PM Daily Market Commentary - 11/6/2017

davefairtex
By davefairtex on Tue, Nov 7, 2017 - 12:16am

Gold rose +12.20 [+0.96%] to 1282.40 on very heavy volume, while silver shot up +0.42 [+2.47%] to 17.25 on very heavy volume also. The buck fell slightly [-0.22%] which likely helped, but ultimately this move was not about currencies. Instead, it seemed as though this was about energy, which staged a sharp rally today. PM was just taken along for the ride.

What caused the energy spike? Oilprice thinks it might be about the political purges that occurred in Saudi Arabia over the weekend. https://oilprice.com/Energy/Crude-Oil/Why-Saudi-Arabias-Crackdown-Sent-Oil-Prices-Soaring.html

There's also Arthur Berman, who is suggesting that the US over-supply of oil may be ending. Article is full of charts, math, observations about domestic growth, increasing consumption, and spreads between Brent and WTI. Summarized: Arthur sees higher oil prices ahead. Probably. https://oilprice.com/Energy/Oil-Prices/Can-WTI-Hit-70-In-2018.html

Gold spiked briefly lower in Asia, but then moved steadily higher, with the rally accelerating just after 11 am in New York, with gold closing relatively near the highs for the day. Candle print for gold today was a two-candle swing low, which had a 56% of being a reversal. Forecaster moved up +0.24 to +0.09, which is a buy signal for gold.  Gold broke out above both its 9 MA, and its recent trading range, which is bullish.

COMEX GC open interest rose by 9,281 contracts - 28 tons of paper gold were added today.  Another ratio: 2.6% of today's trading volume was newly printed paper gold contracts.

Rate rise chances (Dec 2017) is at 97%.

Silver edged slowly higher in Asia and London, but really took off after 11 am in New York.  Silver did not print a swing low simply because it has done better than gold recently – but it did invalidate the unpleasant-looking reversal bar from Friday because it made a new high today. Forecaster jumped +0.40 to +0.12, which is a buy signal for silver. Silver ended the day above all 3 moving averages, which is bullish.

COMEX SI open interest rose by 3,487 contracts.  That's 542 tons of paper silver added today; 3.2% of today's trading volume was the addition of new paper silver.

The gold/silver ratio plunged -1.11 to 74.36. That's strongly bullish.

Miners were giving us hints last week of possible good news; today they broke sharply higher, with GDX up +2.14% and GDXJ +2.12%. Both ETFs printed swing lows: GDX with a 77% reversal and GDXJ had a 70% reversal. Both of those swing lows were very highly rated. Miners are now well above their 9 MA lines, and have broken above their recent trading ranges, similarly to what happened with gold. Forecasters: GDX +0.68 to +0.46 (buy), GDXJ +0.16 to +0.20. The It all looks quite bullish.

Today, the GDXJ:GDX ratio was flat, but the GDX:$GOLD ratio moved higher.  Bullish.

Platinum rose +1.70%, palladium was up +0.14%, while copper shot up +1.44%. Both platinum and copper printed swing lows, although the ratings were just lukewarm.

The buck fell -0.21 [-0.22%] to 94.52, initially spiking higher in Asia, but then dropping off a small cliff just after 11 am in the US. There was no news that I saw that caused the drop, however the timing of the relatively small move was coincident with the large rallies in oil and PM. The spinning top candle was neutral, and the 5-day forecaster moved up +0.10 to +0.29. Buck remains in an uptrend.

Crude shot up +1.61 [+2.89%] to 57.34, making a new multi-year high. While crude moved slowly higher all day long, the most rapid move occurred just after 11 am in the US.  Crude is back, (baby!) and from what I saw, the 11 am move was a large amount of short-covering.  Day volume was very heavy – heaviest in several months - that's another sign of short covering too.  Forecaster for crude jumped +0.39 to +0.94, which is a very strong uptrend rating. Can it continue?  Maybe. There are still a fair number of shorts left to squeeze. RSI7 for crude is 87, which is strongly overbought.

Energy sector equities shot higher on the breakout, with XLE up a huge +2.29%, breaking out to a dramatic new high. The oil services subsector (OIH) did even better, rising +4.73%. Even so, the services are lagging oil by a huge amount; OIH was 30% higher at the start of 2017, back when oil was capped by the shorts at 54. It still appears as though the services are having trouble believing in the rally, even with oil at $57. Perhaps the “peak oil demand” storyline really has caught hold. If the oil rally continues, and the market starts to believe its for real, services will (should?) go on an absolute rampage. Even just a move back to the highs of 2017 would be an awfully nice result.  That's my theory anyway. (I'm long services; not every equity-market sector is at all time highs).

SPX rose +3.29 to 2591.13, making yet another new all time closing high. Long white candle was a bullish continuation, forecaster rose +0.15 to +0.64. Sector map show energy (XLE:+2.29%) and cyclicals (XLY:+0.79%) leading, with consumer staples doing worst (XLP:-1.07). Today's modest move higher in SPX was all about the oil rally, and the oil equities trying to play catch-up to the move higher in crude.

VIX rose +0.26 to 9.40. Volatility is still in the single digits.

TLT rose +0.37%, rallying for the 4th straight day (6 of the last 7), making a new high, which is a breakout above the previous (lower) high set back in mid-October. Bonds are looking quite strong. The spinning top was a bullish continuation, but the forecaster fell -0.34 to +0.40. That's still an uptrend, but its slower. I'm not sure what the forecaster sees. The 10 year treasury forecaster remains in a relatively strong uptrend.

JNK fell -0.05% today, continuing to edge lower. JNK has fallen for 4 days straight now. The drop is surprising, given the strong rally in crude. It is signaling risk off.

CRB shot up +1.68%, yet another new high.  4 of 5 sectors rallied, led by energy (+3.22%). CRB is now approaching its previous high set back in January 2017. CRB is heavily overbought on the daily chart, with RSI7 at 94. Even the weekly RSI7 is 79, which is also overbought. CRB is 24% up off the lows set back in early 2016.  Mostly that's been about energy (102%), industrial metals (58%), and PM (20%), with livestock and agriculture largely unchanged.

Remember how GDX bottomed in January 2016, and how it had a 146% gain through August 2016?  Look at the chart below.  Rising commodity prices are generally good for PM.  We want to see a CRB breakout through 195.

Energy may be the real story right now; while oil and gold don't have a perfect correlation, it is fairly strong.  Energy is a big chunk of the costs of commodity production, and so higher oil prices tend to drive higher commodity prices in general.

I suspect there will continue to be a series of short-covering rallies in crude, as managed money continues to panic out of their short positions.  That's just a guess, though.  Oil equities continue to tell me that "nobody believes in the rally" - which provides the fuel to keep the rally going, since too many people are on the "don't believe" side of the boat and must cover short/go long to adjust their positioning as prices move higher.

It appears as though PM may be carried along for the ride.  Silver's big breakout today was a strong positive sign, as were the rallies in the mining sectors.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4774
USN collisions explained

Belated comment on all the USN collisions - from "The Station Chief", a retired CIA station chief and, prior to that, US Naval Officer on active duty from 1986-1989.

He's a teensy bit conservative.  :)

He explains here:

https://www.newsmax.com/ScottUehlinger/uss-mccain-collision-straits-of-malacca/2017/08/21/id/808885/

Navy watchstanders are usually junior officers — possibly Naval or maritime academy grads, but more likely NROTC graduates with little maritime background. How to transform them into a seaman in a short time? That’s the rub. This was accomplished for many years by attending a 4 month navy school inculcating such skills. Guess what happened? In the early 90s the Navy, looking to save money, shuttered its Surface Warfare Schools in Newport and Coronado — and placed its faith in new officers reporting to ships absolutely green and learning from computer-based tutoring and hands-on training (they were very recently reopened). We would never expect a naval aviator to just strap on an F-18 and go for a spin, or have a beat cop report prior to graduating from a Police Academy — but this is what we expected the U.S. surface force to do!

Lets face it, there were only so many hours daily someone can devote to study (as a Navy JO at sea I worked 18 hour days for months on end). Budget cuts during sequestration results in more material breakdowns, and increased demand for PC indoctrination crowds out training time. The result is that the fine points of navigation and seamanship were allowed to atrophy. Junior officers, coming of age in a world of smart phones, keep their “heads down” on the bridge, over-reliant on technology. The navy in fact, deleted the evaluation category of seamanship from its fitness reports — which is like evaluating a pilot on everything except how he flies an aircraft! Disturbingly, our enemies know of our over reliance on tech — and that is why they now employ GPS-spoofing technology.

 

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