PM Daily Market Commentary - 8/16/2017

By davefairtex on Wed, Aug 16, 2017 - 11:53pm

Gold rose +11.80 [+0.92%] to 1288.80 on very heavy volume, and silver shot up +0.48 [+2.92%] to 17.11 on heavy volume. The metals started rallying as soon as the US market opened, but they really took off after the FOMC minutes were released at 2pm; I'm not sure what the exciting bits of the FOMC minutes were, but prices definitely launched right after the release. A drop in the buck/rally in the Euro seemed to help propel PM prices higher.

Econoday had this to say:

The minutes support the possibility that the FOMC, seeing the economy running moderate and steady, will begin tapering down their $4.5 trillion balance sheet next month though the lack of inflation is a wildcard along of course with the unfolding of other economic data including the August employment report.

Gun to the head, I'm guessing that the minutes are focusing everyone on the government inflation numbers – which have been almost non-existent as of the recent report. The low recent inflation numbers suggest that the Fed might not pull the trigger at the upcoming meeting. But that's just a guess.

Gold started moving higher around 930 Eastern, and took another leg up at 2pm after the minutes were released. Candle print was a bullish engulfing, which the code thought was somewhat bullish: a 34% chance of marking a low. Hmm. That's not very impressive. The forecaster wasn't too excited either, moving up +0.04 to read a still-slightly-bearish -0.06. Still, gold is now back above its 9 EMA, which ostensibly moves it back into an uptrend. It is possible that yesterday's breakdown was just a headfake, but my code wasn't all that impressed with today's action.

COMEX GC open interest rose +5,912 contracts.

Rate rise chances (Dec 2017) remain at 47%.

Silver did much better than gold; the intraday pattern was similar, with a rally starting at 930 and another leg up after the minutes release at 2pm, but the magnitude of the move was much higher for silver than gold. While the candle code didn't have much to say about direction, the forecaster jumped a big +0.57 right back into bullish territory, showing a reading of +0.21. Silver ended the rally right at the highs of the day – which also happens to be dead on the 200 MA. A close above through the 200 would be very bullish for silver.

Open interest in COMEX SI contracts rose +594 contracts.

The gold/silver ratio fell -1.49 to 75.32. That's very bullish.

Miners rallied strongly today, with GDX up +2.30% on moderately heavy volume, while GDXJ climbed +2.40% on moderate volume. GDX is now back above all 3 moving averages, erasing the last 2 days of losses. The strong line/swing low candle print was seen as a possible reversal: 43% chance of this being a low today. Forecaster for GDX climbed +0.20 back up into bullish territory, and now reads +0.10. Its not a big move by the forecaster, but it does appear that GDX does have a bid. GDXJ printed a confirmed bullish NR7 (yesterday being an NR7 candle), which has a 32% chance of marking a low. GDXJ's forecaster jumped +0.37 to read +0.09. Is the very brief miner downtrend over? Perhaps. Forecaster doesn't do well when prices chop sideways, however. Its hard to know right now if yesterday was just a headfake and we're back in an uptrend, or the miners are now just moving sideways.

The GDXJ:GDX ratio rose slightly, while the GDX:$GOLD ratio rose sharply. That's bullish.

Platinum jumped up +1.81%, printing a confirmed spinning top which has a 51% chance of marking a low. Palladium broke out to new highs, up +3.13%, while copper jumped +2.99% - also a new high. Oddly, the candle code felt as though both the palladium and copper candle prints might be bearish; about a 47% chance. Forecasters for copper & palladium are now back in uptrends, while platinum's forecaster moved higher, but remains slightly bearish. The “other” metals more or less went crazy today; new highs for palladium and copper. I think that's generally positive for PM.

Buck fell -0.32 [-0.34%], printing a bearish harami candle which the code felt had a 59% chance of being a top. Wow, so much for that dollar rally. A fair amount of that move happened after the FOMC minutes release; the Euro started moving higher about an hour before, and then it made another leg higher immediately afterwards. This means that a chunk of the move in PM was about currency, but certainly not all of it. Gold in Euros moved up +0.45% today, which is a reasonably nice rally. That feels bullish for gold.

Crude fell again today, dropping -0.91 to 46.88. The EIA report seemed bullish to me (crude inventory draw: -8.9m barrels, gasoline inventory: no change), but crude prices started moving lower after the release. Yesterday's potential reversal for crude was invalidated by today's new low. Candle code felt that the closing black marubozu had a 36% chance of marking the low. Crude's forecaster wasn't happy, plunging -0.34 to show a very bearish -0.74 rating. By now you probably know what they say about the market selling off on good news: it means we likely will see lower prices ahead.

SPX moved higher, rising +3.50 to 2468.11. The candle print was a long-legged doji, which the code felt was a continuation. Forecaster thought it was bullish, rising +0.23 to read +0.31. SPX is now back above all 3 moving averages. Materials led (XLB:+0.98%) - probably had to do with the massive (+2.99%!) while energy trailed (XLE:-0.96%). Energy continues to be beaten down slowly, but steadily. To my eye, the rally in SPX right now looks a bit anemic, but perhaps I'm just seeing what I want to see. Still – if you want to go short, selling a rally like this one is a good time to do so. Its a lot better than trying to go short immediately following a massive down day like last Thursday.

VIX fell -0.30 to 11.74. Puts are moving back towards “cheap” territory.

TLT rose +0.37%, moving back above the 9 EMA. Bonds rallied slowly for much of the day, but the FOMC minutes didn't seem to move price around very much – perhaps they were slightly bullish. Forecaster wasn't happy though, dropping -0.04 to read a slightly bearish -0.11. Can't say why the forecaster didn't like the rally.

JNK tried a small rally today but failed, printing a neutral-rated spinning top candle. If it had a larger trading range, today would have been a shooting star, but the trading range was narrow. JNK appears to have run into resistance at its 9 EMA. It feels a bit like risk off to me.

CRB fell -0.54%, making a new low. 3 of 5 groups fell, led by livestock which fell -1.53%. Industrial metals are looking incredibly strong, up +3.07% making a new high. Perhaps its some good news out of China. Its hard to see “recession” if copper (and industrial metals) are going crazy.

I'm going to fall on my sword here for a moment; yesterday, I forgot that the FOMC minutes were coming out today. Often they move the markets, especially gold and currencies. Sometimes it seems as though gold sells off going into the minutes “just in case” and then rallies afterwards. It could well be that yesterday's drop was all about worry going into the minutes release, and today was the relief rally.

Boy, where to now? Its hard to say. Right now things appear to be chopping sideways. I'm cautiously optimistic for silver and the miners, but technically, things appear to be in no-mans-land right now. It could go either way.

Silver looks strongest.  If it breaks above that 200 MA, it could be quite bullish.

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davefairtex's picture
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BTC update: 2017-08-16

Today's candle print was a spinning top; it didn't look particularly bad to me, but the candle code for some reason was really bearish: it thinks today's print has a 74% chance of marking the top.

Forecaster remains bullish.

Haven't seen one of these bearish assessments in a while.  It will be interesting to see how it turns out.

Cold Rain's picture
Cold Rain
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Man, it is a tall task to get miners to go up 2 days in a row.  At least they haven't sold off yet, I guess.

davefairtex's picture
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SPX correction deepens

Looks like we might just see a lower high for SPX (-24 or -0.96%).  Leading lower is tech, followed by industrials and then financials.  The morning bounce was sold.

JNK is also down -0.30%.

That's bearish - risk off.

Reasonable rally in TLT: +0.49%.  TLT is a decent way to "short SPX" while getting a modest income at the same time.

Uncletommy's picture
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There's always a chance rationality will prevail.

I can't help but reflect on the importance of borrowed capital on the workings of commodity extractors in their quest for decent margins. Could the downturn in junk bond cash reliance for operations be a sign that some sanity is returning to long term fundamentals of solid businesses. Extracting the most value for each dollar spent seems to have been lost to the "we might be losing a few dollars, but we'll make it up on volume" mentality. Using something like free cash flows in the oil patch as an indicator of the precarious nature of the current markets, makes me pause as to where I put my investments. Playing the PM roulette wheel seems lame compared to rail roads, consumer staples, etc. as sound investments. Since I don't have the time to sit and watch the screen on when to make a move on the price performance of PM's, do I put my faith in long term investments and quit wasting my time trying to out smart the speculators??? Curious what some of you "players" are thinking. Crude is my game , so I offer the following as an example from the Patch:  

Would love to hear what others are thinking.

davefairtex's picture
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SPX: lower low

And there is our lower low in SPX.

Here is a weekly chart illustrating a "risk off" move in bonds. The IEF:JNK paired trade is starting to work again.

KugsCheese's picture
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Consertive Short of SP500 and Junk Bonds

So conservative short SP500 with TLT (US Twenty Year US Bond ETF) and conservative short JNK with IEF (US 7-10 Year Bond ETF).   So is the thinking: the broader the market (less volatility) the longer go on bonds?


davefairtex's picture
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A straight short of JNK is unpleasant because you have to pay the yield.  The IEF long offsets that a little.  Plus that's the natural flow of money - from junky crappy stuff into the "more dependable" sovereign debt.

Me, I just buy TLT and have done with it.

Check out what happened to TLT during 2008.

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