PM Daiiy Market Commentry - 2/7/2018

davefairtex
By davefairtex on Thu, Feb 8, 2018 - 6:11am

Gold dropped -6.30 [-0.47%] to 1320.60 on moderate volume, while silver plunged -0.27 [-1.60%] to 16.32 on extremely heavy volume. A strong rally in the buck [+0.73%] helped to cause a sharp drop across the commodity complex: copper, palladium, platinum, crude – it all moved lower today. Gold actually rose when measured in Euros.

There was a lot of currency movement today. Things were fairly quiet during the Asia trading session, but right as Japan closed, the Euro started selling off, and the plunge didn't stop until the afternoon in New York. The move was very strong, with the Euro down -1.18 [-0.95%] by end of day.

Gold roughly tracked the Euro lower, but the drop in gold was only about half as strong. Gold's spinning top candle had a 45% chance of marking a low. GC forecaster dropped -0.10 to -0.28. While gold is dropping, and is clearly in a downtrend, the pace of the move doesn't seem to be all that strong. That said, as long as the Euro continues to fall, gold will probably drop right alongside it.

COMEX GC open interest fell by -8,909 contracts today. Commercials continue to cover short.

Rate rise chances (March 2018) rose to 72%.

Silver did fairly well for the first half of the day, but started to sell off more briskly at about 7am and moved lower until the afternoon in New York, where it bottomed out at 16.20 around 1:30 pm. Silver roughly tracked gold in terms of timing, although the losses in silver were much higher. Silver's spinning top was a bearish continuation, and the SI forecaster moved down -0.02 to -0.46. Volume was heavy today.  Support at 15.75 is not far away given the current rate of decline.

COMEX SI open interest fell -1,950 contracts today.

The gold/silver ratio rose +0.91 to 80.92. That's bearish. The gold/silver ratio is approaching the ratio high set back in 2016 of 83.

Miners continued moving lower. GDX fell -1.40% on very heavy volume, while GDXJ dropped -0.83% on heavy volume. GDXJ printed a doji candle, which had a 50% chance of being a reversal.  The move down in the mining shares has been fairly strong, dropping 7 out of the last 9 days. While yesterday XAU dropped substantially less than GDX, it made up for it today by plunging -1.90%. XAU forecaster still doesn't look all that bad, rising +0.04 to -0.12, but that's still a downtrend.  The outperformance of the junior miners does suggest buyers for the mining shares after the 15% decline we've seen over the past 2 weeks.

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

Platinum fell -1.08%, palladium plunged -2.46%, -1.80%, while copper was hammered, dropping a big -3.70%. The heaviest selling in the metals was seen from 8:20am – 9:00am; copper, palladium, and silver all took big legs down during that timeframe, with copper looking worst. What was all that selling about? Perhaps someone in Europe needed to exit a big position.  Copper's chart looks particularly unpleasant; the strong line candle resulted in a new low for copper.  I don't see this as projecting some big economic issue - it feels more like someone had to exit a position, perhaps due to a margin call.

The dollar rallied strongly today primarily because of the falling Euro; buck closed up +0.65 [+0.73%] to 89.95. Yesterday the dollar move was tentative, while today it was very strong. Forecaster moved up +0.11 to +0.26. The buck is more clearly in an uptrend now.

Crude was sold hard, dropping -2.18 [-3.42%] to 61.64. Most of the selling occurred following the EIA report, which was bearish: (crude:+1.9m, gasoline +3.4m distillates +3.9m). During the recent 3-month rally in oil, dip-buyers would appear whenever there was bad news like this. Today – there was none of that. Oil just sold off and didn't stop until end of day. How far the price ends up dropping, its hard to say.  Today the 50 MA seemed to provide some support.

SPX fell -13.48 [-0.50%] to 2681.66. Equities rallied for the first few hours of trading, up almost 40 points at one point, but the rally failed. Candle print was a shooting star, which was neutral. Forecaster moved up +0.06 to -0.87. That's still a strong downtrend. Today's rally was treated as an opportunity to sell at higher prices – that looks bearish. Sector map shows energy doing worst (XLE:-1.67%) along with tech (XLK:-1.28%), with industrials doing best (+0.18%).

It was another big trading range for VIX today, which had a 10 point trading range, and ended down -2.25 to 27.73.

TLT plunged -0.95%, with the US 30 year rate rising 6bp to 3.12%. Today's plunge wiped out the gains from the big rally on Monday. TY fell but not nearly as badly, losing -0.15%. TY avoided making a new low. TY's forecaster fell -0.13 to -0.11, which is a sell signal for the 10-year. TY is now back in a downtrend in all 3 timeframes.

JNK fell -0.39%, plunging on the failed rally in SPX.

CRB fell -1.24%; 4 of 5 sectors fell, led by energy (-2.26%). Commodities have fallen now for 8 of the last 10 days.  Risk off + a dollar rally has not been very kind to commodities.

It appears as though the bond market rally was just a one-day wonder.  Even though SPX looked weak today, traders did not seem to be interested in buying bonds.  They also didn't seem to be interested in buying equities, at least once the morning rally spent itself out.

Gold did fairly well given the plunge in the Euro, but if your position is in dollars its still fairly disagreeable.  If the dollar uptrend continues, we can expect more of that behavior.

That Italian election is coming up, and the success of the SPD & CDU in forming a government is by no means certain.  If either event turns unpleasant, that would probably send the buck even higher.  Gold might rally too, but the rest of the commodity complex probably would not.

Downtrend remains in place for the metals, and there was heavy selling in copper and palladium too - this move lower isn't just a "beat on gold and silver" phenomenon.  In fact, commercials are ringing the cash register in PM, they aren't piling on.  How long this continues is anyone's guess.

Lastly, the gold/silver ratio looks as though it is about to make new highs.  That's bearish for the PM rally short term, but its also a consideration for what to buy; relatively speaking, silver is cheap right now.  Last time platinum's ratio got this far out of alignment, it staged a very nice rally.  If silver does make it to 15.75, its probably a good deal - as long as the buck isn't screaming higher day after day.

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