PM Daily Market Commentary - 9/20/2017

By davefairtex on Thu, Sep 21, 2017 - 2:16am

Gold fell -10.10 [-0.77%] to 1314.60 on heavy volume, and silver dropped -0.14 [-0.84%] to 17.21 on moderate volume. Today's movements were entirely about the FOMC announcement; the buck charged higher, moving up +0.80%. That tells us that the moves in PM today were just a currency effect.

What did the Fed say that caused all the fuss? I saw two things: first, even after all the hurricanes, the Fed still sees one more rate hike this year. The markets didn't expect this – they came into this meeting with only a 56% chance assigned to a rate increase by December. Second, the Fed released the details of their balance sheet normalization plan. It would start small ($10 billion per month), but then ramp up to $50 billion per month, incremented every quarter. There would be no vote taken every meeting to see what the number would be – the normalization plan would be automatic.

That's $600 billion per year, sucked out of excess reserves. If they manage to get through 4 years of this, we'll be back to normal.

Intraday, gold rallied prior to the Fed's announcement, but then sold off sharply right after the announcement. From what I saw, gold mostly tracked the Euro, which fell off a cliff right at 2pm, and moved steadily downhill for a good hour thereafter. Gold made a new low to 1299.50. There was a bounce at end of day, but not all that much of one. Candle print for gold was just a long black candle, which the code felt might be a reversal (45% chance). Forecaster ticked down -0.04 to -0.44, which is still a downtrend. Volume was extremely heavy.

COMEX GC open interest rose 5,941 contracts. I did get the sense there was pressure placed on gold intraday prior to the announcement - maybe that's what those 6k new contracts were used for.

Rate rise chances (Dec 2017) jumped up to 71%.

Silver was hit substantially harder by the FOMC announcement, making a new low to 17.01, but bounced back more substantially also, recovering more than half of its FOMC-driven losses. Candle print was a spinning top, which has a 57% chance of a reversal. Silver's forecaster moved up +0.11 to -0.33, seemingly agreeing with the candle code on the bullishness of today's price action. Buyers appeared for silver right at round number 17, and silver ended the day above its 200 MA. Given just how much the buck moved, silver behaved pretty well.  You can see from the chart that silver's downside momentum has slowed substantially.

Open interest in COMEX SI contracts fell by -640 contracts.

The gold/silver ratio rose +0.05 to 75.78. That's slightly bearish.

Miners had a very wide trading range, rallying strongly before FOMC, then selling off fairly hard after 2pm, only to bounce back somewhat by end of day. GDX closed off -1.47% on very heavy volume, while GDXJ dropped -1.76% on moderately heavy volume. Both ETFs printed long black candles; GDX had a 44% chance of marking the low, while GDXJ's candle was a bearish continuation. Forecaster felt both outcomes were bearish: GDX -0.14 to -0.56, GDXJ -0.05 to -0.49.

Today, the GDXJ:GDX ratio fell, and so did the GDX:$GOLD ratio. That's bearish.

Platinum fell -0.86%, palladium rose +0.83%, and copper dropped -0.60%. Platinum has dropped 8 of the last 9 days, but today's spinning top has a 60% chance of marking the low, according to the candle code. Palladium also printed a spinning top, with a 61% of it being the low. Palladium's decline has been much more sedate. Of the 3, platinum's chart looks the worst – the downtrend is very steep; forecaster is currently at -0.97.

USD shot up +0.73 [+0.80%] to 92.30, propelled higher by the surprisingly hawkish FOMC announcement and balance sheet normalization plan that is due to start in October.

From a political perspective, I find the structure and the timing of the normalization plan pretty interesting. Janet Yellen is signing up to manage a very small amount of normalization during her remaining tenure at the Fed (she leaves in February – probably) handing off the vast bulk of the task to her successor. “I'm going to declare what is very likely to be a tough war, but I leave it to my successor to actually fight it.” I suspect she's hoping that the market won't tank on her watch. After all, what's a $10 billion per month reduction? Practically nothing. She gets to write a chapter in her memoir how she started the normalization process – and her (Trump-appointed) successor gets to deal with the likely recession that follows. I also think its interesting how few members there are left on the board. It all means something, but since I wasn't invited to the meeting, I don't know the details.

Just in time for the 2018 mid-term elections? And a weakening global credit impulse? And perhaps higher oil prices on the horizon? I suspect she's carrying the water here for someone. Any bets on whether there is a $10 million/year private sector job waiting for her once her term is up? After the victory-lap memoir is written, of course. Ok, tinfoil hat off.

Crude rose +0.48 to 50.73. It was EIA report day: +4.6m crude build, -2.1m gasoline draw, -5.7m distillate draw. The market initially sold off on the news, but reversed about an hour later making a new high to 51.11. Crude did fall after the FOMC announcement. Candle print was a long white candle, which the code felt was a bullish continuation. Forecaster agreed, rising +0.10 to +0.40, which is an uptrend. Crude is slowly closing on its May 2017 high ($52.00).

SPX rose +1.59 to 2508.24, which is another new all time high for SPX. Print was a hanging man, which the code felt was a bullish continuation. More sector rotation today: industrials led (XLI:+0.73%) along with energy (XLE:+0.68%), while staples (XLB:-0.96%) and utilities (XLU:-0.74%) fell.  These were some decent-sized moves hidden by a mostly-unmoving index.

VIX fell -0.40 to 9.78. VIX is back to single digits once more.

TLT rose +0.07%, initially selling off after the FOMC announcement, but then managing to find buyers at end of day. Why would bonds rally on a day when the FOMC said they're going to be slowly exiting the bond market? My guess: this is because traders sold bonds in anticipation of the announcement and/or went short, and today's event was a “cover-the-short-on-the-news” event. That is, traders rang the cash register today on the profitable shorts they entered into a week or two ago. Candle code gives the high wave candle a 31% chance of marking the low. Forecaster disagrees, dropping -0.07 to a still-bearish -0.52. Might we see a further move lower in bonds?  Maybe.  We'll have to see what the rest of the world thinks about the FOMC announcement tomorrow.

JNK fell -0.03%; it actually traded in a fairly wide range, but ended the day flat. Longer term, JNK has been largely moving sideways for the past six months.

CRB rallied +0.63%, vaulting over its 200 MA and more than erasing its losses from yesterday. All 5 groups rallied, led by livestock (+1.98%).

So about that gold-positive dollar breakdown: it looks like it was averted once more. Chair Yellen has announced a normalization plan that she intends to put on autopilot right before jumping out of the plane. “Good luck with the landing, orange-hair! bwahahaha...”  I actually support the normalization plan – it is long past time - I'm just being snarky about the timing and structure, which strikes me as awfully convenient.  She's handing off the bag of poop to her successor, rather than having the courage to deal with it earlier in her watch.

How did gold take it? Not all that badly. Moves in the metals were just currency-driven, and there seemed to be bids in the metals at round number 1300 for gold, and 17 for silver. Now we have to see how the rest of the world reacts to the announcement. More dollar buying/Euro selling? That will probably drive gold and silver through their respective round numbers. Right now its too soon to say. While there were some positive signs in PM, especially in silver, the downtrend remains in place, and we need to respect it.

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Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 380
Round Numbers

Well, so much for that.  Gold around $1290 and Silver around $16.90, according to Kitco, even with DXY near the lows of the session and lower on the day.  I suppose that gold hasn't dropped $100 yet is a good sign...for now.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
btc update 2017-09-21

I've been working on my forecaster over the past week or so to make it (hopefully) more accurate.  As a result, the new version signaled a BTC sell two days ago.  BTC is now in a downtrend.  Today's print is a bearish continuation.  We're also back through the 9 MA, which is a conventional sell signal.

Currently, BTC seems to be following the path I laid out a week ago - a rally back to 4000, and then a reversal back downhill.

ETH looks a little bit different. Forecaster generated the sell signal today.  ETH has not yet crossed the 9 EMA (by maybe a buck), but it too seems to have run into resistance at 300 and has sold off.  No solid candle print today.  It could find support at the 9 and reverse back up (sometimes the forecaster does get whipsawed that way - see back on Aug 1), but the overall trend right now remains down.  Odds say we go lower.

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