PM Daily Market Commentary - 1/29/2018

By davefairtex on Tue, Jan 30, 2018 - 3:33am

Gold fell -10.00 [-0.74%] to 1338.70 on very heavy volume, while silver plunged -0.25 [-1.47%] to 17.14 on moderately heavy volume. Today, the dollar moved higher, and most everything sold off, including gold and silver.

Gold moved steadily lower all day long today, dropping more or less along with the falling Euro.  Candle print was a long black candle – a bearish continuation – as well as a three-candle swing high. Forecaster plunged -0.80 to -0.67, issuing a sell signal for gold. Ouch. Gold ended the day below its 9 MA. No good news today for gold.

COMEX GC open interest fell by -7,001 contracts today. That's the commercials ringing the cash register.

Rate rise chances (March 2018) is at 72%.

Silver fell faster than gold, starting in Asia and making its day low right around noon in New York.  Silver tried to bounce at end of day but failed.  Silver's long black candle was a bearish continuation, and its forecaster dropped -0.14 to -0.22, which is a downtrend. Silver has also dropped below its 9 MA.  No good news for silver either.

COMEX SI open interest rose -127 contracts today.

The gold/silver ratio rose +0.57 to 78.13. That's bearish.

The miners gapped down at the open, and then sold off for much of the day.  GDX dropped -2.75% on very heavy volume, while GDXJ plunged -3.51% on extremely heavy volume.  Candle print for XAU was a swing high, complete with a sharp drop through the 9 MA.  XAU forecaster plunged -0.49 to -0.54, which is a strong downtrend. No hint of any good news here either.

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

Platinum fell -0.28%, palladium dropped -0.27%, and copper fell -0.14%. The other metals are all in downtrends now, but the moves in gold and silver were far more intense. Perhaps the commercials are using the dollar rally as an opportunity to push prices lower, but the other metals aren't seeing that same thing happen to them. Why did platinum drop so little while gold and silver fell so much? Its an interesting question.

The buck moved higher, up +0.22 [+0.25%] to 89.00; it was actually substantially stronger earlier in the day, but the rally faded in the afternoon in New York. The spinning top print was a bearish continuation, and the DX forecaster rose just +0.04 to -0.48, which is still a fairly strong downtrend. Today didn't confirm the reversal for the buck.

Crude fell along with everything else, dropping -0.72 [-1.09%] to 65.52. While that still leaves crude quite close to its recent highs, the forecaster wasn't happy with the price action today, dropping -0.54 to -0.16, which is a sell signal for crude.  Managed money is heavily long right now, and this means crude is vulnerable to a fairly strong sell-off if any bad news were to hit the market.

SPX fell -19.34 [-0.675] to 2853.53. SPX sold off at the open, bounced back during the day, but then sold off again into the close. The bearish harami candle print had a 49% chance of marking a top here. The SPX forecaster dropped just -0.02 to +0.53. No reversal yet, but then again the SPX forecaster is relatively slow-moving. Sector map was red across the board, with energy (XLE:-1.51%) leading the market lower along with utilities (XLU:-1.24%) and materials (XLB:-1.14%). This looks like profit-taking in the commodity rally, along with more selling in stuff-with-a-yield. It's not specifically bearish, however. For that – you want to see tech and financials leading things lower, and that's not what we saw today.

VIX shot up +2.76 to 13.84. That's the highest close for VIX since August, 2017.

TLT plunged -0.70%, making a new low. TLT is right at support. TY also fell, losing -0.21% making a new multi-year low. TNX (10-year yield) moved up +0.37 to 2.699%, which is a new high for the 10-year. It appears that the TLT dip-buying last week was just a headfake. Rallies – in TLT especially - are being sold.

JNK fell -0.33%, which is a fairly large move for JNK. Forecaster plunged -0.52 to -0.12, which is a sell signal. Still, pulling back to the weekly timeframe, we can see that over the past year or so, JNK has managed to outperform the higher-quality 10-year bonds; looking at the JNK:IEF chart, you can see it has been in a slow-but-steady uptrend since the lows in early 2016. As long as JNK:IEF continues to rise, that's a risk on signal overall.

CRB fell -0.49%, with 3 of 5 sectors falling, led by energy (-1.05%). CRB is still quite close to its highs, ending the day at 199.54. As long as CRB remains above 195, that's bullish longer term.

So today, commodities (mostly energy and PM), equities, and bonds were all sold. However the rally in the buck was not particularly strong. We are still waiting for chart confirmation on the dramatic DX low from last Thursday. Can the buck rally substantially if traders don't want to buy US treasury bonds due to all the upcoming issuance? That seems problematic to me. It will – probably – require a serious crisis to get people to jump back into bonds in a meaningful way.

Meanwhile, we have the latest Fed meeting starting tomorrow and finishing up on Wednesday, with an announcement at 2pm. No press conference this time.

The miners are looking particularly weak right now, especially the juniors, and silver is leading gold lower too. These are both strong risk off signals in PM. It is possible we're just experiencing the typical pre-Fed-meeting PM sell-off; if that's the case, you should see the junior miners start to catch a bid either end of day tomorrow or on Wednesday prior to the Fed announcement at 2pm. I can't say which way it will go, all I can do is suggest which tea leaves you might want to read if you want to sort it out for yourself in real time.

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Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
V Bottom?

Here comes our typical V bottom rally again.  Gold and silver had a nice little break from the selling for a couple of hours.  Equities up a hundred points in about 10 minutes.  Another close call!!

sand_puppy's picture
Status: Diamond Member (Offline)
Joined: Apr 13 2011
Posts: 1754
When everything is sold, where does the $ go?

Stocks, bonds, cryptos and PMs all in the red today.  So where is the money moving to?  What is the flow here?

All explanations are appreciated.  Thanks in advance.


Time2help's picture
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2765
Who knows?

cmartenson's picture
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5568
sand_puppy wrote:

Stocks, bonds, cryptos and PMs all in the red today.  So where is the money moving to?  What is the flow here?

All explanations are appreciated.  Thanks in advance.

To be more specific, money heaven.

Even more specifically, it's unrealized gains converting back into nothing.

For example, if a company with a million shares outstanding each trading for $1,000 see's their price go up by $100 then $100 million of "market cap" was created.

But what if that $100 million gain came by virtue of a single share trading for $100 higher?  Alternatively, if the company loses $100 million in market cap because the last share traded for -$100 then it's still true that the "loss" is not the same as the loss of $100 million in real money, but the movement of just $900.

What really matters when everything gets sold is what are the money flows and and where is that money flowing?

If it's flowing from recently sold equities and into margin debt calls, then it just gets sucked back into the same black hole that birthed in in the first place.

No flows.

If the volumes are all high in terms of # of shares sold and the $ volume, then it's usually the real deal.  If it's just a quick, low volume pull back in an otherwise bullet proof bull market, then it's usually just a minor correction on the path to greatness.

Uncletommy's picture
Status: Gold Member (Offline)
Joined: May 3 2014
Posts: 472
How high can you fly?

I guess it depends on where the bottom is.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
where the money goes

Overall, money doesn't get created or destroyed unless debt is involved.  So that means total money supply only drops if traders sell positions they've borrowed money to buy - i.e. using those NYSE margin loans.

If we assume no margin, then since money is neither created nor destroyed, money shifts from one person (the buyer) to the other person (the seller), and if there is an imbalance of buyers and sellers at the current price level, the price drops to uncover new buyers.

Take me.  I have a stink bid for bitcoin at 7500.  If you want my cash to remedy the buyer/seller imbalance, you'll need to drop price down to 7500 before my money appears.

Basically this "buyer/seller imbalance event" ends up repricing the asset on the books for every owner.  So the "aggregate value" of the asset drops because of the buyer/seller imbalance - the "market cap value"  goes off to "market cap heaven."

Concrete example:

Bitcoin was trading yesterday at $11,750.  Then, there was a buyer/seller imbalance.  Price had to drop in order to find enough buyers to satisfy all the selling pressure - all the people who wanted out.  As a result, today bitcoin is trading at $9700.  Market cap went from 197B down to 163B.  That resulted in 34 billion in market cap going to "market cap money heaven."  Every holder of bitcoin took a "paper loss" on their holdings.

The total aggregate cash flow involved in the trading that caused the drop might have been $200 million - so maybe $200 million in cash moved from one set of pockets (the buyers) to another (the sellers).

So while I like to say "money flowed out of bitcoin today" it is more accurate to say that the bitcoin market cap plunged due to a relatively large buyer/seller imbalance.  More people wanted out than wanted in, and so price has to drop in order to deal with the imbalance.

What's more, my assessment based on the tx counts and "dumb money interest" (google trends), money flows in (or rather, the number of people who want in at the current price) will be less than the prospective money flows out (the number of people who want to sell at the current price), so price will probably continue to fall because of the ongoing buyer/seller imbalance.

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