PM End of Week Market Commentary - 9/8/2017

davefairtex
By davefairtex on Sat, Sep 9, 2017 - 11:19am

On Friday gold fell -3.00 to 1351.00 on very heavy volume, while silver dropped -0.16 to 18.03 on moderate volume.  Gold and silver both made new highs during the Asia session, but then reversed alongside the Euro, which topped out at about the same time.

The metals bifurcated this week; gold and silver did relatively well, while copper and palladium were both hit hard.  Palladium dropped most days this week, while copper waited until Friday to get smashed, plunging -0.11 [-3.46%] to 3.04. Copper forecaster dropped hard on Friday, and now reads -0.38 – a downtrend. Copper's strong line candle print was a probable reversal (77%). Palladium also fell, dropping below its 9 EMA, and it has also moved into a downtrend, with the palladium forecaster now deeply bearish at -0.96.

The copper COT report shows that managed money is historically long copper.  Normally managed money has at most 60k long contracts, but this week they have 154k contracts outstanding. If copper starts moving lower, it could lead to a massive move down if those managed money longs start to bail out in earnest.  I'm only talking about copper today because the move on Friday was large, and the COT chart looks so remarkable.  It might be the start of something interesting.

Gold, silver, and the miners did relatively well from the standpoint of the sector map – all PM components remain above all 3 moving averages, which means they are all in reasonably strong uptrends. Gold did outperform silver, which is some cause for concern. This typically only happens during safe haven moves. Interestingly, gold is the only PM component that is in positive territory over the last 52 weeks.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 1.93% -22.73% rising rising rising rising ma200 on 2017-08-28 2017-09-08
Senior Miners GDX 1.86% -9.53% rising rising rising rising ema9 on 2017-08-16 2017-09-08
Gold $GOLD 1.58% 0.66% rising rising rising rising ema9 on 2017-08-16 2017-09-08
Silver $SILVER 1.26% -8.45% rising rising rising rising ema9 on 2017-08-25 2017-09-08
Silver Miners SIL 1.25% -26.47% rising rising falling rising ma200 on 2017-09-05 2017-09-08
Platinum $PLAT 0.04% -7.05% rising rising rising rising ema9 on 2017-08-28 2017-09-08
Copper $COPPER -2.53% 44.85% falling rising rising rising ema9 on 2017-09-08 2017-09-08
Palladium $PALL -5.02% 35.39% falling rising rising rising ema9 on 2017-09-08 2017-09-08

Gold rose +21.00 [+1.58%] this week, moving higher in a 3 steps forward, 2 steps back sort of pattern. Friday gold made a new high to 1362.40, but then retreated; it looked a bit tired – but then again, so did most of the other metals. In fact, gold did best. Candle print was a spinning top, which the code felt may be a reversal (56%). Gold is somewhat overbought, with the RSI7 at 78. Gold's forecaster dipped -0.34 but still reads a bullish +0.70. Technicals say gold remains in a strong uptrend.

Martin Armstrong's “critical resistance level” for gold was 1362 - which he mentioned more than a week ago.

Gold in Euros isn't quite as strong, with GC.EUR forecaster at +0.38, but GC.EUR broke above its 200 MA just this week – now it is above all 3 moving averages. The GC.EUR uptrend isn't as strong as the uptrend in dollars, but it is much more bullish than it was back in early August.

The December rate-increase chances fell to 27%. NY Fed President Dudley said that the twin hurricanes (Harvey, and Irma) would not derail the Fed's decision on reducing its balance sheet, but might push out the timing of further rate increases. https://www.bloomberg.com//news/articles/2017-09-08/dudley-says-hurricanes-may-have-temporary-effect-on-hike-timing

COMEX GC open interest rose +26,971 contracts this week. That's 84 tons of new paper gold.

Silver rose +0.23 [+1.26%] this week; silver was looking reasonably strong until Friday, when it tried making a new high, but then dropped sharply along with the industrial metals. Friday's dark cloud cover candle pattern had a 49% chance of marking the top, and silver's forecaster plunged -0.40 to read +0.39, which remains an uptrend, but it has weakened significantly.  Silver's RSI7 dropped to 72, which is slightly overbought.

The gold/silver ratio rose +0.23 to 74.93, which is somewhat bearish.

COMEX SI open interest rose by +9,234 contracts.

Miners struggled higher on the week – moving higher, but also enduring some selling pressure. Both ETFs are showing a “bearish divergence” in their RSI pattern (a series of lower highs, as prices rise), which says that upside momentum is slowing for the miners. This pattern is not appearing in either gold or silver. Candle patterns for Friday were GDX: bearish harami (46% reversal), GDXJ: swing high (53% reversal). Forecasters for both ETFs also plunged Friday, with GDX down -0.59 to +0.21, and GDXJ off a massive -0.82 to +0.09. Forecasters - and that RSI divergence - are hinting that the miners may be about ready to break down.

The GDX:$GOLD ratio rose +0.29% on the week, and the GDXJ:GDX ratio rose +0.07%. Not much change – call it neutral.

USD

The buck plunged -1.45 [-1.57%] to 91.13, smashing through round number 92 before, during, and after the ECB press conference.  It seemed to me that the market was bound and determined to interpret anything said by Dragi as Euro-positive.  And indeed, after being prodded, he finally confessed that the October ECB meeting will probably herald the next round of tapering. On the week, the Euro charged up +1.48% to 120.35 – a new high, and it is up almost 16% off the lows set in January 2017. This is definitely not what Mr Draghi ordered, but Mr Market wanted a higher Euro, so that's what happened.

USD is now through 92 support, and it has moved into the zone below where there is not much support until perhaps the 85 level – below that, 80. Friday's candle was a hammer, which has a 54% chance of being a reversal. The USD forecaster remains quite bearish, at -0.85. I believe we could see a temporary bounce in the buck back to 92 (which is now resistance) but then I'd expect the buck to move lower over the next month or two as a result of this week's breakdown. Just a guess, of course.

Long term, Martin Armstrong believes that this 14% drop in the buck (and 16% rally in the Euro) is a big setup, with a massive dollar rally set to occur in (probably) 2018. He calls it a “slingshot move” - a big headfake down, which builds up a great deal more energy for a reversal in the other direction once everyone jumps on board the USD downtrend. “The majority of traders have to be wrong to fuel the rally.”

US Equities/SPX

SPX fell -15.12 [-0.61%] to 2161.43, with the bulk of the damage happening on Tuesday. The swing high was quite bearish, and no candle pattern since then has altered the trend at all. Friday's candle of a southern doji was seen as a bearish continuation. Forecaster is showing a slight downtrend. SPX ended the week just above its 9 EMA. Last week's rally failed to make new highs; that means that this week could end up being a “lower high”, but that awaits a break of SPX below 2417.

The sector map is mixed; telecom, financials, tech, and discretionary were at the bottom. 3 of those 4 usually lead, so that's a bearish sign. Sickcare and energy led – I'm guessing the energy rally was about hurricanes & oil prices, but I don't know what moved sickcare. It feels like risk off to me.  Certainly the bottom part of the sector map is a minor sea of red.

VIX rose +1.99 to 12.12.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 1.86% -9.53% rising rising rising rising ema9 on 2017-08-16 2017-09-08
Healthcare XLV 1.61% 13.11% rising rising rising falling ma50 on 2017-08-30 2017-09-08
Energy XLE 1.29% -10.36% rising falling falling rising ma50 on 2017-09-08 2017-09-08
Homebuilders XHB 1.28% 8.10% rising rising rising falling ma50 on 2017-09-08 2017-09-08
Utilities XLU 1.02% 9.95% rising rising rising rising ema9 on 2017-09-07 2017-09-08
REIT RWR 0.81% -6.41% rising rising rising falling ma50 on 2017-08-31 2017-09-08
Cons Staples XLP 0.22% 1.72% rising falling rising falling ma50 on 2017-09-05 2017-09-08
Industrials XLI -0.36% 16.14% rising rising rising falling ema9 on 2017-09-07 2017-09-08
Materials XLB -0.76% 12.59% rising rising rising falling ema9 on 2017-08-30 2017-09-08
Cons Discretionary XLY -1.00% 10.95% falling falling rising falling ema9 on 2017-09-07 2017-09-08
Technology XLK -1.28% 22.63% falling rising rising falling ema9 on 2017-09-08 2017-09-08
Financials XLF -2.70% 21.14% falling falling rising falling ma200 on 2017-09-08 2017-09-08
Telecom XTL -3.67% 4.87% falling falling falling falling ema9 on 2017-09-05 2017-09-08

Gold in Other Currencies

Gold rose in all currencies again this week, climbing in XDR by +12.80. Even with the big Euro rally, gold still managed to rise in Euros, albeit just slightly. That's a pretty good performance for gold.

Rates & Commodities

TLT rose +1.78% on the week, alternating between strong up and down days – but clearly the up-days won out. Most of the gains came on Tuesday, with a new high set on Thursday. Friday's candle was a bearish harami, but the code felt it was a bullish continuation instead. Forecaster did tick lower on Friday, but remains at a fairly bullish reading of +0.52. TLT is above all 3 moving averages and remains in an uptrend. Risk off.

JNK fell -0.49%, with most of the damage happening on Friday. I think JNK didn't like the plunge in oil prices that happened on Friday also. JNK appears to be moving into a downtrend. Risk off.

CRB climbed +0.13% on the week – first making a new multi-month high, but then printing a swing high on Friday. 3 of 5 sectors rose on the week, but the big losses in industrial metals (-2.27%) and energy (-2.0%) kept the gains very limited. There were swing highs for both industrial metals and energy.

Crude rose +0.38 [+0.80%] to 47.76. Crude did well for 3 days out of 4, but Friday's big move down [off -1.5/-3.05%] erased most of the gains. Thursday's EIA report (crude build: +4.6m barrels, gas draw: -3.2m barrels) was mostly ignored by the market. Hurricane Harvey's aftermath is distorting the data. Friday's big down day looked unpleasant, but the code only gave the confirmed bearish NR7 pattern (also a 3-candle swing high) a 39% chance of marking a top. Forecaster plunged -0.52 to +0.20, but that's still an uptrend, albeit a weak one.  The crude oil selling came to a stop at the 50 MA, which seemed to act as support. It looked bad, but technically speaking, it didn't do as much damage as I expected it to - having seen the sell-off in real time.

Longer term, there are signs of hope for crude; traders are anticipating a tighter supply situation for 2018. This is shown by the Brent crude oil futures are moving into “backwardation” - a state where front month contracts are priced higher than the next month's contract. As the writer suggested: “if most oil traders are not exactly bullish yet, they are no longer bearish.”  http://http://www.reuters.com/article/oil-prices-kemp/rpt-column-oil-traders-expect-a-tighter-market-in-2018-kemp-idUSL8N1LP1ZM?rpc=401&

There are still a large number of managed money shorts in crude. Only 18k covered this week; that still leaves perhaps 60-70k shorts still out there, ready to be squeezed.

Physical Supply Indicators

* SGE Au9999 contracts are at a -5.68 discount vs COMEX. Looks like the Chinese are selling. That's not a positive sign for gold.

* The GLD ETF tonnage on hand rose +3.29 tons, with 835 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.99 -0.48% to NAV [down]
 PSLV 6.79 -0.16% to NAV [up]
 CEF 13.34 -7.3% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed a discount for gold but none for silver.

* Big bars premiums were: gold [1kg] 1.0% and silver [1000oz] 2.69%.

Futures Positioning/COT

COT report is through Sept 5th, when gold closed at 1344.90, and silver at 17.96.

This week in gold, the commercials net position fell 13.7 contracts; 19.9k shorts were added, but so were 6.1k longs. Commercial net position is consistent with a high in gold. Managed money net rose 16k, with almost all of that coming from new long buying by managed money, since managed money shorts are virtually exhausted. Managed money net is also consistent with a high in gold. According to COT, a top could happen at any time in gold.

In silver, the commercial net position fell by 11.1k contracts; shorts rose by 7.1k contracts, while 4k longs were sold. Managed money net rose by 9.7k, dropping 6.9k shorts and adding 2.9k longs. We can say now that managed money is out of shorts. Any further move higher in silver will have to come from long buying, and it doesn't appear that managed money is particularly enthusiastic to go long – which is quite unlike what we're seeing in gold. The case for a top in silver isn't as compelling as it is for gold.

Gold Manipulation Report

There were no after-hours spikes in gold or silver.

Eurozone Status

  • German Elections; October 2017: Merkel has a 14 point lead over Shulz.

  • EU top court ruled that member states must accept asylum seekers under a compulsory quota system.   "Politics has raped European law and values,” Peter Szijjarto, Hungary’s foreign minister, told a news conference. “The Hungarian government considers today’s decision by the European court to be appalling and irresponsible.”  That man sure sounds like he wants More Europe, doesn't he?   http://www.telegraph.co.uk/news/2017/09/06/eu-court-rejects-refugee-quota-challenge-hungary-slovakia/

  • Related: a PEW poll of EU citizens on who should decide about migration revealed that the vast majority of people in the EU prefer the local government to retain authority.  Fortunately, the un-elected bureaucrats in Brussels need not worry overmuch about the views of the actual people within the EU.  At least not in the short term anyway.

    • “migration of non-EU citizens into our country”: 23% EU, 74% local government

    • “migration of EU citizens into our country”: 27% EU, 66% local government

  • Italian Elections: New polling data shows anti-Euro M5S is slightly ahead of the PD: 27.7% to 26.7%. A combination of FI + LN (both semi-anti-Euro parties) continue to poll at 28%.

Summary

The big move this week came from the currency world; the buck broke below round number 92, and the Euro closed above 120 for the first time since 2014. All of the other 5 major currencies followed suit. The currency move helped propel gold to a new high of 1362. Friday saw a bit of selling – mostly in industrial metals and crude, which were both hit relatively hard.

The COT report for gold continues to show a strong setup for a top for gold; managed money shorts are at historical lows, they are heavily overextended long, and the commercials are fully loaded up short. Silver looks a bit different; its rise has mostly been about managed money short-covering, and the managed money silver shorts are now gone. For silver to rise any further, managed money better start buying.

Gold and silver big bar shortage indicators shows no signs of shortage; premiums on big-bar gold and silver remain normal. GLD tonnage increased slightly, and ETF premiums were mixed. Shanghai premiums vs COMEX have turned to discounts. When Shanghai moves into a discount, that's generally a bearish sign for gold.

Equities, JNK, industrial metals, and bonds are all saying risk off. This is generally gold-positive. However, there is a fair amount of technical evidence building for a top in PM – and the COT concurs with this. On Friday juniors looked quite weak, seniors followed juniors lower, and silver was leading gold lower. It sort of feels like a correction might be imminent. A short, sharp dollar rally (back to 92) might just be what we need to trigger it.

The correction might just end up being a buying opportunity, however. The trends longer term appear to be focused on risk off, which suggests that gold (at least) should continue rising.  My gut says the Euro will continue moving higher until Dragi gives them the taper they are expecting.

Next week we have Retail Sales and Industrial production reports coming on Friday. Retail Sales can move markets now and then. Week after next is the FOMC meeting where – maybe – we'll see the Fed start to run off its balance sheet. NY Fed Governor Dudley is giving us the signal that the balance sheet reduction plan will move ahead regardless of all the foul weather. Something to keep in mind.

Speaking of weather, DOE provides a daily hurricane situation report, with the latest one here: https://energy.gov/sites/prod/files/2017/09/f36/Hurricanes%20Irma%20and%20Harvey%20Event%20Summary%20%2323.pdf

Refinery summary:

  • 6 refineries remain shut down [7.5% of US total capacity]
  • 5 are in the process of being restarted, taking days to weeks to complete the process. [9.8% of total US capacity],
  • 5 are operating at reduced rates [7.7% of total US capacity].

Future market is predicting a lessening of the gasoline shortage within a couple of months, and even the short term looks more promising than it was last week.

Month

Price

Change

% Change

RBV17 [Oct]

$1.65

-0.1

-5.74%

RBX17 [Nov]

$1.58

-0.02

-1.38%

RBZ17 [Dec]

$1.54

0

0.00%

RBF18 [Jan]

$1.52

0.01

0.38%

RBG18 [Feb]

$1.53

0.01

0.41%

Trend-following code says:

Uptrend: gold, silver, platinum, treasury bonds.

Downtrend: copper, crude, natgas, USD.

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5 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4629
bitcoin update

Bitcoin printed a takuri line candle - candle code says that's a 49% chance of a reversal.  Forecaster shows that bitcoin remains in a downtrend, although the downtrend is relatively shallow.  Volume on the takuri line is relatively strong.  There seems to be decent support for BTC at 4000.

ETH printed a spinning top candle; code gives that a 61% chance of a reversal.  Forecaster remains in a downtrend - it has been since the Chinese government made ICOs illegal.  ETH is right at $300 support.  Breaking below 300 would probably lead to a lot more selling.  I'd feel more comfortable waiting for confirmation of today's reversal bar before jumping in - the volume on the reversal isn't all that high, and the forecaster isn't looking so cheery.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4629
work in progress: BTC & ETH reversal assessment

Here is a new study I've been working on - a more generic version of the candle code that is trained up on both equity and commodity weekly historical data.  Red dots indicate "sell", blue dots indicate "buy".  The intensity of the color represents the percentage chance the code assigns to the reversal.

For bitcoin, it doesn't show very many buy triggers, but the sell trigger back in may/june (75%) definitely worked out.  This week's sell trigger has a 71% rating.  This code is just useful for noticing when the upside momentum runs out rather than being a complete trading system.

The weekly reversal chart for ETH looks a lot worse than for bitcoin.  Strictly from using my Mk 1 eyeball, the chart pattern looks like a double top, and this week's candle pattern is a swing high/confirmed shooting star.  Those are typically bad news.  The reversal code rates this as a 98% chance of a reversal.  Ouch.  As with BTC, the reversal code appears to be better at detecting tops than bottoms for ETH.

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 340
Open Interest at Peaks

Dave,

A question regarding Open Interest if you'd oblige?

Have you been keeping a record on the amount of Open Interest contracts at peaks of precious metal prices? Say, for example, gold hits a peak today, do you record the amount of Open Interest for that week? Or does the amount of Open Interest contracts peak a few weeks before the price of gold peaks?

What I'm really getting at is this; if the increase in Open Interest contracts is used to cap rallies are the amount of contract numbers increasing, decreasing or about the same for each new peak?

And, furthermore, if Open Interest is a contract between buyer and seller who is buying when the Commercials load up short? Is it mostly Managed Money?

All the best,

Luke

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4629
COT report & OI

Here's a chart of the commercial short + managed money long positions alongside gold.  Now if the commercials didn't change their total position, we'd see a flat red line, and a bouncy blue line.  Since they move together, this means that the commercials are printing new contracts as managed money goes long, as well as cashing in old contracts as managed money dumps.

Here's what the raw open interest chart looks like. Note this is pulled from the COT report, which is always 3 days late.  I pull my daily numbers from the CME website: http://www.cmegroup.com/market-data/volume-open-interest/metals-volume.html

Sadly, the CME doesn't provide historical data to the great unwashed for free.

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 340
Thanks Dave

Thanks Dave,

Well that shatters my picture perfect theory of increasing amounts of OI needed to cap prices :) I'd say the theory held until June 2016 after which the price spike the following November required 100k less contracts to cap. Although, having said that, going by the law of averages a spike in Open Interest is generally followed by a price breakdown viewing the post Dec 2015 data.

Cheers,

Luke

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