PM Daily Market Commentary - 2/5/2018

davefairtex
By davefairtex on Tue, Feb 6, 2018 - 6:50am

Gold rose +7.30 [+0.55%] to 1342.50 on moderate volume, while silver climbed +0.14 [+0.85%] to 16.70 on moderately heavy volume. However, today was all about equities – SPX was just crushed, falling -4.10%, wiping out a month's worth of steady gains in one day of relentless selling. The usual 3:30 pm rally utterly failed, with traders treating the bounce as the perfect opportunity to sell. After market close, the e-mini futures continued to sell off, dropping an additional 50 points.

So where did the money go? The buck (+0.40%), gold (+0.55%), and the long bond (+0.94%). For gold to rally on a day that the buck saw gains is a reasonably good sign – although others have suggested that gold's rally should probably have been stronger given just how bad the day was in equities.

I'll talk about equities first, since I don't want to bury the lead.

SPX fell -113.19 [-4.10%] to 2648.94. The massive loss resulted in a rare bearish strong line candle that might be a low (53%). Forecaster plunged -0.30 to -1.03, which is the lowest forecaster value in the past 4 months. Forecaster issued a sell signal last Tuesday; did anyone notice? I remember mentioning it, but not with any particular emphasis. So many headfakes lull you into a false sense of security - that's how it always is. I suppose I need to add a module that lets my code grab me by the lapels and shake me if I don't pay sufficient attention.

Below you will see some arrows I drew - while SPX may just head directly down, I think its more probable that the dip buyers are not yet dead, and so we will see a bounce that (again my guess) will end up being sold.   Market always acts to hose the most people possible - and that includes the long-suffering and now-gleeful shorts.

Sector map was quite bearish; financials led lower (XLF:-5.09%) along with industrials (XLI:-4.52%), with utilities doing best (XLU:-1.64%). When financials lead to the downside, you know you have a problem.

The VIX - are you ready? - screamed up +20.01 to 37.32.

Name Chart Chg (D) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX -0.87% -10.59% falling falling falling rising ma200 on 2018-02-05 2018-02-05
Utilities XLU -1.64% 0.53% falling falling falling falling ema9 on 2018-02-01 2018-02-05
REIT RWR -3.15% -8.85% falling falling falling falling ema9 on 2018-02-01 2018-02-05
Cons Discretionary XLY -3.37% 21.12% falling rising rising rising ema9 on 2018-02-01 2018-02-05
Telecom XTL -3.56% -4.98% falling falling falling falling ema9 on 2018-02-02 2018-02-05
Cons Staples XLP -3.63% 3.24% falling falling falling falling ma200 on 2018-02-05 2018-02-05
Materials XLB -3.82% 11.96% falling falling rising falling ma50 on 2018-02-02 2018-02-05
Homebuilders XHB -3.94% 20.59% falling falling rising falling ma50 on 2018-02-02 2018-02-05
Technology XLK -4.18% 25.59% falling falling rising falling ma50 on 2018-02-05 2018-02-05
Energy XLE -4.20% -4.62% falling rising rising rising ma50 on 2018-02-02 2018-02-05
Healthcare XLV -4.43% 16.14% falling rising rising falling ma50 on 2018-02-05 2018-02-05
Industrials XLI -4.54% 16.86% falling rising rising rising ma50 on 2018-02-05 2018-02-05
Financials XLF -5.04% 18.09% falling rising rising rising ma50 on 2018-02-05 2018-02-05

Worldwide, European equities were hit the hardest; reportedly this was because the SPD and CDU are having serious problems forming a government. They were expected to conclude an agreement this past weekend, but instead the talks are dragging on – with participants unsure as to when they will conclude.

Name Chart Chg (D) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Emerging Asia GMF -2.65% 31.86% falling rising rising falling ma50 on 2018-02-05 2018-02-05
Latin America ILF -3.74% 20.67% falling rising rising rising ema9 on 2018-02-02 2018-02-05
Developed Asia VPL -3.90% 17.09% falling falling rising falling ma50 on 2018-02-05 2018-02-05
United States VTI -3.93% 14.90% falling rising rising falling ma50 on 2018-02-05 2018-02-05
Eurozone EZU -4.12% 23.65% falling rising rising falling ma50 on 2018-02-05 2018-02-05
Europe IEV -4.13% 17.60% falling rising rising falling ma50 on 2018-02-05 2018-02-05

The latest polls show the CDU down 2%, and the SPD down 3% from the levels of support they received in the election 4 months ago. If the election were held today, they would not be strong enough to form a government.

So what happened to gold today? Well, it moved steadily higher all day long, with a curious $5 up-spike at 3:05 pm. What was that about? I looked but could find no news item at that time. Gold held most of its gains through the close. Gold's forecaster rose +0.27 to -0.19; that's still a downtrend for gold. Should gold have screamed higher with today's equity market sell-off? Maybe. It appears that traders continue to see USD and treasury bonds as the preferred safe havens.

COMEX GC open interest fell by -1,324 contracts today.

Rate rise chances (March 2018) fell to 69%.

Silver rallied also, echoing gold's slow but steady move higher. However given just how bad the sell-off was last Friday, today's rally appeared a bit feeble. Candle print was a bullish harami (32% chance of a reversal), and the silver forecaster rose just +0.03 to -0.79. That's not much of a move. Silver continues to struggle relative to gold.

COMEX SI open interest fell -2,815 contracts today. Someone is ringing the cash register, it seems.

The gold/silver ratio fell -0.24 to 80.41. That's bullish.

The miners gapped down at the open, fell some more, managed to bounce back but could not close in the green by end of day. GDX fell -0.87% on very heavy volume, while GDXJ climbed +0.28% on moderately light volume. GDX printed an opening black marubozu which had a 51% chance of being a bullish reversal; GDXJ printed a doji, which had a 56% of being a reversal. XAU forecaster wasn't so optimistic, rising just +0.07 to -0.51. That's still a strong downtrend for the mining shares.

Today, the GDXJ:GDX ratio rose, while the GDX:$GOLD ratio fell. That's neutral.

Platinum fell -0.16%, palladium dropped -1.70%, while copper rose +0.27%. Copper had a bit of a wild day, rising strongly in Asia and London, only to sell off hard once New York opened. All three of the other metals remain in downtrends.

The dollar rose +0.36 [+0.40] to 89.25. The buck rallied slowly for most of the day, starting in Asia and continuing on through the close in New York. Today's move resulted in a 3-candle swing low for the buck, which took the forecaster up +0.10 to -0.13. The dollar's move higher was – probably – due to both the bad news out of Europe regarding the German government, as well as a safe haven move driven by the heavy selling in the global equity markets.

Crude plunged -1.67 [-2.57%] to 63.35. It appeared to me that the overall risk off sentiment was responsible for the downdraft in crude, vs some fundamental driver of supply or demand in the oil space. Crude printed a swing high today, making a lower high and a lower low, which is a sign of trouble for crude – but the candle pattern was not all that bearish, with only a 36% chance of marking a high; that's pretty lame for the swing high pattern. Forecaster issued a sell signal yesterday, and dropped -0.29 to -40 today, which is a fairly brisk downtrend. I suspect crude is being treated as a risk asset, and so its fate will probably be tied to what happens in equities, at least to some extent.

TLT did well today, rising +0.94% and printing a very strong bullish engulfing pattern, which had a 69% chance of marking the low. The forecaster wasn't quite as happy, rising just +0.21 to -0.49, which leaves TLT still in a downtrend. The TLT trading range was very wide, and even though the engulfing pattern was quite strong, TLT closed well below its high for the day. Its not clear to me that this ends the bond bear market – it feels more as though the shorts were ringing the cash register.

TY also staged a very strong rally, rising +0.96%, resulting in a bullish strong line candle – a 70% chance of marking the low. TY forecaster screamed higher too, rising +1.06 to +0.39, which is a buy signal for the 10 year treasury. Is this the low for a while, or just a short-covering reaction to a really bad day for equities? I suspect the answer depends on if we see some dip-buying in equities tomorrow. If the equity market plunge stops here, then bonds probably resume their downtrend – if equities continue to sell off, then bonds rally further.

JNK was hit hard, falling -0.63%, printing a bear strong line candle, making a new low, and causing the forecaster to drop another -0.14 to -1.27 – that's a steep downtrend. When JNK starts to sell off, it can really move quickly. More importantly, the JNK:IEF ratio fell hard for the first time in several months; this is a strong sign of risk off. When JNK falls while IEF rallies, that's typically bad news for risk assets.

CRB fell -0.90%, a medium-sized move that fits with the risk off picture. 4 of 5 sectors fell, led by energy (-1.69%). Natgas continues to do poorly, falling -3.58% just today.

So where does all that leave us?

I think the big move in bonds was a combination of bond shorts ringing the cash register, and money fleeing equities for the typical safe haven of bonds. Armstrong likes to say that the only people brave enough to buy the lows are the shorts who are ringing the cash register. I think we saw some of that here today.

While I was writing this up, I note that the e-minis (SPX futures) sold off another 100 points in Asia, only to bounce back hard, printing a reasonably strong-looking hammer candle. Will this last through the close in New York? We will soon see.

Meanwhile, gold is still playing second fiddle to the buck and treasury bonds as a safe haven. The OI changes today suggest that the commercials did not appear to be suppressing price. The move higher in gold was reasonably good, given that the buck rallied too, but it wasn't BRExit-type good.

My guess is that after a rally, bonds will continue selling off because the pressures that are pushing bond prices down haven't gone away. That should weaken equity prices too – at least based on the correlations I have.

Longer term, this means – most likely – lower equity prices going forward. Rallies should probably be sold. Near term, we could bounce hard. SPX has gone from sleepy backwater that always rallies to a crazed crypto currency clone almost overnight.

I'm going to hope that all the correlations I've seen over the years will end up holding true during this period.

Just for amusement, I ran the monthly forecasters to see what things will look like if we ended up closing at these levels on the 28th.  Here are the new monthly sell signals in February: DJIA, BAA bonds, palladium, platinum, silver.

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10 Comments

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
Lol @ Gold

More credibility lost for the gold bugs.  A big market crash will result in a huge spike in gold.  Riiiiight.

Anyway, looks like Powell found the computer codes last night and saved the day buying up e-minis.  I'd guess there's about a 70% or so chance stocks finish green for the day.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5568
95%

The PPT is clearly in the house.  Low liquidity due to evaporated algo buying makes the job that much easier.

Once the PPT has the parameters back in normal zone, we should see hefty buying by the flood of returning computers.

...but the real question is who blew up with the volatility spike?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
fat lady

I don't think we can say what will happen over the longer term.  I suggest we don't get unduly exercised over one day's rally.  Over the next 11 months the Fed will roll off its balance sheet tens of billions of dollars, and the ECB has suggested it will taper its own money printing operation.  This will drive prices far more surely than one day's intervention by any PPT.

Show's not over until the fat lady sings.  And in this case, the fat lady are all those traders who are long, and who are - most likely - looking to lighten up given the likely end of the 30 year bond bull market.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 321
Earlier Comment

BTW, my earlier comment about gold was not related to anyone or any commentary here.  You guys provide a great service which is balanced with reason, while not promoting an agenda.  That said, I'm becoming convinced that the only way gold and silver rise big, like is often touted by gold bulls, is with a real crisis/reset scenario.  It might be years before that happens.  Until then, they are going to languish and be manipulated and remain under control.

Giant Elk's picture
Giant Elk
Status: Member (Offline)
Joined: Dec 13 2014
Posts: 16
Various thoughts on BTD day
It's ugly for gold. Head & Shoulders top formation visible on a 4 hour chart completed now it's just broke below 1325. And the USD is flat for the day.
I am guessing a case of risk-on with the dip buying in stocks while bonds have sold off again - higher rates = less demand for gold.
That's today. Tomorrow may be totally different.
 
Somehow I don't see gold plunging (only a hunch), even though the dollar is really hinting at rallying. I'm still bullish dollar for the next few days as long as it stays above the 9 EMA.
 
So your candle code rates SPX as having a 53% chance of a low at yesterday's close, which was pretty close to the low - that's massively bullish no? 53% chance of not going lower than yesterday's low of around about 2630. For how many days? This seems like an error Dave. It certainly didn't last long, not even the PPT could stop that one. If that was my code I would be investigating. I don't mean to be obnoxious here, this is purely for discussion and I like seeing these ratings. I'm in complete admiration of your transparency, who else publishes this stuff. 
The forecaster seems more sensible. Let's see if the rally is sold. 
BTW A forecaster or candle code for VIX would be interesting!
PeakGold's picture
PeakGold
Status: Bronze Member (Offline)
Joined: Jun 3 2017
Posts: 78
looking to buy silver

Looking to buy silver again at $16.10. It does not look like she wants to go up

https://i.imgur.com/xRDyHWs.png

dryam2000's picture
dryam2000
Status: Gold Member (Offline)
Joined: Sep 6 2009
Posts: 279
Gold = insurance & nothing else
Cold Rain wrote:

BTW, my earlier comment about gold was not related to anyone or any commentary here.  You guys provide a great service which is balanced with reason, while not promoting an agenda.  That said, I'm becoming convinced that the only way gold and silver rise big, like is often touted by gold bulls, is with a real crisis/reset scenario.  It might be years before that happens.  Until then, they are going to languish and be manipulated and remain under control.

Totally agree.  I view PM’s as insurance (and nothing else) if/when the manipulators of the financial markets (credit markets, equities) ultimately lose control.  Gold pricing is used by TPTB as big signaling mechanism to the masses.  Why in the world is the price of gold almost always included in every 30 second market rundown on tv when it makes up less than 0.1% of the world’s assets, and is so insignificant to so many people?!  Only the big banks make money trading PM’s over the long run.  People should buy as much or little insurance as they are comfortable with not unlike car insurance, flood insurance, home owners insurance, disability insurance, etc.  I follow the PM market, but I don’t think it’s really a rational pursuit.  I have my insurance, and have no plans to change the amount of my insurance for a very long time.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
candles

Giant Elk-

So I've actually noticed that sometimes, if there is a massive drop, the dip buyers sometimes appear the very next day.  We saw this very thing happen in 2016 on the 5th down day.  A huge drop, which actually marked the low.

There is a confounding factor though.  I trained up the candle code on individual equities, and so - it probably doesn't apply quite as accurately to a large index like SPX.

Period of the low is 8 days.  Which is to say - it only needs the bounce to be 8 days long for it to qualify.

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
what is gold anyway?

When I think about gold as a metric for indicating the people's confidence in government, I find it less annoying when it doesn't do exactly what I want it to do.  Its just telling me where things are.

Likewise, I can modify the story by looking at changes in open interest too.  If "they" have to come in and dump a huge amount of paper gold on the market to keep the price down, that is telling a story too.

And put another way - if people's faith in government cracks, that's going to come with a whole lot of other stuff attached to it.  You may not be so happy with the other stuff.

The comment about insurance is a good one I think:

"Woohoo, my house caught fire!  Sure I lost all my personal items, but I'm so excited that I can collect on all that insurance!"

 

DennisC's picture
DennisC
Status: Gold Member (Offline)
Joined: Mar 19 2011
Posts: 271
Let's Light this Candle

"Riding the wave of the future, my man." (attributed to Stewart)

Poor video quality, but still funny from "back in the day".

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