PM End of Week Market Commentary - 2/23/2018

davefairtex
By davefairtex on Sat, Feb 24, 2018 - 4:17am

On Friday gold fell -3.60 [-0.27%] to 1330.50 on very light volume, while silver dropped -0.10 [-0.60%] to 16.49 on moderately heavy volume. The buck moved higher [+0.17%], however it was the equity market [+1.60%] that got all the attention today; it was a clear sign of risk on, and it appeared to be driven by relief rallies in bonds, utilities, and energy.

This week the PM sector map shows that the sector as a whole drifted lower, with miners leading the metals down. Silver did surprisingly well (who was doing all the buying?  The COT report tells all) along with palladium and copper, while gold brought up the rear. All the miners and silver ended the week below all 3 moving averages.  That's bearish.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 0.36% 34.42% rising rising rising falling ema9 on 2018-02-14 2018-02-23
Silver $SILVER -0.69% -9.22% rising rising rising rising ema9 on 2018-02-23 2018-02-23
Copper $COPPER -0.99% 21.57% rising rising rising rising ma50 on 2018-02-14 2018-02-23
Platinum $PLAT -1.05% -1.38% rising rising rising rising ema9 on 2018-02-14 2018-02-23
Gold $GOLD -1.40% 6.38% rising rising rising rising ema9 on 2018-02-20 2018-02-23
Junior Miners GDXJ -1.85% -22.02% rising rising rising rising ema9 on 2018-02-20 2018-02-23
Senior Miners GDX -2.40% -9.85% rising rising rising rising ema9 on 2018-02-20 2018-02-23
Silver Miners SIL -2.72% -22.25% rising rising falling rising ema9 on 2018-02-21 2018-02-23

Gold fell -18.90 [-1.40%], with all of the loss coming on Tuesday. Friday's candle was a short black/NR7, which could break in either direction. Forecaster ended the week at -0.06, which is a slight downtrend. The weekly forecaster is in a downtrend, while the monthly remains in an uptrend. In spite of the negative near term outlook, Gold remains relatively close to an important longer-term breakout.

The March rate-increase chances remains at 83%.

COMEX GC open interest fell by -8,510 contracts this week.

Silver fell -0.12 [-0.69%] to 16.49, mostly chopping sideways this week. Silver's candle print on Friday was an NR7 candle - just like gold - which could end up breaking in either direction. Daily forecaster ended the week at -0.04, which is a very slight downtrend. Both the weekly and monthly forecasters are in downtrends this week.  While silver has been outperforming recently, the longer term performance vs gold has been much worse.  That's why the gold/silver ratio managed to move above 80.

The gold/silver ratio fell -0.58 to 80.69, which is bullish.

COMEX SI open interest fell -2,941 contracts.

The miners dropped this week, with XAU dropping -3.24%, but Friday ended on a relatively happy note, with the miner ETFs rallying (GDX:+1.10%, GDXJ:+1.17%). The short white candle print was neutral. In spite of the drop, the XAU forecaster ended the week in just a slight downtrend (-0.04). Weekly and monthly forecasters are also in downtrends. Was Friday's miner bounce just a dead cat bounce? Volume was relatively light. That doesn't look great, but if gold's NR7 breaks higher, miners will probably do quite well.

The GDX:$GOLD ratio fell -0.99%, and the GDXJ:GDX ratio fell -0.56%. That's bearish.

USD

The buck rebounded this week, rising +0.74 [+0.83%] to 89.54. Forecaster issued a buy signal, ending the week at +0.10. The buck really needs a close above 90.29 to end the downtrend – that would confirm the double bottom pattern, which would be quite bullish for the buck.  That said, both the weekly and monthly forecasters remain in downtrends - and the chart ended the week looking as though the buck could be in the process of printing a lower high - which is bearish.

US Equities/SPX

SPX bounced moved higher, up +15.08 [+0.55%] to 2747.30. It seemed for a couple of days that the market was topping out, but Friday's strong rally (+43.34 +1.60%) to new highs put an end to the potential reversal. Forecaster ended the week +0.30, which is an uptrend; the sell signal on Thursday was just a headfake.

Sector map isn't all bullish; while tech is in the lead again this week, there were a number of sectors (mostly related to interest rates) which did relatively poorly.  The market is bifurcating fairly strongly: tech/industrials/financials/consumer discretionary remain strong, while REIT/utility/telecom/energy lag.

VIX plunged -2.97 to 16.49.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Technology XLK 1.65% 30.05% rising rising rising rising ema9 on 2018-02-14 2018-02-23
Materials XLB 1.34% 17.14% rising rising rising falling ma50 on 2018-02-23 2018-02-23
Cons Discretionary XLY 1.07% 22.41% rising rising rising rising ema9 on 2018-02-14 2018-02-23
Energy XLE 1.00% -3.99% rising falling rising falling ema9 on 2018-02-23 2018-02-23
Industrials XLI 0.50% 18.40% rising rising rising rising ma50 on 2018-02-23 2018-02-23
Financials XLF 0.48% 18.33% rising rising rising falling ema9 on 2018-02-14 2018-02-23
Utilities XLU 0.46% -0.92% rising falling falling falling ema9 on 2018-02-23 2018-02-23
Healthcare XLV -0.09% 14.66% rising rising rising falling ma50 on 2018-02-23 2018-02-23
REIT RWR -0.46% -10.57% rising falling falling falling ema9 on 2018-02-23 2018-02-23
Homebuilders XHB -1.07% 19.06% rising falling rising falling ema9 on 2018-02-23 2018-02-23
Telecom XTL -2.06% -4.46% rising falling falling rising ema9 on 2018-02-23 2018-02-23
Cons Staples XLP -2.25% -1.34% rising falling falling falling ema9 on 2018-02-20 2018-02-23
Gold Miners GDX -2.40% -9.85% rising rising rising rising ema9 on 2018-02-20 2018-02-23

Gold in Other Currencies

Gold fell in all currencies, with gold in XDR falling -12.70.

Rates & Commodities

The long bond moved lower on the week, with TLT down -0.49%. TLT made a dramatic new low on Wednesday, and spent the rest of the week recovering. TY looks a bit better; it managed to avoid making a new low on Wednesday, and rallied at end of week to close up +0.10%. TY forecaster issued a buy signal on Friday too. The yield on the 10-year (TY) ended the week up 1 bp to 2.88 – and the weekly candle print was a shooting star, which could be a reversal. Still, both weekly and monthly TY forecasters remain in downtrends. It appears that the 2.90-3.00% level is some fairly strong resistance.

Longer term, bonds are almost certainly going lower - but we could see a big short squeeze in the near term, since being short bonds is fairly popular right now.  The move above the 9 MA is a positive sign.

JNK sold off for much of the week, finally rebounding strongly with equities on Friday (+0.58%) to end the week with a -0.17% drop. Forecaster for JNK closed the week in an uptrend, at +0.22. That's much weaker than we saw last Friday. In spite of the buy signal Friday, it may be that the risk uptrend is losing momentum.

CRB rebounded +1.25%, continuing to move higher for the second week, roughly matching the move higher in equities. Only 2 of 5 sectors rose, led by energy (+3.41%).

Crude rose +2.04 [+3.32%] to 63.57. The move higher in crude was largely caused by a surprisingly bullish EIA report on Thursday [crude: -1.6m, gasoline: +0.3m, distillates: -2.4m]. Forecaster resumed the uptrend after giving a head-fake sell signal on Wednesday. It is interesting to me how crude and the equity market are aligned at this point.  How aligned are they?  Over the past few months, the correlation is between 0.8-0.9.  Here's what that looks like on a chart:

Physical Supply Indicators

* This week is the Chinese New Year celebration; SGE is closed. It is considered good luck to ring in CNY with a lion dance performance.  If you have a Kung Fu school, the holiday lasts for about six weeks.  H/t to my favorite (bay area) Lion Dance team: https://vimeo.com/4204962

* The GLD ETF tonnage on hand rose +4.72 tons, with 829 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.82 -0.30% to NAV [up]
 PSLV 6.11 -2.10% to NAV [up]
 CEF 13.28 -3.12% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold and a 1-2% premium for silver.

* Big bars premiums were: gold [1kg] 1.01% and silver [1000oz] 3.40%.

Futures Positioning/COT

In gold, the commercial net position fell 20.3k, with all of that being new shorts (+24.4k) offset somewhat by some new longs (+4.1k). This is a relatively small change. Managed money net rose by 5.7k contracts, which is a very small change. That was mostly new long buying (+4.2k) as well as short covering (-1.5k). It felt like the commercials were capping the top at 1364.40.

In silver, the commercial net rose by 2.5k contracts, a small change; it was all about a large increase in new longs (+6k) offset by a fair number of new shorts (+3.5k). Commercials continue to increase their long exposure to silver, up 7%, making a new all time high again this week. Managed money net fell 2.2k contracts, with much of it long sales (-1.3k) and some new shorts (+922). Both commercial and managed money net positions are consistent with a bottom for silver.

Grey Swan Status

  • Italian Elections: Anti-Euro M5S (27.03%) is leading vs the PD (22.6%). The combination of Forza Italia + Lega Nord are at 30.48%. The Italian election is next week, March 4th.

  • SPD members are now voting on the grand coalition, with the ballot due to conclude March 4th - curiously the same date as the Italian elections. Article below suggests that polls show a “slight edge” for a yes vote, and that the youth vote will be key – if they vote in large numbers, the answer may well be no, which would probably lead to a new election. Migration is pushing Germany to the right, but interestingly, labor is ending up with nowhere to go but AfD, since SPD is pro-migrant, and the other parties are pro-big-business. http://http://www.euronews.com/2018/02/19/spd-youth-vote-may-be-key-as-campaigners-push-no-to-grand-coalition

  • US Congressional Elections, November 2018. The generic ballot shows Democrats 47% [+8.2%] Republicans 38.8%, an increase of 1.3% in the spread vs last week, mostly due to a decline for the Republicans. My guess: Trump's “arm teachers” proposal probably only plays well to a subset of his base in the red states, and horrifies the rest of the country. https://projects.fivethirtyeight.com/congress-generic-ballot-polls

  • Mueller Investigation: prosecutors rang up yet another “lying to the FBI” guilty-plea-win, this time from Manafort's attorney, Rick Gates. Manafort and Gates were being charged with money laundering and unregistered lobbying – charges unrelated to their work for the Trump campaign. What was the lie? It was about a March 19, 2013 meeting involving Manafort, a lobbyist, and a member of Congress. Gates said the meeting did not include discussion of Ukraine, and prosecutors say it did. That's 5 years in prison for Mr. Gates.  An interview with the FBI: fraught with peril, with 5 years in the big house if you make a mistake.  Unless of course if your friends get immunity deals ahead of time, and your interview is not recorded and no notes are taken.

Summary

This week showed continued recovery in risk assets, although the pace of the recovery slowed substantially. Crude seemed to be an important driver – it is very closely correlated with SPX at the moment. Even bonds managed to catch a bid at end of week.

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 slightly, while ETF discounts were mixed.

The gold COT report showed an increase in commercial shorts – that's because the coverage period included last week's big rally and the top at 1364. Gold is in “no mans land” in terms of highs and lows from the COT perspective. Silver showed a substantial increase in commercial long positions: commercials bought 1000 tons of paper silver. Perhaps that's why silver is doing relatively well within the PM group.  We should probably take note of this, since it is fairly unusual behavior, and it is continuing even as silver is more or less moving sideways. Silver is at a “COT low” right now.

While everything seems under control at the moment, next weekend (on March 4th) we have two important elections which could cause a fair amount of trouble.  "Populism" (loosely defined as normal people suddenly figuring out that the current crop of political elites are not on their side) continues to be a surprising force, in both the EU and the US.  If the SPD membership votes down the Grand Coalition, and Italy elects a euro-skeptic government, money could start to flee the EU in earnest.  This result would be in line with the populism trend.  Money will probably start to move ahead of time - at least that's my guess anyway.

That's probably good for the buck, maybe break-even for gold, and good for bonds at least to some degree - maybe enough to cause that counter-trend short squeeze.  However, the collection of NR7 candles for gold and silver suggests we could really break in either direction.

Equities probably continue to follow crude.

Forecasting code – weekly – says:

Uptrend: crude, SPX.

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

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5643
correlations with SPX

Here are the correlations with SPX since Nov 2017.  Kind of fun.  Commodity-wise, its crude, then palladium.  Sector-wise, its consumer discretionary, industrials, sickcare, and financials.

  • 0.99 $DJI.N
  • 0.96 XLY.N
  • 0.96 XLI.N
  • 0.93 XLV.N
  • 0.92 XLF.N
  • 0.91 XLB.N
  • 0.87 XHB.N
  • 0.85 $RUT.N
  • 0.80 XLE.N
  • 0.76 SET50
  • 0.74 XLP.N
  • 0.71 CL.CW
  • 0.70 XLK.N
  • 0.68 PA.V
  • 0.58 XTL.N
  • 0.49 HO.CW
  • 0.46 PL.V
  • 0.39 GC.V
  • 0.38 $HUI.N
  • 0.38 GDX.N
  • 0.32 GDXJ.N
  • 0.27 JNK.N
  • 0.23 SI.V
  • 0.23 BTC.USD
  • 0.04 HG.V
  • -0.06 TLT.N
  • -0.20 HYB.N
  • -0.28 $DJU.N
  • -0.50 TY.CW
  • -0.51 DX.CW
Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 381
So far so good...

XAG/EUR and XAG/GBP closing above 9 DMA. XAG/JPY nearly there as well. Appears to be a trend line forming for silver going back to the 11th December 2017 low and the 8th Feb 2018 low which is currently holding. So far so good...

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