PM Daily Market Commentary - 8/29/2017

By davefairtex on Wed, Aug 30, 2017 - 12:03am

Gold fell -0.90 to 1314.60, and silver dropped -0.07, with trading volumes on both metals being the highest in many months. Both metals made new highs, which coincided with new highs in the Euro (120.60)/new lows in the buck (91.55). But once the Euro started dropping – and the dollar started to recover - the metals sold off. In addition, a very strong rally in USD/Yen that started right at the US market open paralleled the rebound in the US equity market. In short, currency appeared to be the driver today in both metals and equities – at least from what I could see.

Gold opened higher in Asia, hitting a new high of 1331.90 at about 4am Eastern, but then fell for most of the rest of the day, unwinding the entire $15 dollar rally by the time the market closed. As I mentioned, this went right alongside a dollar rebound that happened right at the same time. Candle print for gold was a spinning top, which the code felt had a 74% chance of a reversal. This was an extremely highly rated bearish reversal bar.  And yet the forecaster for gold actually rose +0.07 to +0.78.

So which one is right – forecaster or candle?  High volume spinning tops with large upper shadows like we saw today are bearish. At the same time, if this is all just about official intervention, and “someone” stepped in big to wang currencies around (say, the BOJ and the BOE, neither of whom want to see continuing rallies for their currencies – and they know what a drop below USD 92 means just as well as we do), what happens next will depend entirely on where the fundamental demand happens to be. If after today people still want to sell dollars and buy gold, the forecaster will probably end up being right.

Comex GC open interest rose +6,844 contracts.  That's a lot less than I'd have expected.  Perhaps the gold selling wasn't all that intense after all.  Or maybe it didn't happen at the COMEX.

Rate rise chances (Dec 2017) rose to 36%. This is puzzling, especially on a day when the news from Houston just continues to get worse. Since this is a derivative reading based on prices of futures contracts, conceivably the Fed could be intervening directly in this market. I only suggest this because the move today seems so counter-intuitive.

Silver's track looked a bit different from gold; while it gapped up at the open, silver waited until 9:05 Eastern to make its new high (to 17.76) before declining into the close. In that it seemed to be following copper more closely (new high 3.12 at 10:25 am) than gold. Volume in silver was also immense. Candle print was a long black candle, which the code felt had a 50% chance of marking the top. Forecaster for silver fell -0.07 to +0.45 – still bullish, but much less so than gold.

Open interest in COMEX SI contracts rose 2,037 contracts.

The gold/silver ratio rose +0.25 to 75.68. That's bearish.

The mining shares gapped up big at the open, rallied briefly, and then sold off, but managed to keep some of their gains into the close. GDX was up +0.66% on moderately heavy volume, and GDXJ climbed +0.51% on moderate volume. It appeared as though there were still buyers of the miners today – even though there was a fair amount of selling pressure for much of the day, both miner ETFs popped up sharply into the close. Even so, the candle prints were bearish: GDX printed a spinning top which had a 43% chance of a reversal, while GDXJ printed a long black candle which was a 70% chance of a top. GDX forecaster fell -0.05 to read +0.77 – still quite bullish – while GDXJ rose +0.01 to +0.77. The volume picture today was interesting – even though there was plenty of selling pressure, today's volume was much lower than yesterday's volume, which I interpret to mean that most traders are hanging on their miners following the breakout – and I interpret that to be bullish.

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

Platinum climbed +0.72%, palladium rose +0.45%, and copper moved up +1.16%. Copper continues its astonishing rally, up +0.04 to 3.10, which is another new multi-year high. Candle prints for the “other metals” were varying degress of bearish: PA: long white (37% reversal), PL spinning top (45% reversal), HG spinning top (41% reversal). The candle code tends to get this way when rallies get extended and RSI levels increase. These are not end-of-the-world values, just indications that things are getting extended. All 3 other metals remain in strong uptrends.

USD sold off hard dropping to a new low of 91.55 before rebounding, finally ending the day up +0.03 to 92.01 – just above that round number 92 that I'm so focused on. Candle print was a doji, which the code felt had a 70% chance of marking the low. A single-candle doji can't get any higher rating than this. If this isn't a product of manipulation – which it certainly could be – this may well mark the low for the buck. Dollar forecaster rose +0.12 to -0.72, which is still very bearish.

My belief is that, over the long haul, it is prohibitively expensive for central bankers to manipulate the trend in currencies. The SNB got its head handed to it by trying to keep the EUR/CHF peg in place, and the PBOC ran through trillions of dollars of reserves trying to keep the RMB from dropping. But over shorter periods of time, they can do almost anything, and today might have been one of those days.

Crude was hit again today, dropping -0.49 to 46.32, making a new low to 45.76 before bouncing back somewhat into the close. Volume was immense – one of the highest volume bars in months. The API report was relatively bullish (crude draw: -5.78m barrels, gas build: +478k barrels) but the market didn't really move following the after-hours release. Crude's candle print today was a spinning top, which the code gave a 63% chance of marking the low. That's a really high rating for a spinning top, most likely because of the heavy volume and the reasonably large lower shadow on today's candle. Forecaster moved up +0.04 to -0.45; still bearish. Crude is now clearly below all 3 moving averages.

While every day I report “the price of crude”, the reality of the oil market is quite different; it is based on geography as well as the quality of the oil itself. All oil is not created equal. Here's a page (courtesy of which gives you a glimpse at what “real oil prices” actually look like.

SPX rose +2.06 to 2446.30. However, this conceals a big drop overnight in the futures markets that bottomed out around 5:20 am, with the real rally starting at the US market open at 9:30, which saw equities rally steadily through the close. The equity market rally came alongside a very strong rally in USD/JPY – almost a full point over that period of time. As I mentioned earlier, it felt as though money was pouring from somewhere in Japan into the US equity market. The sector map shows that industrials led (XLI:+0.73%) while basic materials brought up the rear (XLB:-0.48%). Financials also did poorly (XLF:-0.32%).

VIX rose +0.38 to 11.70, although the trading range for VIX today was very wide. Volatility was sold all day long.

TLT had a huge gap up on the open, but then sold off all day long as the equity market rose, ending the day up just +0.32%. The opening black marubozu candle has a 49% chance of marking the top, but the TLT forecaster rose +0.31 to read +0.37. Trend code liked the move higher, while the candle code didn't like the day of selling. Uptrend remains intact, but there is a lot of overhead selling pressure, it seems.

JNK fell -0.11%, gapping down at the open and then rallying alongside equities into the close. JNK is now just a hair below its 50 MA. It is still in a medium term downtrend, but is trying to recover.

CRB fell -0.27%; 3 of 5 groups rose, led by industrial metals. Gasoline had another good day, up +1.98%.

My speculation is that the central banks jumped into the markets hard today. Draghi in the EU has no interest in seeing the Euro above 120, and the BOJ is likewise uninterested in seeing the Yen rally any further. The 92 level in USD is one of those technical “lines of death” that if crossed, may take on a life of its own as traders bail out of the buck and into the Yen and the Euro. As a result, its probably worth a shot for the central bankers to see if they can possibly sell their currencies in an attempt to force a (short-covering) USD rally at these levels.

However, Hurricane Harvey remains, as do its flood waters, as do those North Korean missiles, as does the incessantly-tweeting President Trump. If “the market” really wants out of the buck, the central bankers probably cannot stop it without paying a hefty price. Losses on their balance sheets do end up causing problems for them over the long haul, so this is not a cost-free exercise for them.

If it were free, after all, the SNB would still have the Euro peg in place.

Miners may be the tell here.  They look ok.  Selling pressure today wasn't all that intense.

To paraphrase a certain well-known series, "September is coming."  And puts remain relatively cheap.  Let's see what tomorrow brings.

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cmartenson's picture
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5969
Doing God's Work

Thank goodness that no matter what the overnight futures have done,. ""someone"" is always there, right at the open, to buy with ruler-straight precision to show the 'correct' direction for stocks to go in.

Never mind that Houston has an economy that would place it #10 on the world ranking...and that it is pretty much entirely shut down and ruined.

Never mind anything!

Stocks must go up!  It is the way of teh central bankers and they are certain they are doing god's work, and being good people doing the right thing.

Also pay no attention to the fact that these efforts at ""market"" rescues also happen to enrich themselves and their best friends and relatives.  That's just a coincidence.

cmartenson's picture
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5969
Ruler Update

Here's your ruler update.

Looks like "they" have this firmly locked and under control.

No analysis needed.  Just a ruler and an understanding of what they want, which is steadily rising pries that go up and to the right.

cmartenson's picture
Status: Diamond Member (Offline)
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Posts: 5969
Ruler update #3

No comment:

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
the buck

Strong rally in the buck today.  Swing high in Euro/Swing low in USD.  I think that's been helpful.  SPX in EURO has dropped 10% over the past few months.  Maybe for them its buy-the-dip.

KugsCheese's picture
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Re: Ruler Update #3

Can you add the volume chart underneath for Update #3?

cmartenson's picture
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5969
Re: Update #3?
KugsCheese wrote:

Can you add the volume chart underneath for Update #3?

Sure thing:

Time2help's picture
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Joined: Jun 9 2011
Posts: 2885
The beatings will continue until morale is broken

Gold Flash-Crashes Below $1300 (Zerohedge)


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