PM Daily Market Commentary - 10/19/2017

By davefairtex on Fri, Oct 20, 2017 - 3:21am

Gold rose +9.20 [+0.72%] to 1291.90 on very heavy volume, while silver rallied +0.26 [+1.53%] to 17.27 on very heavy volume also. While the buck did move lower, today's recovery was mostly just about PM rather than about currency moves.

Gold continued falling in Asia, making a new low to 1277.60, only to bounce back strongly, closing quite near the day highs. That resulted in a closing white marubozu – which was probably not a reversal bar with just a 20% chance of marking the low. Forecaster liked the move, rising +0.35 to -0.16. That's still a downtrend, but its a shallow one.  Gold may be setting up for a reversal, but it hasn't done so yet.  Volume today was very heavy.

COMEX GC open interest rose +5,518.  That's 17 tons of new paper gold.  Only 6 tons of actual gold are produced by mines every day.

Rate rise chances (Dec 2017) remains at 92%.

Silver avoided making a new low, and rallied much more strongly than gold, printing a swing low – unfortunately, the code gave the pattern a low rating, which was not strong enough to qualify as a reversal pattern. However the silver forecaster liked the move, rising +0.36 to +0.06, which is a buy signal for silver. Is this a “real” trend change or just some back and forth with PM just chopping sideways?

Open interest in COMEX SI contracts rose by +1,380.

The gold/silver ratio fell -0.60 to 74.78. That's bullish.

Miners rallied also, but not very enthusiastically; GDX rose +0.47% on light volume, while GDXJ moved up +0.71% on very light volume. Candle prints were a pair of spinning tops which didn't provide any directional clues. Forecasters for both ETFs rose: GDX +0.08 to -0.23, GDXJ +0.13 to -0.28. Downtrend slowed further, but it remains a downtrend.  Rallies like this make me somewhat nervous; an anemic rally on light volume in a downtrend often comes before a big downdraft on heavy volume.  I don't see today's move as positive.  Miners should be doing better than this.

Today, the GDXJ:GDX ratio rose, but the GDX:$GOLD ratio fell. That's neutral.

Platinum rose +0.32%, palladium climbed +0.33%, while copper moved down -0.11%. No real recovery yet for platinum or palladium; forecasters remain in downtrend mode. Copper's doji wasn't a reversal bar either.

USD fell -0.11 [-0.12%] to 93.04. The buck fell to a new low of 92.83, but managed to avoid closing at the lows. Candle print was a spinning top/swing high, but the code did not feel that this swing high was all that bearish. Forecaster didn't agree, dropping -0.31 to -0.18 – that's a sell signal for the buck, and moves it into a downtrend. The buck doesn't look like its in a hurry to plunge – it seems more as though its just drifting lower at this point.

Crude fell -0.64 [-1.23%] to 51.58. There wasn't any major news that I could see moving prices lower; perhaps it was just selling pressure from 52 resistance. Crude has taken 3 shots at moving through 52, failed 3 times, and now it is retreating. The confirmed (bearish) NR7 candle print has a 38% chance of being a reversal. Crude's forecaster dropped -0.36 to -0.14 – that's a sell signal for crude. I suspect we need some exciting crude-positive news to avoid a more prolonged retreat.  The chart looks even more as though it is forming a rough double top.  Rig counts tomorrow at 1pm.

SPX rose +0.84 to 2561.26. There was a bit of excitement in SPX today – the ES futures sold off hard just after Asia closed, and it was down almost 20 points at the time of the US market open. However, this was treated as yet another dip to be bought, and market had completely recovered all its losses by the close. Utilities led (XLU:+1.05%) while consumer staples did worst (XLP:-0.53%).

VIX fell -0.02 to 10.05.

TLT rose +0.18%, gapping up at the open (due to the overnight sell-off in the equity market) but then selling off for the rest of the day. Forecaster moved higher, up +0.20 to a still-bearish -0.34. Its hard to know where TLT is really going next – it probably depends on equities.

JNK rose +0.05%, making a new closing high for this near-term move. JNK remains in a slow-moving short term uptrend, above all 3 moving averages.

CRB rose +0.04%, with 4 of 5 sectors rising, led by PM (+0.65%).

Silver's rally today resulted in a buy signal for silver – but not for anything else in the PM complex. Is silver leading here, or just providing a head-fake during a downtrend?  Miners continue looking weak, with gold somewhere in the middle.

Even before today, I didn't get the sense that there was a lot of selling pressure in PM. The buck is also looking fairly weak, which certainly helps. At the same time, the mining shares aren't showing any enthusiasm at all.  It all adds up to a bunch of confusion, which suggests we will probably move sideways at least for now.

It appears as though the Republicans will be able to pass some sort of tax reform bill through Congress. This should be dollar-positive, but we have that ECB meeting next week, and we might get a taper, which is dollar-negative. More sideways chop.

The one takeaway is that silver is definitely looking as though its the strongest component right now.   I'm not sure I'd buy after today's medium-sized move, but if it drops again, perhaps buy the dip?

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5738
market risk signal

There is a very old indicator for perceived credit risk in the market; its the interest rate spread between BAA rated bonds, and AAA rated bonds.   It represents market players moving money between 2 different trades:

BAA: "I want to maximize interest payments"

AAA: "I'm worried about not getting paid back."

Here's what that looks like dating back to the beginning of time.  You can see we're at a relatively low point right now, which says the credit market isn't worried at the moment.  "I want to maximize interest payments."  Also known as "risk on."

I constructed a forecaster for the spread, training it on daily BAA-AAA data that dates back to 1986.   (The chart above uses monthly data that goes back to 1919).  The forecaster is suggesting that it is seeing a low right now - since this chart represents credit risk, it is currently "long risk" - it thinks risk will increase in the near future. You will notice that there are headfakes now and then, but it largely gets the trend right over time.

In other words, its probably not the time to be buying a bunch of junk debt.

Mohammed Mast's picture
Mohammed Mast
Status: Silver Member (Offline)
Joined: May 17 2017
Posts: 198
Opportunity Knocking

Knock Knock. Who's there?

BTC $6,000

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