PM Daily Market Commentary - 1/2/2018

davefairtex
By davefairtex on Wed, Jan 3, 2018 - 4:32am

Gold climbed +14.00 [+1.07%] to 1319.10 on moderate volume, while silver rallied up +0.23 [+1.38%] to 17.22 on moderate volume also. The buck fell -0.29%, which is yet another new low, however the currency move only accounted for a small portion of gold's rally today.

Gold moved higher all day long, starting in Asia and ending at the close in New York.  Print today: an opening white marubozu, which is a bullish continuation. Forecaster jumped +0.28 to +0.48. Gold's RSI7 is 90, which is quite overbought. How long can this go on? I suppose it depends on what the driver is; certainly there are very few managed money shorts left at this point. Gold is now up 12 of 14 days, and the pace of the move is accelerating.  Chart is going vertical, which generally ends badly.  A buy here is high risk.

COMEX GC open interest rose by +9,263 contracts today. Commercials are shorting the rally. Probably.

Rate rise chances (March 2018) are at 56%.

Silver outperformed gold, moving up steadily all day long in much the same track. Silver's long white candle had a 42% chance of marking a top, and silver's forecaster rose +0.03 to +0.38. Silver is now clearly through its 200 MA; it is slowly catching up to gold. Silver's RSI7=85, which is overbought, but not as badly as gold. My sense is that silver is still not showing its true promise at this point; there are a lot of managed money shorts to be squeezed, and it doesn't feel as though that is happening - at least, its not happening as violently as I'd have hoped.  Silver is approaching a resistance zone defined by previous highs around 17.35-17.40.  Given the high RSI level, I'd say that's where some selling pressure could appear.

COMEX SI open interest rose +887 contracts today.

The gold/silver ratio fell -0.24 to 76.60. That's bullish.

The miners did well today, with GDX up +2.50% on heavy volume, while GDXJ rallying +2.96% on very heavy volume. Last week's selling pressure was totally absent today; some miners I follow were up 8% on the day. Both miner ETFs printed bullish continuation candles. XAU forecaster jumped +0.88 to +0.59, a buy signal. It looks like “the dip” for miners was just a few days of sideways movement. 

Today, the GDXJ:GDX ratio rose, as did the GDX:$GOLD ratio. That's bullish.

Platinum rallied +1.52%, palladium shot up +3.14%, while copper fell -0.50%. Platinum is finally starting to get some love; it has finally managed to close above its 200 MA. Palladium made a dramatic new high today, while copper may be showing some signs of fatigue at last – although copper's forecaster remains in an uptrend at +0.18.

As mentioned, the buck fell -0.27 [-0.29%] to 91.55, making a new low. Long black candle was a bearish continuation. Forecaster fell -0.10 to -0.76. Its all bad news right now for the buck, which definitely appears to be headed for a retest of its previous low at 90.79. The Euro looks quite strong, right on the edge of breaking out to a new multi-year high. The buck's RSI7=14, which is heavily oversold. In the next day or two, we'll be at a decision point: will the buck bounce off the previous low, or will it break down further?  A breakdown could lead in time to a very dramatic move lower.  Based on the oversold RSI, buck should bounce off 91.  That might help to mark a top for gold & the rest of the commodity complex.

Crude rose +0.27 [+0.45%] to 60.37. Crude managed to make a new high to 60.74 in Asia trading, but was unable to hang on through end of day – the spinning top candle had a 44% chance of marking the top. Crude's forecaster rose +0.07 to -0.01. Crude is definitely running into resistance here at 60, but geopolitical concerns (Iran protests being the latest one) continue to keep a bid under crude. Even with shale production increasing, US oil inventories do not appear to be building, which keeps some of the selling pressure down.

SPX rose 22.20 [+0.83%] to 2695.81, erasing the end of year sell-off and making a new all time high by a few pennies. The closing white marubozu had a 53% chance of marking the top, but forecaster disagreed, jumping +0.30 to +0.80, a strong uptrend. Sector map shows a broad-based rally, with energy leading (XLE:+1.65%) but cyclicals, materials, tech, and sickcare sectors were all up more than 1%. Utilities did worst (XLU:-0.93%). This looked to be a mostly-bullish configuration.

VIX fell -1.27 to 9.77.

TLT plunged -1.08%, printing a swing high (56% bearish reversal) and seeing its forecaster drop -1.15 to -0.60, which is a sell signal for TLT. The back-and-forth in TLT is quite violent right now; forecaster is useless as a trading mechanism. TY fell -0.27%, also issuing a sell signal. Bonds have now resumed their downtrend, which aligns with falling utility prices. Looks like the trick right now is to sell the rallies in bonds.  Makes sense - we have a lot of new supply coming onto the market, as well as the balance sheet normalization from the Fed.

JNK rose +0.11%, it continues to move slowly higher. Curiously, the JNK forecaster dropped -0.26 to -0.03, which is a sell signal for JNK. This aligns pretty closely with my own sentiment; with yields heading higher, its probably time to sell bonds – even though SPX is showing risk on.

CRB rose +0.44%, which marks 10 of 11 days up for commodities. 3 of 5 sectors rose, led by agriculture (+0.85%).

The trend remains in place: falling bond (and utility-company) prices, rising commodities, and a sharp upswing in precious metals over the last three weeks. Commodity-price inflation seems to be the new-new thing for 2018. Tax cuts using borrowed money, Fed balance sheet normalization, post-hurricane spending, all add up bad news for bonds, and “good news” for consumer inflation.

The daily charts of gold and the miners are quite extended.  I would expect a pullback of some sort to occur in the near future.  Silver, which normally outstrips gold substantially during these sorts of moves is a bit sluggish right now, which also gives me a little pause.

Where will the buck go when it hits 91?  That might decide the near-term fate for this leg of the commodity rally.  The odds (the ones in my head, at least) say the buck should bounce in the next day or two - at least some of the shorts will be ringing the cash register at 91.  Its something to watch in in the next day or two.

FOMC minutes due out tomorrow at 2pm.  That might end up being a turning point of sorts.

Nonfarm Payrolls and a number of other important reports are due out Friday.

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8 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5321
btc update: buy everything

All the items I track issued buy signals either yesterday or today, on both the daily charts and the hourlies.  ETH is doing especially well, while LTC is the laggard.

Here's my favorite 4h chart: you can see the rough trading range I've circled - from 13k on the lower end, to 16k on the upper end.  The buy signal was pretty good this time around.

 

lambertad's picture
lambertad
Status: Silver Member (Offline)
Joined: Aug 31 2013
Posts: 177
Question for your computer

Dave,

Thanks again for putting out such great charts and info. I stop by daily, but don't have much to contribute so don't comment, but really great stuff. 

Anyway, I came across this chart on my twitter feed and don't really know what to make of it, or if your computer could use it to help determine direction.

It's a 1 min chart of GLD over the past 8 days and shows almost zero selling pressure. With my limited knowledge of charting, but through your help (big thanks) I've come to understand RSI can tell us overbought vs. oversold. So, while we know gold is overbought based on the RSI7, what does such little selling pressure intraday in GLD tell us?

Is the 1 min chart a level of granularity that doesn't matter? Is it another piece of evidence showing an overextended rally or something else? How does GLD buying even correlate to gold price (I would think positively, but is it .9, .5, or .2, I don't know). Also, does GLD lead or lag, I haven't the slightest clue. Shoot, I don't even know who buys GLD to be honest. I would expect it to be unsophisticated investors so it probably lags the price (since most people only buy gold when the price is going up), but it's just another question for your electronic brain to perhaps think about. 

I dont have a lot of experience looking at 1 minute charts, but I would expect this chart is an anomally rather than the norm. Kind of like the S&P from bottom left to top right without a wiggle in between.

 

charleshughsmith's picture
charleshughsmith
Status: Platinum Member (Offline)
Joined: Aug 15 2010
Posts: 708
a classic wedge

If you pull back to a daily chart, you can discern a classic wedge of higher lows and lower highs. BTC appears to have broken out to the upside of this wedge. Let's see if this pattern holds. There's even a reverse head and shoulders being put in if you squint...

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5321
GLD

That's a lotta questions.  :)

First, GLD is an odd fish, because it only trades 8 hours a day, while the "GC" (COMEX gold futures) trades 23.5 hour per day.  So there are lots of things happening "off camera" that you aren't seeing in the GLD chart.  Get a 5-minute chart of GC and it will look a lot more continuous.

Second - yes, the rally in gold over the past 8 days has been more or less straight up.  And accelerating.  It appears to have run into problems today - some selling in Asia.  Euro also is having troubles, probably no coincidence there.  GLD is more or less doing the same thing that $GOLD is doing too.

GLD is kept fairly close to the gold price by arbitrage.  There are some big players who can, if the price of GLD gets out of alignment with gold, actually turn in GLD shares and take delivery of GLD's bars from the vault - and then presumably sell that gold at spot.   Supposedly.  Opinions vary on whether or not the gold is there, etc, but if there are no shenanigans, alignment of GLD with spot gold is done by arbitrage.  In practice, it doesn't get too far out of whack.  Chart "GLD:$GOLD" at stockcharts to see what I mean.  There is a steady decay over time because of GLD's 0.4% annual fee.

Assume that GLD tracks the gold price quite closely.  It is funds like PHYS that have a somewhat harder time keeping aligned with the gold price.  Look at PHYS:$GOLD and you'll see what I mean.

For gold, I don't generally get down into the intraday charts.  I stay at the "daily chart" level.  Its only for bitcoin that I go down to the hourly.  That's because bitcoin trades 24/7...which is really nice for my computer, because there aren't any strange "start of day" jumps it has to deal with.

jtietz79's picture
jtietz79
Status: Member (Offline)
Joined: Sep 10 2015
Posts: 9
Thoughts on gold?

Futures dropped hard to around $1309 after the FOMC and came roaring back before settling around $1314 for the day. Dave any thoughts on its recovery?

JohnCraig's picture
JohnCraig
Status: Member (Offline)
Joined: Sep 22 2017
Posts: 4
Gold valuation

It goes up!  It goes down. Over the short term it vacilates. Historically it has risen with the cost of living. It is a long term investment unless you are very intuitive and can intuit the peaks and troughs accordingly. I  see it as a store of primary value as a hedge against volatilty in stock market. I bought today on the average cost. It will appreciate over the long term if history repeats itself. If not, I won't loose much of my investment. I bought most of my gold holdings below todays price.

JohnCraig's picture
JohnCraig
Status: Member (Offline)
Joined: Sep 22 2017
Posts: 4
Gold valuation

I was talking about holding physical gold. Futures are for the very risk taking types. That is not me with gold. Not intuitive enough.   Best of luck with futures speculating.

JohnCraig's picture
JohnCraig
Status: Member (Offline)
Joined: Sep 22 2017
Posts: 4
Gold valuation

I was talking about holding physical gold. Futures are for the very risk taking types. That is not me with gold. Not intuitive enough.   Best of luck with futures speculating.

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