PM Daily Market Commentary - 6/29/2017

davefairtex
By davefairtex on Fri, Jun 30, 2017 - 3:49am

 

Gold fell -3.80 to 1245.60 on heavy volume, while silver dropped -0.19 to 16.64 on heavy volume also. The plunge in the metals started in Asia, and continued through to just before the open in New York. It paralleled a drop in the US long bond futures that happened at roughly the same time. Gold recovered from the drop at least to some degree, while silver did not.

Once again, a fairly serious dollar plunge was not enough to rescue gold from the selling; over in Euro-land, gold actually dropped -1.04%, making a new low. The entirety of the drop in gold happened during the European trading session as well, with the buyers only appearing after the US market opened. My conclusion is, those pesky Europeans are responsible for the selling in gold.

Candle print on the day was a spinning top, which the code felt was mildly bullish. The forecaster thought otherwise; projections are now bearish, with the forecaster dropping -0.33 to -0.30. There did seem to be support for gold around 1240, and gold's buyers did show up once it was clear that the US equity market was starting to sell off, but – I'm still left with the gold/EUR chart which looks pretty awful. RSI-7 for Euro Gold: 13. For whatever reason, Europeans are dumping gold, and only the falling buck is keeping gold afloat in USD.

Open interest at COMEX for GC rose +3,078 contracts. Commercials are (probably) still leaning short.

Rate rise chances (Dec 2017) moved down to 47%.

Silver had a bad day; it fell along with gold, but when gold bounced at 9:30 eastern, silver bounced and then dropped back down, closing near the lows of the day. Silver printed a bearish engulfing candle, but the code did not feel it was particularly bearish. In addition, while the forecaster dipped, it remains in bullish territory.  The technicals for silver still look ok.  But silver in Euros, made a new low today – that's bearish.

Open interest at COMEX for SI fell -1,548 contracts.

The gold/silver ratio rose +0.64 to 74.88. That's now bearish.

Miners sold off today, with GDX down -2.14% on moderate volume, while GDXJ fell -2.06% on moderately light volume. Both ETFs printed long black candles which were not bullish. The GDX forecaster plunged 0.50 points to read -0.50; it is now deep in bearish territory. The plunge for GDXJ was not as great, but it too is now solidly bearish at -0.43. It seems that miners are probably headed lower.

The GDXJ:GDX ratio continued rising, while the GDX:$GOLD ratio fell.

Platinum fell -0.01%, palladium dropped -1.02%, and copper rose +0.80%. Palladium now appears to be moving into a downtrend (forecast: -0.49), while platinum is neutral, and copper is very bullish (forecast:+0.89).

The buck fell again today, dropping -0.38 to 95.37, making yet another new low. The plunge in the buck continues – EUR, GBP, and AUD all rallied strongly. The forecaster fell again, dropping -0.16 to register a very bearish -0.94. The opening black marubozu probably does not mark a low here.

Crude tried rallying today, making a new high to 45.45 but then fell back to even, printing a northern doji candle on the day. Candle code gave this print a 50% chance of marking the top. Forecaster was not quite so bearish, but did knock -0.12 off its projection, leaving it still bullish at +0.58. The crude rally from yesterday may be running out of steam. Or gas. Or whatever. Then again, it just may have gotten a little ahead of itself. Given the fact that the dollar dropped, crude's performance today wasn't very good.

SPX started selling off from the opening bell; while a mid-day rally mitigated the losses somewhat, SPX still closed down -20.99 to 2419.70. Tech led the market lower (XLK:-1.79%), while financials still managed to do well (XLF:+0.69%). Tech made a lower low today, which is a serious technical indicator of a downtrend. Looking at the volume bars for XLK, there is a great deal of distribution going on – and that's bearish, especially since tech is a sector that tends to lead.

VIX jumped +1.41 to 11.44; day high for the VIX was 15.15. A lot of traders bought a lot of puts in a big hurry during the initial downspike. The market is looking increasingly nervous right now. Still, puts remain cheap, and dip-buying is still happening. So far.

TLT dropped again today, down a big -0.84%. TLT was down substantially more at the open, due to selling in the bond futures markets in Europe, but TLT rallied as SPX dropped. Candle code felt the long white candle was bullish, but the forecaster plunged -0.37 to a very bearish reading of -0.87.  My sense is, Europeans are bailing out of US treasury bonds. They are also bailing out of their own sovereign debt too: German 10Y: +7bp, France +8bp, Italy +12bp, Spain +10bp. The big move today in TLT was only a 4 bp move, so losses in bonds on the other side of the pond were substantially worse. We must interpret TLT's moves in the context of currency flows; it is not saying “risk on” right now, for instance.

JNK fell -0.19%, which is a fairly benign move all things considered. This took JNK just below its 50 MA. Still, JNK is saying risk off.

CRB rose once more, up +0.53%. 4 of 5 groups rallied today, led by agriculture, which jumped 2.15% on the day.  CRB should get a bit of a boost from falling USD, and looking at the $CRB:$XEU chart, we can see that from the Euro standpoint, commodities are just chopping sideways.  CRB's recent 4-day rally (in USD) is just a currency effect.

So we see selling in SPX, TLT, and the buck. It looks like foreign assets are fleeing the US – probably back to Europe. However, the Europeans appear to be fleeing their own stocks and bonds too, heading for the safety of cash (DAX:-1.83%, CAC:-1.88%).

Gold in USD is hanging in there courtesy of a currency effect, while gold in Euros continues to plunge. Miners have tipped over into a downtrend, with the seniors leading lower.

How long will the Europeans continue selling everything? That's hard to say. Gold isn't acting like a safe haven over there right now, although it is in the US. Commercials at COMEX continue to lean into the move lower in gold, from what the open interest numbers suggest.

Nothing is looking healthy right now – except maybe copper.

My conclusion: cash is a position too.

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10 Comments

vadim_75's picture
vadim_75
Status: Bronze Member (Offline)
Joined: Oct 18 2015
Posts: 48
As strange as it may seem i

As strange as it may seem i don't see any attempt to push PM prices lower despite it's very good time to do it, because frankly i don't get why anyone would buy gold now, just doesn't make sence to me.

Anyway now it looks like nobody really care about PM, then wish to manipulate price lower.  

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 372
vadim_75 wrote: As strange as
vadim_75 wrote:

As strange as it may seem i don't see any attempt to push PM prices lower despite it's very good time to do it, because frankly i don't get why anyone would buy gold now, just doesn't make sence to me.

Anyway now it looks like nobody really care about PM, then wish to manipulate price lower.  

Buy when it's under the radar.  It'll still probably go lower, especially if we see a counter-trend rally in the dollar.

Did you see the YUGE Chicago PMI beat today?  Wow, Chicago is back baby!

vadim_75's picture
vadim_75
Status: Bronze Member (Offline)
Joined: Oct 18 2015
Posts: 48
Right, only I prefer selling

Right, only I prefer selling it now.)

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5754
Yeah, because Illinois
Cold Rain wrote:
vadim_75 wrote:

As strange as it may seem i don't see any attempt to push PM prices lower despite it's very good time to do it, because frankly i don't get why anyone would buy gold now, just doesn't make sence to me.

Anyway now it looks like nobody really care about PM, then wish to manipulate price lower.  

Buy when it's under the radar.  It'll still probably go lower, especially if we see a counter-trend rally in the dollar.

Did you see the YUGE Chicago PMI beat today?  Wow, Chicago is back baby!

I saw that and immediately thought that was either a poor joke or someone's lame attempt to make the rapidly crumbling Illinois situation look better.

You know, because image management.

Syedwali's picture
Syedwali
Status: Member (Offline)
Joined: Jun 24 2017
Posts: 1
Market Correction

Sure there is a market correction heading our way, very likely a severe one.

How would that affect Gold Miner Stocks + ETF such as GLD.

Looking at a few stocks back in 2008, most were severely affected only to rebound later.

Should we expect a similar pattern on the next one heading our way- and jump in after.

Any thoughts?

Thanks,

Syed

Cold Rain's picture
Cold Rain
Status: Gold Member (Online)
Joined: Jul 26 2016
Posts: 372
Downdraft

In a severe market correction, which will happen at some point, gold stocks will probably be the baby that goes out with the bath water.  Stocks will succumb to extreme gravitational forces as ETFs get dumped en masse.  Algos will chase down hard as technical levels are breached.

The markets are not as liquid as people believe.  Once the selling starts, given HF algo trading, proliferation of ETFs, very high levels of margin debt, and volatility at such low levels, a great many folks will be taken by surprise at just how fast and how ferocious the indexes will drop.  I'm just not sure they'll let it go so easily, though.  Just look back at all of the V rallies.  You can turn the tide, if you have liquidity and know how the market works.  But I guess, there is a point when it doesn't work and fear hits and indiscriminate selling overwhelms the manipulation.  When and where is it?  That's the question.

Gold will probably rise after, along with gold stocks.  That rally will probably be quite robust.

Chris,

Nice revision up to Q1 GDP too.  I was fully expecting the Atlanta Fed to raise their Q2 estimate, but to my surprise, they dropped it down to 2.7.  That Chicago number is stupid, though.  No way that doesn't get adjusted down later.

pc10101's picture
pc10101
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Joined: Apr 27 2017
Posts: 2
Buy or sell gold

Opinion on buying bullion today - gold dropped again but I wonder if Monday morning, 7/3/17, will be better?? No one can see the future, but I wonder if it will be pushed further down on Monday before the holiday. Any opinions?

davefairtex's picture
davefairtex
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Posts: 5464
bot maker

Two weeks ago I went to this lecture by a guy (a physics PhD) on unsupervised machine learning techniques called "reinforcement learning".  In the past, the lecturer had worked for JP Morgan and others on HFT applications.  He's now got this startup, and he was (more or less) recruiting AI/ML people to come work for him.

The sense I got from his lecture is that there was a big initial move using machine learning to harvest pennies, but that the market is very efficient now at that particular thing, and so its tough to make a living these days by using that approach.  Another thing he said was that, there are bots out there that try to find your bots, and then trick them into losing money.  Enemy bots, as it were.

One interesting question was asked by an audience member: "how do you train your bots for market problems or exceptional conditions?"  His answer, informed by years of work in constructing market maker bots, was: "the vast majority of time is spent in 'normal markets' and as such, that's how we train our bots."  Basically, when things get dicey, they just turn them off.   I've heard that before too, but it was fun hearing it from the horse's mouth.

And, of course, that's why we have flash crashes.  Also my sense is, there aren't really enough humans left to make markets in an emergency, since the profits have been all eaten up by the bots - no money to pay the human traders, which would spend 99.5% of their time sitting and looking at the bots doing their work.  And the bots have only been trained on "normal situation" operations.

It makes sense.  Why train a bot for exceptional situations, when a huge pile of money can be made just on the day to day fluctuations.  Not only is finding enough data to train a bot to run during crash situations difficult, testing is problematic, and then of course you have to wait for a crash and see if it actually works.  And if there's a bug, losses could be catastrophic.  Better to pull the plug when things get iffy.

The discussion today about how exciting things will get during our next move lower brought this all to mind.  It will be simply fascinating to see how things work once they get to a point where the bots all turn themselves off, in (say) the US equity market.  I suspect spreads will get very wide, and individual equities that are less well traded may simply go no bid.  It might be an opportunity for stout-hearted people to make a large bundle of money, putting in bids way below the market and then waiting for the big crash for them to be filled.

I'm having lunch with this guy, along with some friends of mine (bitcoin traders), tomorrow.  Any questions you'd like me to ask?

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5754
Bot Trains.
davefairtex wrote:

The discussion today about how exciting things will get during our next move lower brought this all to mind.  It will be simply fascinating to see how things work once they get to a point where the bots all turn themselves off, in (say) the US equity market.  I suspect spreads will get very wide, and individual equities that are less well traded may simply go no bid.  It might be an opportunity for stout-hearted people to make a large bundle of money, putting in bids way below the market and then waiting for the big crash for them to be filled.

I'm having lunch with this guy, along with some friends of mine (bitcoin traders), tomorrow.  Any questions you'd like me to ask?

Great summary, thanks.

I have a few questions:

  • If we view the machine/bot trading ecosystem as a whole, what would the impact be of someone throwing a few hundred million bucks at a spot at a critical moment?  That is, how hard would it be for a non-economic player (central bank or proxy) to defend a support level on the stock indexes by buying VIX aggressively for example?
  • What do we know about how all of these bots operate in synchrony?  It seems like a complex ecosystem...has there really been a recent stress test of it that we can point to?  Maybe the Treasury yield flash crash?  
  • What's the possibility here for a malefactor to create mayhem?  Could a state actor come in and mess with the ecosystem by carpet bombing a critical market node (i.e. VIX, Futures, etc) with sell orders?  
  • What the heck happens with gold and silver?  Is that one bot, several operating off of each other's signals, or ...?

 

Nate's picture
Nate
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Joined: May 6 2009
Posts: 595
Armstrong on Financial Sense

Many analysts are fearful of an impending downturn as early as next year. In an exclusive interview with FS Insider, legendary forecaster Martin Armstrong of ArmstrongEconomics.com explained his outlook on the global economy and markets, including a bold call that, as early as next year, "we're looking at a central bank that can go bankrupt" — a topic that will be the focus of a July conference in Frankfurt.

Armstrong is a unique, contrarian thinker and has made a number of accurate forecasts over the years, especially since we've been speaking with him on our podcast. A key theme of his analysis is that economic growth is likely to remain stagnant as nations around the globe struggle with large debt burdens. However, rather than calling for a collapse in the dollar and the US stock market, as many bears have long predicted, Martin has taken the opposite view, focusing instead on the needs of institutional investors to earn yield by increasingly allocating capital into stocks and highly-rated corporate bonds, which helps to fuel the stock market higher.

Economics Is Flawed

The problem Armstrong sees with most analysts is that they focus too much on domestic markets. Economic thought is in a primitive state, he said, and hasn’t developed enough to be reliable.

“Economics is in the Middle Ages,” he said, and basically argued that the global markets are much more complex than any single economic framework.

Other factors play into markets, and particularly capital flows, Armstrong noted. For example, the United States went bankrupt in 1896 and J.P. Morgan had to bail it out. Was that the end of America?

Economically speaking, it would've been very difficult to predict that, years later, the US went on to become the world’s largest economy because of the events during WWI and WWII, which shifted massive amounts of capital into the US.

“Without that … we’d probably still be farmers,” he said. “International movements and events change domestic economies.”

Bear Trap, a la 1987

As a result of the Federal Reserve’s manipulation of interest rates, instead of stimulating the economy, we’ve seen investors turn to the stock market for safe returns.

“The stock market is now the source for money,” Armstrong said. “That’s where big money goes. Capital has been leaving the bond markets more and more, and is shifting into the private sector.”

This dynamic is creating the conditions for a potential bear trap in 2018. In this scenario, Armstrong sees markets moving down with negative sentiment spiking.

This will create the energy necessary for a slingshot move higher, as we saw in the 1987 crash, he noted.

Move Higher After 2018

Years before the event, Armstrong called for the Dow to hit 18,500, which was reached in 2016, and then for another move higher to 21,000, which was hit in 2017. Heading into next year, he's a bit more cautious but believes the Dow has the potential of moving as high as 40,000 before this bull market is finally over.

“We can get a short-term correction into 2018, but this thing’s going up a lot higher,” he said. “Once it gets through 23,000, it will probably go to about 40,000. Everything’s relative”—referring to extremely low bond yields and the US vs. the global economy.

The move out of government bonds and into equities will fuel this rise, he argued. Ultimately, we should expect the contrarian position — that we aren’t in for a new bear market — to play out.

“This is the most hated bull market in history,” he said. “We’ve been up since 2009. How many people are still bearish? They won’t admit they’re wrong.”

ECB Failure Next Year?

The problems developing in Europe stem from government, not the private sector, and a banking crisis appears to be developing there.

“In Europe, they look like a stiff wind can just blow them right over,” Armstrong said. “US banks are not there yet. Give them a few more years.”

The lack of confidence in governments and banks will ultimately create the conditions where capital begins to move, leading to a threat to the European Central Bank itself.

“Europe is basically a basket case,” he said. “We’re looking at a central bank that can go bankrupt.”

http://www.financialsense.com/martin-armstrong/major-central-bank-fail-n...

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