suggest they still have lots of interest in hammering silver further? Therefore, isn't this indicator still bearish?

Cheers, E.

 

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 146
Percentage of US Adults Invested in the Stock Market

Dave,

that's an interesting chart.

Given that the demographic wave of Baby Boomers are beginning to retire now and are beginning to draw down from their pension portfolios, couldn't we expect this figure to continue to fall on this basis?

My understanding is that the unfolding retirement of the largest demographic group in the US is going to cause a certain amount of 'forced liquidation' of stock positions. Do you agree?

Cheers, E.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
collapse in confidence

Here is how Armstrong reads the implications of this Impeach Trump movement:

https://www.armstrongeconomics.com/international-news/politics/the-buffoons-congress-mainstream-media-join-forces/

As the confidence in government and the press collapses, this is what is undermining the future. They are not merely destroying the image of the country while making themselves look like buffoons, they are setting this all up for a collapse in the bond markets and a shift to private assets as we conclude this economic business cycle wave.

He's been predicting the move into "private assets" for a very long time, with the peak in confidence in 2015, and declining rapidly thereafter.

Armstrong has his own very long-term cycles that he derived from his research into history.  Theory being, the solution from the last crisis eventually ends up being the source of the next crisis - and the next crisis crops up on a very predictable cyclic timeframe, based entirely on (more or less) how humanity is built.

So for example, "government knows best" was the fix in 1933 to the great depression.  We are now on the downhill slide from "peak Government-knows-best" - unelected EC ruling Europe, HRC/Obama trying to nullify 2016, NSA/CIA watching everything "to protect us", calling any attempts to replace the bipartisan status quo looting machinery "populism", etc.

The MSM is just an extension of the government-knows-best control mechanism, and the more heavily they bias their output, the more confidence in them will collapse.  Same is true about Trump.  If they whack him (either "legally" or physically) that will also bring another leg down in confidence.  Same with the Eurozone.  The more they hose England on BRExit, the harder Germany cracks down on the other countries, the more confidence drops, and the faster we move down the curve towards the endgame.

Dropping confidence results in deflation, and also in capital flight from the sectors (and countries) where confidence is falling.

So you can measure confidence by measuring prices (and ratio changes) in various areas.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5412
holdings and confidence

Demographics for sure should change the ownership ratios and sectors (i.e. you should go from 50% stocks/50% bonds down to 20% stocks/80% bonds - and your stock mix will go from high volatility stuff like tech to stuff with a yield like utilities), but to completely leave the market would seem to be much more about confidence.  Or so I claim.

But this of course is all subject to interpretation.

Again, I think even the older folks would buy at least some equities if they felt they were going to do well.

I just think public confidence in equities has been hurt by 2007, and it still has not returned, regardless of what prices have done.  Armstrong believes the next phase transition will suck everyone in once Dow rises above 23,000.  Between then and now, he's guessing we'll see a correction.

Story illustrating confidence goes as follows:

Guy lived in East Germany.  When the wall came down, he went to get his Stazi file.  He came home, started ripping open the walls of his house.  His family thought he was crazy, until he started pulling the microphones out.  And all his friends that reported on him to the government - listed in his file?  He never spoke to them, ever again.  That's confidence snapping right there - in government, in relationships.

Once trust breaks that severely, it is hard - perhaps even impossible to get back, at least for that particular generation.  You guys who believe deeply in the 9/11 thing; will you ever trust the government?  I'm guessing you might, but only in your next lifetime.

And that's why we have short-term cycles, and long term cycles.  If the shock is small enough, trust returns in time.  If the shock is very large, it never comes back.  Turns out, you can measure the severity of the shock using price movements, and how long it will take to return.  It's all about how people work.  History & governments change, but the way people work remains the same, which is why price charts from the tulip bubble (1637) and south sea bubble (1720) still applies today.

Gold last peaked in 1980.  How long did it take for gold to become a thing again?  2011-1980 = 31 years.  That's an example of a large cycle.  The disappointment from that spike was so great, it destroyed interest in gold for 30 years.  I remember my mom shaking her head and saying "I don't want to buy gold." 

Once you get a phase transition of that magnitude that ends up topping out, you need to walk away and not look back for a long time, because that's how people and markets work.  (Unless you don't mind waiting 30 years to get your capital back).  That's according to Armstrong anyway, and he's researched how these things play out in a large number of different items throughout history.

So when we get that move to $5000 for gold, if it looks like a phase transition (i.e. it has a doubling in price over a very short period of time), his advice: sell, and don't look back.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 364
Armstrong Perspective

Thanks for the color around that, Dave.  It seems to me that the sentiment to fuel a rally lead by the retail investor, whose debt levels are at an all time high, and who sees uncertainty in the world, everywhere he looks, is going to take a long time to change from this point.  I don't know what the outlook was from the ordinary man on the street before the stock run-up prior to the crash in 1929, but I do remember in the late 90s, the economy was booming, the stock market was going up, and expectations were off the charts (i.e. there were no obvious risk factors from the perspective of the average investor).

Flash forward to today, there is uncertainty and risk everywhere, not to mention demographics, the "recent" memory of two major market crashes, and the aforementioned debt levels.  In my view, to get the type of retail participation in the market needed for a mega rally in stocks, the average person has to either:

A) Be completely unaware of what's going on in the world around them, in order to achieve the sentiment needed to abandon reason and jump into the equity market with both feet,

B) See some new regulation come into effect that pushes everyone into the equity markets, or

C) See things in the real world that are drastically and quickly changed, affirming to the average investor that all risk is now gone.  Plus, they'll need to see the equity market going vertical like Bitcoin is currently doing.

It's hard for me to believe that sentiment is going to change over the next 2 years (i.e. everything that is presenting a risk to my money is going to vanish, making me want to gamble what little money I have left in the equity markets).

I guess the long and short of it is, historical periods of exuberance by the retail investor which fueled huge equity rallies seem to not currently allow for an apples to apples comparison of the world as it exists today, regarding sentiment and risk.  The market has gone straight up for 8 years, driven mostly by big money.  Maybe a significant pullback, along with a sustained reduction in political uncertainty, more appearance of lasting stability on the geopolitical front, and the illusion of more opportunity and prosperity in the US economy over the coming years will create a different environment from a sentiment standpoint that could fuel such a huge rally.  But in some ways, that goes against the coming collapse in government.  It's all very complicated.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 364
Uh Oh

I added a comment and it went away.  I think I edited it too many times in a row. :(  Hopefully, it will show back up later.

Giant Elk's picture
Giant Elk
Status: Member (Offline)
Joined: Dec 13 2014
Posts: 18
$Gold Chart

$1260 looks like a significant technical level for gold right now.

Cup and handle forming for the month of May to date at the $1260 level. (The handle possibly a bit small for this type of pattern?).

Also a few previous highs at $1260 going back to late Feb.

Today's (Monday) candle a bullish looking dragonfly doji closing at 1260.

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