PM End of Week Market Commentary - 1/19/2018

davefairtex
By davefairtex on Sun, Jan 21, 2018 - 1:32am

 

On Friday gold rose +4.10 [+0.31%] to 1331.20 on moderately heavy volume, and silver moved up +0.06 [+0.38%] to 17.02 on moderately light volume.  Both metals rallied more substantially during the day, but were not able to retain those gains into the close, largely because the buck recovered from a earlier sell-off.

The PM sector map is telling us that a correction in PM is starting; juniors are leading seniors lower, and silver is leading gold lower. Four items have dropped through their 9 MA lines, which is the first sign of trouble in any downtrend.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum $PLAT 1.79% 5.68% rising rising rising rising ma200 on 2018-01-02 2018-01-19
Gold $GOLD -0.53% 10.54% rising rising rising rising ma50 on 2017-12-22 2018-01-19
Silver $SILVER -1.28% -0.03% falling falling falling rising ema9 on 2018-01-17 2018-01-19
Copper $COPPER -1.32% 21.81% falling rising rising falling ema9 on 2018-01-05 2018-01-19
Senior Miners GDX -1.50% 3.37% falling rising rising rising ema9 on 2018-01-18 2018-01-19
Junior Miners GDXJ -1.55% -6.14% falling rising falling rising ema9 on 2018-01-18 2018-01-19
Palladium $PALL -1.88% 45.70% rising rising rising rising ema9 on 2017-12-07 2018-01-19
Silver Miners SIL -2.01% -9.67% rising rising falling rising ema9 on 2018-01-19 2018-01-19

Gold fell -7.10 [-0.53%], with all of the damage happening on Wednesday. Gold's forecaster issued a sell signal on Thursday, and ended the week at -0.18, which is a downtrend. Gold weekly and monthly forecasters remain in an uptrend. Gold remains above its 9 MA, which is a positive sign.  You can see the long upper shadow on Friday that shows the failed rally - this mirrors the dollar's rebound off the lows that happened at roughly the same time.

The March rate-increase chances remains at 73%.

COMEX GC open interest rose +12,423 contracts this week.

Silver fell -0.22 [-1.28%] to 17.02, correcting on Wednesday along with gold, but then recovering somewhat on Friday. Friday's rally was enough for the forecaster to issue a buy signal, ending the week at +0.03. Looking at Friday's price action, the buy signal comes as a bit of a surprise, but there it is. Who am I to argue with the forecaster? Silver ended the week below the 9, but remains above the 200 MA.

The gold/silver ratio rose +0.59 to 78.19, which is bearish.

COMEX SI open interest fell -2,868 contracts.

The miners were more bearish than the metals this week – Thursday was the big sell day for the mining shares, causing the forecaster to issue a sell signal on that day, ending the week at -0.11. That doesn't look all that bad, and certainly if gold manages to recover, the miners probably will also. XAU remains above its 9 MA, which is a positive sign.

On the weekly charts, XAU remains in a (weakening) uptrend (+0.13), while the monthly forecaster remains in a downtrend (-0.21).

The GDX:$GOLD ratio fell -1.37%, while the GDXJ:GDX ratio fell -0.05%. That's bearish.

USD

The buck fell -0.40 [-0.44%] to 90.27, making a new low on Friday to 89.86 before bouncing back. Candle print for Friday was a bullish high wave (49% bullish reversal). As of right now there definitely appear to be buyers around 90; the buck doesn't spend much time below that level. Similarly, the Euro is finding it difficult to move above 122.50. USD forecaster ended the week at -0.44, which is an improvement over last week's -0.66. The buck could be putting in a low here – and that would line up with the correction we are seeing starting to unfold in PM. The buck remains in a downtrend in both weekly and monthly timeframes.

US Equities/SPX

SPX rose +24.06 [+0.86%] to 2810.30, ending the week with yet another all time closing high. The forecaster ended the week at +0.58, which is pretty much where it was at the end of last week also. SPX remains in a strong uptrend.

The sector map was mixed – consumer staples and sickcare led, which aren't the usual bull market leaders, while energy trailed.  While this week's sector map isn't the ideal bull market configuration (i.e. tech & financials in the lead), I don't see any signs of any sort of a correction at this point.

VIX rose +1.11 to 10.93.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Cons Staples XLP 2.44% 11.08% rising rising rising rising ema9 on 2018-01-16 2018-01-19
Healthcare XLV 1.87% 26.31% rising rising rising rising ema9 on 2018-01-02 2018-01-19
Technology XLK 1.48% 36.89% rising rising rising rising ema9 on 2018-01-02 2018-01-19
Financials XLF 1.06% 28.21% rising rising rising rising ema9 on 2018-01-03 2018-01-19
Homebuilders XHB 0.80% 36.80% rising rising rising rising ema9 on 2017-12-15 2018-01-19
Cons Discretionary XLY 0.54% 26.18% rising rising rising rising ema9 on 2018-01-02 2018-01-19
REIT RWR 0.14% -4.13% falling falling falling falling ma200 on 2018-01-04 2018-01-19
Materials XLB -0.17% 24.96% rising rising rising rising ema9 on 2017-12-18 2018-01-19
Utilities XLU -0.54% 2.97% falling falling falling falling ma200 on 2017-12-19 2018-01-19
Industrials XLI -0.60% 25.63% rising rising rising rising ma50 on 2017-11-27 2018-01-19
Telecom XTL -1.13% -0.03% rising rising falling rising ema9 on 2018-01-19 2018-01-19
Energy XLE -1.34% 2.85% rising rising rising rising ema9 on 2017-12-18 2018-01-19
Gold Miners GDX -1.50% 3.37% falling rising rising rising ema9 on 2018-01-18 2018-01-19

Gold in Other Currencies

Gold fell in every currency, dropping -10.15 in XDR.

Rates & Commodities

TLT fell -1.17% this week, head-faking higher on Tuesday and then dropping for the remainder of the week. TY's chart looked worse – the rally on Tuesday was very minor, and it dropped for the next 3 days, making new lows, and finally ending the week at a 2.64% yield, which is well through the line-o-death for the 10-year. It doesn't matter the timeframe – daily, weekly, or monthly – bonds look bad. Utilities moved lower as well this week, dropping -0.54%.  Stuff-with-a-yield continues to be sold.

JNK managed to avoid a similar fate, falling just -0.11%. JNK is moving lower, but very slowly. Perhaps it is pulled higher by the rampant risk on, and tugged lower by the falling bond prices, ending up with a rough parity. BAA bond yields, the higher-quality cousin to JNK, rose this week, which is bearish for price.

CRB fell -0.28%, not able to make any substantial progress above the 195 level which has acted as resistance for the past two years. A break above 195 will be quite bullish for commodities, but if the buck puts in a low, that will make it more difficult for commodities to move higher.

Crude fell -0.88 [-1.37%] to 63.48, dropping 3 days out of 4, and issuing a sell signal on Thursday. Forecaster ended the week at -0.14, which is a downtrend. Not even a bullish EIA report could rescue crude from the selling pressure this week (crude -6.9m, gasoline +3.6m, distillates -3.9m). There was nothing particularly bearish in the newsflow that I saw, and so when market sells off on no news (or bullish news) that's a bearish sign. Still, the price drop was relatively minor, and buyers continued to show up to buy the dips intraday.

The crude COT report shows the highest concentration ever of commercial shorts in crude. This isn't shale driller hedging, which has fallen from its record high in early 2017, its just the commercials taking the short side as price rallies.  Will the commercials at some point be right about the oil rally?  Right now, the commercials are sitting on a hefty loss; history shows the commercials are usually right.  Might this time be different?  It occurs to me that some large oil producers (Saudi Arabia) might be offsetting this rising "naked" commercial short position in order to keep prices moving higher.

Net COM shorts =  COM shorts - Producer shorts - COM longs.

Physical Supply Indicators

* SGE premiums over COMEX are at +11.24.

* The GLD ETF tonnage on hand rose +17.71, with 847 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.78 -0.70% to NAV [down]
 PSLV 6.34 -1.96% to NAV [down]
 CEF 13.50 -2.96% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold or silver.

* Big bars premiums were: gold [1kg] 1.26% and silver [1000oz] 3.14%.

Futures Positioning/COT

In gold, the commercial net position fell 12k contracts, which is a relatively small drop. Most of the change came from new shorts (+20k) but that was countered by a fair amount of long-buying too (+8k). The long-buying is unusual, especially at this point in the cycle. The commercial shorts have reached a level roughly consistent with a “COT top”, but those commercial longs are a little perplexing – usually by now, the commercials would have dumped them all. Managed money net rose by 5k, which was 11k new longs, but also 6k new shorts. Is managed money trying to play the wash-and-rinse cycle now? Managed money longs aren't yet to the COT top point just yet; they need one more big week to get there.

In silver, the commercial net was basically unchanged, while the managed money net fell by 4.6k contracts – most of that from selling longs (-6.3k) but also by closing shorts (-1.6k). Silver is not yet at a COT top.

Gold Manipulation Report

No after hours spikes this week.  There was a big spike in the middle of trading on Wednesday, however, which took silver down 36 cents in one minute, and from what I could see, ran a large number of long stops.  Does this happen in copper?  Crude?  It does not.  Silver appears to be less equal than the others, at least from the standpoint of regulators assuring a reasonably well-behaved market.  That's because if you hose silver, that drags gold right down with it.

Grey Swan Status

  • Italian Elections: Anti-Euro M5S (26.85%) is leading vs the PD (24.15%), with M5S falling a full point this week. A combination of FI + LN (both semi-anti-Euro parties) are at 29.8%. There are 5 more weeks until the elections.

  • US Senate failed to pass a budget; that means we get a government shutdown. That was apparently all about DACA, which was not included in the budget bill, and this made the Democrats in the Senate annoyed enough to vote against the budget.

  • The campaigning in Italy is heating up a bit. An Italian politician from the Northern League (LN) was quoted as saying, “We have to decide if our ethnicity, if our white race, if our society continues to exist or if it will be canceled out.” Well that sure sounds racist. LN is polling at around 14%.  Mainstream press on that, as well as the reaction from Brussels: http://www.telegraph.co.uk/news/2018/01/17/eu-concerned-italys-election-campaign-politicians-claim-migrants/

  • But wait, here the data that the Northern League is focused on: with a female fertility rate of 1.34, the current indigenous population of Italians will be chopped in half in the next 60 years. And yet, Eurostat population projections show Italy remaining more or less steady-state going forward. How? Migration to the rescue! That begs the question: do the Italian people want their demographic problem to be solved by migration?  Also: was this the plan from Brussels all along?  https://gefira.org/en/2018/01/18/the-incredibly-shrinking-italian-population-by-2080-italians-will-be-a-minority-in-their-own-country/

  • The SPD votes this Sunday on whether or not to approve the coalition blueprint hammered out last week by the leadership of both parties. A no-vote would lead to a new election – and probably a dollar rally also. https://www.politico.eu/article/spd-cdu-grand-coalition-german-social-democrats-reject-new-deal-with-angela-merkel/

  • Mueller Investigation: Bannon has been subpoenaed to testify before a grand jury, and a “secret memo” that is “worse than Watergate” is the talking point of the week for the Republicans. Me, I'm waiting for the results from the FBI's IG investigation.

Summary

The buck is showing signs of – perhaps – putting in a low. Both oil and PM are giving signs they are reversing course, led by miners and oil equity prices. The two events are probably related. Bonds continued to fall, and equities kept moving higher.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are normal, GLD tonnage rose sharply, while ETF discounts increased substantially. Traders are dumping their PM ETFs.  Shanghai remains in premium though.

The gold COT report saw very little change this week. Gold is slowly approaching a COT top, while silver is a bit further away.

My summary this week is pretty simple: if the buck reverses, that will probably cause gold a fair amount of difficulty. That's because gold's rally measured in Euros has been relatively feeble, and once the dropping dollar is removed from the equation, the bid underneath gold will probably weaken and the commercials will have their way with price.

Where the buck goes next may just depend on the vote this weekend in Germany. If the SPD delegates vote to join another coalition government, the Euro could well break above 122.50, and that might keep the gold rally limping along. If the SPD votes no, the buck will probably scream higher, and gold will see a whole lot of selling pressure at that point.

Forecasting code – weekly – says:

Uptrend: gold, crude, miners, SPX, BAA bond yields.

Downtrend: silver, copper, 10-year treasuries, USD.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
bitcoin metadata

Here's an example of some simple bitcoin metadata I've extracted - the raw number of transactions per time period.  It turns out, tx counts roughly predict trend.  If tx count is rising in the past, it points to rising bitcoin prices in the future, roughly speaking.  Same is true for declining tx counts.

I'm guessing this is roughly equivalent to the google trends search for "bitcoin price".  No tx = nobody cares = no new money flowing in.

Do you see how a sharp drop-off in tx counts foreshadowed the top at 19k?  And right now, tx counts are at levels last seen at BTC=6000-7500.  Even though we've seen a bounce off the 11k level, those declining tx counts don't bode well for where things go next.

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