PM Daily Market Commentary - 12/5/2017

davefairtex
By davefairtex on Wed, Dec 6, 2017 - 1:44am

Gold fell -10.20 [-0.80%] to 1268.40 on moderately heavy volume, while silver dropped -0.23 [-1.41%] on moderate volume. The metals continued selling off today. Managed money appears to be liquidating. Part of the problem was a huge drop in copper prices, which plunged -4.39%, the second largest single-day drop in copper this year. Why? Supposedly it was caused by an LME warehouse inventory number released in the morning – stocks of copper at the LME increased for the first time in months.

Gold more or less steadily moved downhill today, although there was a slight bounce at end of day. The resulting opening black marubozu candle had a 47% chance of being a reversal. It does look as though gold's plunge was halted at the previous low of 1263, at least for now. Forecaster declined -0.13 to -0.42. Slope of the downtrend is increasing.  I'm not sure I'd bet on 1263 support holding.  A break through 1263 could get ugly - next support is 1200.

COMEX GC open interest rose by 32 contracts.

Rate rise chances (Dec 2017) remains at 90%.

Silver also moved steadily lower, and it too had a slight bounce at end of day, however silver's candle print was a bearish continuation. Silver's forecaster fell -0.09 to -0.38. There is not much support on the daily chart until 15.50 or so. Looking on the weekly & monthly charts, if we can't close the month at 16, we could end up dropping down to 14. I'm not seeing much in the way of buying signs in silver right now.

COMEX SI open interest rose by 3,152 contracts.

The gold/silver ratio rose +0.48 to 78.73. That's bearish.

The miners fell along with the metals, with GDX off -1.04% on heavy volume, while GDXJ dropped -1.41% on heavy volume also. GDX printed a high wave candle: 60% chance of a reversal, while GDXJ printed a spinning top/bearish continuation. GDX forecaster dropped slightly (-0.08 to -0.06: sell!) and GDXJ fell -0.06 to -0.14. These are not big moves, especially compared to the moves in the metals. Perhaps that's why the forecasters weren't too unhappy today. HUI looks worse, plunging -0.28 to -0.33.

Today I'm pulling back to the weekly chart to show the upcoming support levels. If we lose HUI 160, the selling could really pick up. Traders who have held their miners until now might well change their minds. Perhaps this only occurs if silver falls through 15.50. For now, miners continue to look relatively strong.

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

Platinum fell -1.16%, palladium dropped -1.05%, while copper plunged a huge -4.39%. It was a bad day for the other metals – all of them are in downtrends. Copper's closing black marubozu might actually be a reversal (40%) - sometimes a plunge is just so large, it ends up marking a low.

The buck rose +0.15 [+0.16%] to 93.05. The buck did not play much of a role in today's commodity price moves. Buck is in a very early uptrend; today's print was a bullish continuation.

Crude mostly went nowhere, rising +0.04 [+0.07%] to 57.49. It had rallied earlier in the day, but the API report at 4:30 pm resulted in a plunge, erasing the day's gains. API reported: crude -5.5m, gasoline +9.2m, distillates +4.3m. The large builds in oil products were bearish. Today's print was a long-legged doji, a bearish continuation. Forecaster rose +0.02 to -0.12. In spite of the sell signal on the daily chart, the weekly chart still shows crude in an uptrend. Given the sell-off in the metals, crude actually did fairly well.

SPX tried to rally today but the rally failed; SPX closed down -9.87 [-0.37%] to 2629.57. Print today was a swing high, which only had a 40% chance of marking the top. Forecaster fell -0.11 to +0.48.  However, SPX remains in an uptrend, and also above its 9 MA.  Sector map shows tech leading (XLK:+0.03%) while utilities did worst (XLU:-1.27%). It was an odd configuration – I can't quite make out what it means.

VIX fell -0.35 to 11.33.

TLT charged up +0.50%, rallying strongly on the drop in the equity market. TLT broke out to new highs today, and TLT forecaster jumped +0.40 to +0.69. I'd expect the rally to get much stronger if the equity market sell-off continues. TY printed a swing low today (61% chance reversal). We might even have a low for the 10-year. The yield curve continues to slowly flatten.

JNK managed to rise +0.05%, more or less going nowhere today. JNK remains in a downtrend.

CRB fell -0.65%; 4 of 5 sectors fell, led by industrial metals (-2.57%). Both industrial metals and PM are looking ill right now.

At this point, the moves are less about gold or silver, and more about the entire metals complex selling off. Gold and silver are just going down along with everything else. While the miners have managed to hang on fairly well to date, that's not a guarantee they will continue to do so. I'm specifically worried about what happens if the HUI 160 support level is broken. That's a lot of air underneath 160.

Currently, the metals are all in downtrends of varying severity.  We don't know when the downtrends will end, so it is safer to be watching from the sidelines until we get a reversal sign from the technical indicators.

If we have an eye on the longer term, we should be hoping for one last big smash going into the holidays.  Armstrong calls this a slingshot rally - one last smash prior to the elections in Italy which are utterly certain to bring excitement that Mario Draghi cannot fix by buying another trillion Euros in bonds.  The deeper the smash, the stronger the ultimate rally will be.

And if you are feeling that gold will never rally - that's good too.  Its a sign that, truly, nobody cares.  Once people start to care, no game-playing by the commercials will be able to stop the move higher.

I also think there is a certain element of fatigue and envy in the metals space caused by bitcoin.  "They are having the rally that should have been ours."  That's the sense I have anyway.  I suspect this is causing the morale of some metals owners to break - transferring their money out of PM and into the crypto space - here at bitcoin 12,000!  This is just in time for mainstream exchanges to start futures trading on December 10th, only 5 days from now.  Will bitcoin start experiencing wash & rinse cycles just like gold and silver?  I think that's entirely likely.  And from the government's perspective, money flowing into crypto is money that isn't going to stocks and bonds.  Even if the government doesn't want to destroy crypto, they certainly don't want it to be more attractive than government debt.  "Go forth and rinse out some of those bitcoin buyers."

The bitcoin effect should also help to cause the slingshot.

In the meantime, watch from the sidelines until the buyers return to the metals.  We could rebound tomorrow at silver 16, or at silver 15.50 - or maybe even at silver 14.  We'll just have to see what happens.

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9 Comments

phusg's picture
phusg
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Posts: 19
crypto-envy

I also think there is a certain element of fatigue and envy in the metals space caused by bitcoin.  "They are having the rally that should have been ours."  That's the sense I have anyway.  I suspect this is causing the morale of some metals owners to break - transferring their money out of PM and into the crypto space - here at bitcoin 12,000!

Good point, feeling that here too!

cmartenson's picture
cmartenson
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Worth reading on Bitcoin

If any of this is true....

ZJ on Zerohedge

December 6, 2017 at 2:25 am



They’re simply too young to understand what’s about to come their way. The bitcoin exchanges are dominated by millennials’ convinced of their status as modern day ‘traders’, extolling the virtues of their stochastic indicators and RSI’s and the foolproofness of their trading strategy that are in effect nothing more than long only/buy and hold (or hodl as its now being deemed). They are truly convinced of their omnipotence, its both horrifying and sickening at the same time.

I mean these squirts haven’t seen what happens when everyone rushes for the exits at the same time…they were shitting themselves to sleep at night all the way through 2007-2009..waking up to mommy’s tit in the morning after a nice bath…and now they’re trying to teach everyone their damn trading strategies…??!! It defies belief, really.



Seriously, I’ve been looking at the trading on the GDAX exchange (amongst others) over the last 2 weeks and, having come from an institutional securities trading background, feel I am qualified to make a few observations…



1. There is fairly broad based liquidity. But it is razor thin. Huge pockets of liquidity on both sides of the order book. Market orders of 10-20 bitcoins can launch or plummet the price several hundred dollars.



2. There is prolific spoofing/market manipulation. Which, given the liquidity in the markets, is both easy to do, and technically not unlawful given its an entirely unregulated product/exchange.



At this point all I can say is that, right now, it’s a tsunami (futures) barrelling down on a storm in a tea-cup ($200 clips on retail dominated exchanges)!



It’s going to be a disaster of epic proportions! I mean lest we forget about all the UK and European retail brokers that are writing synthetic derivatives (CFDs) on bitcoin and altcoins already (IG, being the biggest of them all) that have enjoyed a one way market with little to no hiccups along the way. What happens when the markets takes a turn and all of a sudden all those long-only retail clients hit the ‘sell my bitcoins and give me fiat’ buttons on their webportal trading platforms?! It’s going to be fucking epic! Truly, it is! So much so, I’m buying a couple of corn futures because the popcorn that’ll be consumed during this catastrophic collapse will be fucking glorious in its scale!



Lastly, I’m really concerned at the stark absence of the ‘tail wagging the dog’ comments in relation to this pending futures market. Is it just me, or are we about to get a lesson in the undeniability of this phenomenon? Surely nobody actually believes that the derivative is, and will continue to behave, as nothing but a derivative? Oh no! make no mistake, this fucking tail is going to wag the ever-loving balls off this dog my friends!



I know this to be true too. I had drinks recently in the City (London) with a friend, where we spoke of the trading side of bitcoin which, at that point I hadn’t spared much though about to be honest, but it certainly piqued my interest on the trading side that night. This prompted me to start digging around the City to see what I could find out about what’s going down on the market making side. I’ve been aware of the major retail brokers in the city that are writing synthetic derivatives on bitcoin et al (CFD’s and spreadbets) for some time now, years actually.

But never really thought about the underlying market infrastructure supporting all of this. So in very little time at all I came to learn a few things…



1. IG, is the dominant player. They appear to have a dedicated market making desk and their trading is pretty rudimentary. Clients are accumulating and offloading as normal, but net net they’re long and accumulating BTC physical. So said traders are purchasing the physical coins with cash on the various exchanges to hedge their client exposure. This is all unicorns and rainbows for as long as their book grows while the market direction supports their accumulation. At the same time they are charging their clients a 60 bps spread on the BTC/USD & GBP crosses (exchanges are as low as 1 bps on USD and quite a bid wider on GBP) and a wholesome overnight financing charge on the product (standard BTC product is 100 BTC notional, margined at 20%; mini product is 10 BTC notional, margined at 20% as well). So needless to say, IG is making bank on their crypto trading no doubt. The kicker is the traders are walking around with USB keys filled with tens of millions of pounds of physical BTC (which I imagine must be freaking their risk managers out a little..)

Just a little aside before we get to the real kicker. Recall Jamie Dimon’s remarks about firing any of his traders that trade bitcoin, and how shit the whole thing is? Well the disingenuous fuck head happens to have spawned the very team of traders making the market and managing risk for IG’s crypto desk. Gasp..tell me it isn’t true?



So this is all fine a dandy, but let’s inject a little thought experiment. Let’s assume this crypto market loses its perma-bid and goes offered into the ground at warp speed? Our modern day millennial crypto traders think its perhaps about time to offload that position and convert back to fiat. Enter IG trading platform,’open positions’, BTC/USD position – SELL. Multiply this effect by a few hundred, occurring non stop for a few hours and what do you have? A market making desk being put all these positions with furious abandon by clients who almost don’t care what price they’re getting as long as they’re getting one, forcing IG to make the market – where there isn’t one! So IG is making a market 2-10% wide of spot, maybe, or whatever, but, but BUT they have a metric fuck ton of physical on USB keys they need to sell to raise the cash!

How exactly is this little drama going play out exactly? What new age super computing risk management systems do they have to enable them to come out the other side of this one with both balls still in close proximity to each other? I don’t see it. Rather I see the making of the next broker wipe out if we experience another exchange collapse/fraud/scam as is currently pending with bitfinex and tether, a la MtGox.



As of next week though, there’s a possibility that the desk decides to start offloading the physical and replacing the exposure with/on the futures exchange. It’s a far cleaner product and enables a far more effective risk management strategy (run a small physical book, but offset the majority on exchange across the maturity curve) and this might go a long way to mitigate their risk. However, this is of course predicated on the crown jewel of efficient markets – liquidity. Or in this case, the lack thereof could precipitate an even quicker collapse. A few successive 20% limit down days and those traders might just be wishing for the days where they only had to find buyers for their physical because the futures market tail will be wagging the dog, so to speak, with aggressive, reckless & furious abandon.



So, futures market or no futures market, the world of crypto currencies has a world of growing pains to endure anyway you look at it. No doubt they will feature prominently in the future, the technology and utility function is beyond dispute, the value however is rather subject to a little more uncertainty in my view and chances are good you’re probably going to get another chance to purchase BTC at a fraction of today’s price.



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... a flash crash is in the works.  The futures on Dec 10th are going to be a real wake up call I believe, but the above suggests that a major brokerage could get caught in the wake and dragged down.

It wouldn't be the first time...

 

PeakGold's picture
PeakGold
Status: Bronze Member (Offline)
Joined: Jun 3 2017
Posts: 73
Bitcoin ETF

I wouldn't mind a short bitcoin ETF! I thought bitcoin was suppose to unhackable??? 62 million dollars later, the trust is now gone in the cryptos....https://www.coindesk.com/62-million-gone-cryptocurrency-mining-market-nicehash-hacked/

PaulJam's picture
PaulJam
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Joined: Dec 4 2016
Posts: 54
BTC unhinged

Holy moly - BTC near 14.4K right now.  It seems utterly unhinged.  I decided its time to take some profits, and want to put some tight stops under the current price,  but I have to first send btc from cold storage to GDAX, and am encountering network delays. 

These transfer delays are instructive - if you have tokens in cold storage and need for whatever reason to trade in response to chaotic exchange conditions, the network will be busy and you will encounter transfer delays that may hinder your ability to respond in a timely fashion.

mrees999's picture
mrees999
Status: Gold Member (Offline)
Joined: Aug 16 2013
Posts: 331
A bit of counterpoint

This is written from the perspective of an old-school trader with no exposure to crypto. He's applying his traditional education and experience to a new paradigm it seems he doesn't understand well.

The USB keys he speaks of are actually hard wallets and set to reformat and erase at the third attempt to unlock them. Not exactly a security concern.

A recent poll was given to longtime bitcoin holders asking the price they would be willing to sell their bitcoin. The average response was $200,000.  They might shake out the newbies and traders but they won't pry most of the bitcoin away from those people before the price hits their target. With such a volatile asset class, people have developed a very strong stomach for this world. Everybody panic sells once - and then regrets and learns from their mistakes. I suspect only about 10% is 'new money' ready to panic for cheap prices.

There likely will be a correction - but these traders are used to markets closing during the weekends. This world trades 24 x 7. Whatever plans they make can be undone by desperate South Koreans and Japanese who routinely trade more than the US.  They are preparing for a battle where they seem not to know the rules. 

 

We are in full FOMO and there will be a correction \ and they may even start it. But I'll be surprised if it's as easy as they think it will be to control. Bitcoin is a life raft for people in countries in turmoil. It was selling for $14,000 weeks ago in Zimbabwe. I suppose they are a leading indicator now.

 

Many surprises ahead I think.

 

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4849
new money

So Mark - I can definitely see what you mean about the old bitcoin money.

How would you define "new money?"  Here are two proposed "new money" groups.

So that means a retrace back to either 4500 (which I think is almost a sure thing - as I'm guessing, so do you) or a retrace back to around 2000.  The last major retrace we saw back in 2014 was a 6:1 (1100 => 200) retrace.  The retrace through new money group #2 could be triggered by failure of bitfinex/Tether.

I'm guessing that's why you are considering liquidating.

And of course, there's the perennial question, "how will bitcoin perform in a downturn?"

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4849
bitcoin bots

Last point.  I'm guessing there are a bunch of people (you would know more than I would) that are running bitcoin bots in one form or another.  The API is so simple, it just takes a couple of days to gin one up.  So no doubt every other software engineer has written a bitcoin bot for trading their bitcoin holdings.  The bots work great against the great unwashed, but so far, they haven't run up against the pros.

How much trading volume are the amateur trading bots?  Once they get ripped by the pros (who have had literally decades to hone their algorithms), how much bitcoin liquidity will vanish?  And how many amateur traders will decide to just up and leave?  To run a bot, you must own BTC.  After taking enough losses, some large percentage of those people will end up bailing out of bitcoin entirely.

Just my thoughts.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 4849
transaction delays

PaulJam-

Here's a chart of transaction delays vs price.  Its informative.

PaulJam's picture
PaulJam
Status: Bronze Member (Offline)
Joined: Dec 4 2016
Posts: 54
Thanks Dave!

Thanks, very helpful.  My delay earlier was about 180 minutes.

BTC continues to roar.....

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