PM End of Week Market Commentary - 2/16/2018

davefairtex
By davefairtex on Sat, Feb 17, 2018 - 9:47am

On Friday gold fell -6.90 [-0.51%] to 1349.40 on moderate volume, while silver dropped -0.21 [-1.28%] to 16.61 on very heavy volume. I blame the buck for this move; the dollar made a new low to 87.94 but then bounced fairly strongly, rising +0.57% on the day. Currency was definitely to blame for the weakness in the metals on Friday, at least from what I could see.

This week the PM sector map recovered nicely, however it was a bit of a mixed bag. Juniors led seniors, silver miners did best, but gold led silver, which is more bearish than bullish. Silver also brought up the rear – that's not a great sign either. In a strong bullish move, silver should be charging ahead of all the other metals, but that's not where we are today.  Silver clearly is under a lot of selling pressure right now.  Palladium and copper did the best; those are generally industrial metals. My guess: this was a week of recovery from last week's “sell everything” mood. All items are back above the 9 MA, which is the first step on the road to recovery.  Of course if the buck recovers...this week's bounce probably goes away in a hurry.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 8.72% -21.16% rising rising falling rising ma50 on 2018-02-16 2018-02-16
Palladium $PALL 6.53% 30.76% rising rising rising falling ema9 on 2018-02-14 2018-02-16
Copper $COPPER 6.20% 19.48% rising rising rising rising ma50 on 2018-02-14 2018-02-16
Junior Miners GDXJ 6.14% -22.82% rising rising rising rising ma50 on 2018-02-16 2018-02-16
Platinum $PLAT 4.19% -0.66% rising rising rising rising ema9 on 2018-02-14 2018-02-16
Senior Miners GDX 3.83% -10.67% falling rising rising rising ma50 on 2018-02-16 2018-02-16
Gold $GOLD 2.37% 8.81% rising rising rising rising ema9 on 2018-02-13 2018-02-16
Silver $SILVER 1.87% -8.21% falling rising rising rising ma50 on 2018-02-16 2018-02-16

Gold moved up +31.20 [+2.37%], a decent performance, although much of it came from the drop in the buck [-1.51%] which plunged 4 days out of 5. Friday's candle print was a confirmed bearish NR7 – a 75% chance of a top. It wasn't a swing high only because gold made a new high on Friday to 1364.40, which didn't break above the previous high (1365.40) set back in January. Gold's forecaster was quite unhappy, ending the week at +0.02, which is right on the edge of a reversal.   Longer term, gold's monthly chart remains in an uptrend

The March rate-increase chances rose to 83%.

COMEX GC open interest rose by 27,261 contracts this week.  Commercials, going short.

Silver rose +0.30 [+1.87%] to 16.61. Silver's forecaster issued a buy signal after a decent-sized rally on Monday, but the dollar rally on Friday ended up hitting silver moderately hard, which resulted in the silver forecaster dropping -0.36 to -0.34, which was a sell signal for silver. Silver appears to be under a lot of selling pressure right now. While gold rose to within a buck of its previous high, silver was never even close.  Monthly silver is in a downtrend.

The gold/silver ratio rose +0.39 to 81.26, which is bearish.

COMEX SI open interest rose by 4,076 contracts.  COT report suggests that's probably managed money.

The miners had a reasonably strong week, with all the excitement happening on Wednesday. Friday's dollar rally caused some trouble: GDX printed a swing high which had a 67% chance of being a bearish reversal. However, XAU forecaster ended the week at +0.30, which is still fairly bullish.  XAU ended up dropping through both the 50 and 200 MA lines, which is bearish, but managed to find support on the 9.

The GDX:$GOLD ratio rose +1.24%, while the GDXJ:GDX ratio rose +2.22%. That's bullish.

USD

The buck had a terrible week, dropping -1.36 [-1.51%] to 88.80. On Friday, the buck made a new low to 87.93, but managed to bounce back almost a full point. That's a big swing in direction, but the bullish engulfing candle only had a 33% chance of marking the low. DX forecaster rose +0.21 to -0.31, which is still a downtrend for the buck. The suggested chart pattern in the buck right now is a double bottom, but it needs a close above 90 to confirm the pattern. If it does this, that's a very strong indication that the low for the buck is in. But we are not there yet. 

What was the big rally about on Friday? I'm really not sure.

The monthly dollar chart remains in a downtrend, although it may be ready to reverse.

US Equities/SPX

SPX bounced back strongly, up +112.67 [+4.30%] to 2732.22. Gains were fairly solid all week, but Wednesday was the big rally day. Friday saw some selling pressure – print was a spinning top, which looked bearish but was actually a bullish continuation. Forecaster issued a buy signal on Thursday, and ended the week at +0.57, which is a reasonably strong uptrend. Friday's failed-rally situation didn't seem to alter that at all.

Sector map shows tech as the big winner, with industrials and financials up there too. Stuff-with-a-yield trails. That's a bullish configuration. Utilities did manage to rally this week – they appear to have made a low. Does this suggest the same thing for bonds?

VIX plunged -9.60 to 19.46.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Technology XLK 5.75% 29.17% rising rising rising rising ema9 on 2018-02-14 2018-02-16
Telecom XTL 5.54% -2.87% rising rising rising rising ma200 on 2018-02-15 2018-02-16
Industrials XLI 4.71% 17.50% rising rising rising rising ma50 on 2018-02-15 2018-02-16
Financials XLF 4.70% 18.48% rising rising rising falling ema9 on 2018-02-14 2018-02-16
Homebuilders XHB 4.17% 21.37% rising falling rising falling ema9 on 2018-02-14 2018-02-16
Healthcare XLV 4.03% 16.11% rising rising rising rising ma50 on 2018-02-16 2018-02-16
Cons Discretionary XLY 3.93% 21.38% rising rising rising rising ema9 on 2018-02-14 2018-02-16
Gold Miners GDX 3.83% -10.67% falling rising rising rising ma50 on 2018-02-16 2018-02-16
Materials XLB 3.53% 15.31% rising rising rising falling ema9 on 2018-02-14 2018-02-16
Cons Staples XLP 3.52% 2.60% rising falling rising falling ma200 on 2018-02-16 2018-02-16
Utilities XLU 3.21% 1.17% rising falling falling falling ema9 on 2018-02-15 2018-02-16
Energy XLE 2.17% -5.87% falling falling rising falling ema9 on 2018-02-15 2018-02-16
REIT RWR 1.99% -8.56% rising falling falling falling ema9 on 2018-02-15 2018-02-16

Gold in Other Currencies

Gold rallied in most currencies this week except for JPY - that's because JPY was extremely strong, up 2.19% vs the buck. Gold moved up +20.72 in XDR.

Rates & Commodities

Bonds were somewhat bullish this week, with TLT up +0.65%. TLT may have bottomed out – it issued a buy signal on Friday, with the forecaster closing at +0.08. TY only partially confirms this; it did print a swing low (60% chance of a reversal) but the TY forecaster remains bearish at -0.39. The 10-year ended the week at 2.87%, up 4.8 basis points.

JNK had a great week, rallying +1.79%, up 4 out of 5 days. JNK forecaster issued a buy signal on Wednesday, ending the week at +0.76, which is a strong uptrend.

CRB rebounded +2.69%, recovering more than half of last week's losses; 4 of 5 sectors rallied, led by industrial metals (+5.64%). Copper was very strong, managing to recoup all of last week's losses plus a bit extra; it is now back at 3.24, which was last seen in early January.

Crude rose +2.59 [+4.59%], recovering less than half of the losses suffered last week. Crude forecaster issued a buy signal on Tuesday, and rallied for the remainder of the week, ending at +0.54, which is a strong uptrend. Crude was able to overlook a somewhat bearish EIA report (crude +1.8m, gasoline +3.6m, distillates -0.5m); most of the oil rally came on Wednesday, which was a day where everything moved strongly higher. And yet when I look at the chart, it feels as though the rally is on borrowed time. Volume is fading. While there is no technical indicator that suggests imminent reversal, energy equity ETF (XLE:+2.17%) has been dramatically underperforming the overall market. I could be wrong, but crude feels like it might be a dead cat bounce.  If the buck does reverse, I'm guessing crude will flip direction also.

Physical Supply Indicators

* SGE premiums over COMEX fell to +10.30. Chinese New Year is upon us; SGE is closed.

* The GLD ETF tonnage on hand rose +3.83 tons, with 825 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.96 -0.40% to NAV [up]
 PSLV 6.15 -2.19% to NAV [up]
 CEF 13.51 -2.68% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold and a 1% premium for silver.

* Big bars premiums were: gold [1kg] 1.10% and silver [1000oz] 3.43%.

Futures Positioning/COT

In gold, the commercial net position rose 10.9k contracts, which is a small change. That was mostly short-covering (-18.7k) as well as some long liquidation (-7.8k). Managed money net fell by -13.1k, with a fair amount of long liquidation (-20.2k) but also some short covering (-7k) too. Its a bit unusual for all participants to close out positions in all categories – perhaps everyone was trying to reduce their exposure to leveraged positions as a result of the equity market volatility.

In silver, the commercial net rose by 8.7k contracts, a medium-sized change; 3.9k shorts were covered, while 4.7k longs were acquired. This brings the commercials to a record high long position dating back to 2013...why are the commercials this heavily long silver? That's an interesting question. Managed money net fell by -11.3k contracts, a reasonably large change, with almost all the change due to new shorts (+10.4k) with a few longs liquidated (-886). Both managed money and the commercials are within the range of a COT low.

The large and increasing commercial long position in silver is pretty interesting. Silver has been weak for quite a while now – the gold/silver ratio is now in the 80s. If the banksters are long silver at GSR > 80, that suggests maybe silver is a good value at around these price levels. I do not like how silver is trading – it is definitely weaker than gold - but the commercials are taking advantage of all that selling pressure from managed money by closing their shorts and going long.  Usually, the commercials end up being right.

Grey Swan Status

  • Italian Elections: Anti-Euro M5S (27.40%) is leading vs the PD (22.65%), with PD slipping further. A combination of FI + LN (both semi-anti-Euro parties) are at 30.02%. There are 2 more weeks until the elections. Looking at the chart, Forza Italia is the only party whose poll numbers have been steadily rising over the past few months.

  • A poll conducted by a group of newspapers in Germany reveals that 66% of SPD supporters back the coalition with the CDU. That suggests the grand coalition is going to happen. Voting starts on February 20th – that's next Tuesday. https://www.reuters.com/article/us-germany-politics-poll/two-thirds-of-spd-supporters-back-german-grand-coalition-poll-idUSKCN1G0007

  • US Congressional Elections, 2018. The generic ballot shows Democrats 46.9%, Republicans 40.5%, a drop of 0.5% in the spread vs last week. https://projects.fivethirtyeight.com/congress-generic-ballot-polls

  • Mueller Investigation: on Friday, Deputy AG Rosenstein announced an indictment of 13 Russian nationals who were involved in a relatively low-budget (“millions of dollars annually”) influence effort run largely out of Russia, almost certainly funded by the Russian government. “Thousands of dollars per month” (https://www.bloomberg.com/news/articles/2018-02-16/u-s-charges-13-russians-3-companies-for-hacking-election) were spent on US social media ad buys – this in an election where the two candidates combined spent upwards of a billion dollars just in the six-month general election. No collusion with any Americans was alleged. It was unclear how the 13 Russian nationals named in the indictment – who apparently all live in Russia - would be brought to stand trial in America. SPX did get hit after the announcement; when Mueller's boss utters the word Russia next to the word Indictment,  everyone starts thinking about impeachment - equity market negative.

Summary

This week, most of last week's declining items bounced.   Equities, the metals, crude, the other commodities - even bonds recovered, at least to some degree anyway. The bounce in equities and junk debt tell us that dip buying remains alive and well.

And yet – the rising rate environment that appeared to cause the sell-off in the first place remains largely in place.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are normal, GLD tonnage fell, while ETF discounts decreased. Shanghai premiums are positive, but largely unchanged.

The gold COT report showed the tail end of the “rinse” pattern from last week's downward move, but the changes were small. The changes in silver were somewhat larger, and as a result the silver COT report is now at a point which is consistent with a low.

As I said last week, when the gold/silver ratio is above 80 (and right now, its 81.26) its a good time to be thinking about buying silver in preference to gold. That situation remains in play again this week.

So where do things go next? Looking at my tea leaves, I note that both BAA corporate debt and SPX monthly charts are showing downtrends right now; that hasn't happened for more than a year.  The buck also may be reversing - at least that's what the monthly DX forecaster is suggesting.  I was pretty sure this week we'd see a real breakdown in the buck but that didn't happen - that makes me worry a bit about gold & the miners.

As for equities, while on the daily chart we are seeing buy-the-dip, the longer term viewpoint is pretty clearly flashing risk off.  Until that picture changes, any dip-buying should be very short term, and it probably will look like "picking up nickels in front of the steamroller" in terms of risk/reward.

Correlation-wise, when I peek behind the curtain of the SPX forecaster, I note that when BAA corporate debt falls, SPX usually drops too.  Same is true when the 10-year rates rise: it's a negative influence on SPX.  Same for rising 1 year rates.  We've got all that going on right now - all these historically-negative influences on equity prices.

This suggests - all else being equal - we probably go lower.

Forecasting code – weekly – says:

Uptrend: copper, silver.

Downtrend: gold, silver, miners, crude, 10-year treasuries, BAA-grade debt, SPX, USD.

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9 Comments

mikeg's picture
mikeg
Status: Member (Offline)
Joined: Aug 30 2009
Posts: 11
PMs

As always, good analysis of the metals... thx

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 146
Trumpesque surprise in Italy

Dave,

it seems people in the US were reluctant to tell pollsters that they were intending to vote for Trump, but then did so in the privacy of the voting booth. 

How would you rate the chances of a similar effect with M5S?

Thx, E

 

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 146
Silver COT

Hi Dave,

you mentioned that Commercial longs are the highest since 2013. How low are the Commercial shorts in a historical context? Could you share a chart?

Also, where do you get your COT data? I get mine here but it tends to be a few days old.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 359
PMs

Starting the week off right, down again.  Dollar up bigly also.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5365
silver commercials

Eannao-

I don't think the Italians are shy about saying they'll vote for M5S.  The Northern League, on the other hand, is dreadfully politically incorrect, and they might very well have a "Trump effect".  The more migrants that come to Italy, the better the Northern League will do.  That's just my sense.  http://www.dw.com/en/italian-politician-attilio-fontana-white-race-comment-causes-furor/a-42172976

Here's the commercial COT numbers on a monthly chart going back to 2012.  I get my data from the CFTC directly.  This is the "legacy COT" report, which has data going back to 1986.

Giant Elk's picture
Giant Elk
Status: Member (Offline)
Joined: Dec 13 2014
Posts: 18
COT Report

Just to show the net view, here is my COT chart for Net long positions for Commercials and Managed Money.

 

And here is WTI Crude - Commercial Net Short and Managed Money Net long.

The thing about COT is that an extreme position, which we saw in Oil in November, can turn into a much more extreme position. To me it is more of a correlation than a leading indicator, maybe on average extreme positions can be traded profitably, I have not studied that.

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 359
Lol

DXY up .06.  0.06!  Gold down $10.  They are never going to let it go.  Just straight down for no reason whatsoever.  Feels like a $25+ down day is coming pretty soon.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5365
just one leaf

GiantElk-

If commercials have a big long position, my sense is, they're going to want to see prices move higher.  And they do tend to get their way, at least in the shorter term anyways.

Likewise, the gold/silver ratio > 80 says that silver has been pushed down for quite some time now relative to gold.

I just look for enough things to line up on one side of the fence.

 

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 359
Might go -$30-35 today

Good if you’re short, I guess.

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