PM Daily Market Commentary - 6/19/2017

davefairtex
By davefairtex on Tue, Jun 20, 2017 - 4:58am

 

Gold fell -10.10 [-0.80%] to 1245.10 on moderate volume, while silver fell -0.21 to 16.46 on heavy volume. Macron won a 62% majority in the French parliamentary elections held Sunday, which is pretty much of a landslide, all on a record-low voter turnout. The buck rallied fairly strongly, while most of the metals fell. The tech sector led equities to a new all time high – it was a risk on day in most sectors I watch.

The future is so bright, you have to wear shades!

I'm experimenting with a new feature today in the charts; it is my attempt at predicting the future using machine learning. You'll see a new "forecast" line on each chart – light gold – which (on the right axis) shows the code's assessment of what it projects for prices in the near future.  Numbers < 0 mean it sees lower prices ahead, while ratings > 0 mean it sees a rally coming.  Inputs to this net include currencies, bond rates, and selected commodity prices, as well as moving averages, recent historical performance, and a few other things.

In a strong uptrend, you will see the forecast line jump to near the top of the chart. At turning points, the line will move violently as the code predicts a reversal. Sometimes it can catch the reversal as it happens, sometimes it can hint that one is coming soon, while other times it is delayed as the net awaits confirmation. Its not perfect, and can be tricked by head fakes. (If it were perfect, I'd be on a beach somewhere sucking down mojitos). Likewise, when the market chops sideways, it will be whipsawed back and forth across the 0 line - which can be pretty distressing if you are blindly buying and selling off the 0-line crossings.

Think of this as a replacement for all the moving averages, currency correlations, interest rate moves, etc.  That's the theory anyway.

With that...

Gold continued lower today making a new low at 1244.30, and with no appreciable bounce at end of day. The strong dollar rally and the risk on mood sucked money out of gold. Candle print ws a closing black marubozu which probably does not mark the low here. The forecast is bearish (rating=-0.40) consistent with what the forecaster saw during the other recent downtrends, projecting that most likely there is more downside ahead in the next few days.

Open interest at COMEX for GC fell -9,391 contracts.

Rate rise chances (Dec 2017) jumped to 44%.

Silver plunged also, making a new low to 16.44, managing only a very small bounce by closing time. Like gold, there were no buyers for silver either. Last week the pace of the decline had slowed markedly, but the brisk drop today got things moving to the downside again more rapidly. The forecast is bearish but not as bad as gold, relatively speaking. Notice how the forecaster noticed the slowdown over the last few days and rose, but dropped again after todays large move down. Once you learn how to read it, you won't need me anymore. Theoretically anyway. Support for silver is ahead at 16.20 or so. Let's see if any buyers show up.

Open interest at COMEX for SI rose +1,066 contracts.

The gold/silver ratio rose +0.35 to 75.62. That's bearish.

Miners gapped down at the open, tried rallying again today, but mostly failed. Candle print was a southern doji, which the candle code thinks could be a reversal (40% chance). Forecast shows that the downtrend remains in place, but is slowing - the forecast line has been slowly rising since the big move down last Wednesday.  GDX fell -0.59% on moderate volume, while GDXJ dropped -1.64% on moderate volume also. Forecast for GDXJ is substantially more bearish than for GDX, and when I ran the HUI index through the forecaster, it got very unhappy.  If HUI had volume I'd use it, but it doesn't.

The GDXJ:GDX ratio moved lower, which is bearish, while the GDX:$GOLD ratio was slightly positive.

Platinum fell -0.53%, palladium dropped -1.05%, while copper rallied +0.87%. Palladium may have topped out, platinum is mostly chopping sideways near its lows, and copper may be moving back into an uptrend.

The buck had a good day today, up +0.39 [+0.40%] to 97.26, invalidating the dark cloud cover from Friday. The dollar is slowly moving higher, and the forecast says we probably keep moving up, however the candle code isn't particularly bullish on today's long white candle. As always, a higher dollar will cause trouble for gold, and especially now when gold is weak.

Crude continued falling, down -0.55 to 44.31, eliminating last Friday's rally entirely and even making a new low to 44.24. Forecast isn't showing any sort of near-term bounce; it's solidly bearish, suggesting new lows ahead. My guess is that crude will probably chop sideways until the API report comes out tomorrow – and then it will do something more exciting after Wednesday's EIA report at 10:30.

SPX charged up +20.31 [+0.83%] to 2453.46, a new all time closing high. Tech led (XLK:+1.48%) as traders bought the dip, while energy did worst (XLE:-0.63%). Most of the sectors followed tech higher. Looking at the sector map, it seemed to be a risk on day. 

VIX fell -0.01 to 10.37. Nobody needs puts anymore.

TLT fell -0.14%, not apparently buying into the bullish enthusiasm over in equities. TLT remains near its multi-month highs, and the forecaster says the uptrend remains intact, at least for now.

JNK shot up +0.38%, wiping out all of last Friday's losses and then some. JNK isn't quite back to an uptrend; the forecaster is hard pressed to find a trend with JNK. Still, today's move is risk on.

CRB fell -1.02%, making yet another new low. 4 of 5 groups fell, led lower by energy. Really there is just no letup in the commodity downtrend.

There's not much on the economic calendar this week, and nothing exciting scheduled to happen in Europe.  There's the potential for a conflict in Qatar - with all the parties involved, it is a total mess - but my guess is, it probably won't go kinetic.  The US has an important military base there, after all.

No sign of a recession yet, and the only update we get this week are home sale prices, which tends to be a secondary indicator most of the time.

I think the trends now in place just continue.  That means lower prices for gold, silver, and crude oil, and maybe we'll see the buck continue to move higher.

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5 Comments

Giant Elk's picture
Giant Elk
Status: Member (Offline)
Joined: Dec 13 2014
Posts: 18
New Forecast

New forecast rating looks very interesting Dave. It does appear to be a leading indicator based on the value of the rating and also where swings up or down occur, for the last few months anyway. 

I geeked out and had a look at silver and (casually) marked some trades based on a relatively sharp swing and a pass through 0 (opening position), and closing based on a return to 0 (thereby avoiding the chop back and forth across the 0 line). Shown below in boxes with long positions marked in green, and shorts marked in purple, and the vertical height/depth of the box indicating opening/closing price levels. I am sure there is a more optimal way of reading the data but in any case it seems to impressively capture the major trends, and I think a return to 0 seems to be a good exiting indicator. 

Just my observations. I know you mentioned "near future" as the assumed timeline so that might be a conflict with my interpretation (ie, hold position until indicator returns to 0). 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
new forecast

GE-

Yes the 0-line crossing is the buy/sell signal.  In a strongly trending market, it does really well.  However, not all markets trend strongly...

Here is crude oil which nicely shows two different situations: a side tracking market, where the forecast does terribly, and a strongly trending market, where the forecast does quite well.

Red = sell, blue = buy, emitted on the 0-line crossing.  See how the indicator jumps back and forth across the 0-line rapidly when it tracks sideways?  You should probably be on the sidelines sitting on your hands when it is doing that.

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

Dave, really good stuff man.  Thanks for sharing!

Man, the metals have not responded to this rate hike the same way they have previously done.  It's like you said, though, about the balance sheet unwind.  Anyway, the charts are not looking bullish.  Neither is sentiment...so maybe that's a plus?

Anyway, the miners have not been trounced, so that's good.  But crude is getting kicked in the jimmy today.  $42 handle now.  Not too far to go to sneak into the 30s.  Ouch.

cmartenson's picture
cmartenson
Status: Diamond Member (Online)
Joined: Jun 7 2007
Posts: 5728
Oil At very critical level here...

Oil is right at a pretty serious level of support...but if it loses this...then, yes, $30's here we come.

Why might oil fall further?

Because the world is swimming in it right now...and more is coming on line...and if China rolls over there's your demand growth or the next few years.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
oil chart

Yeah there is a lot of air just under $40.  After market close today, API showed a 2.75 million barrel draw.  It didn't seem to move the needle, which is not a good sign.  Possibly it was the gasoline inventory build (346k barrels) which suggested US consumption was down.

I'm not sure we smash through 40 this week; how the market responds to the EIA report tomorrow is important.  Certainly managed money loaded up heavily short last week according to COT, and so I'm guessing they're doing the same thing but even more so right now.  They are probably all eyeing that big empty space below 40, which suggests we probably won't see that happen in this cycle.

Oil equities are showing some resilience; there has been a lot of buying in oil equities in this latest move lower.  You can see that in the XLE:$WTIC ratio.  Today's XLE candle print looked decent, especially given what happened to oil and what the oil chart looks like.

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