PM Daily Market Commentary - 3/1/2018

By davefairtex on Fri, Mar 2, 2018 - 3:20am

Today, gold fell -1.30 [-0.10%] to 1318.10 on very heavy volume, while silver rose +0.07 [+0.43%] to 16.49 on very heavy volume also. The buck dropped -0.30% on the day; this rescued gold and silver from a strong sell-off. Without the drop in the buck, gold would probably be at 1305, and silver at 16.20.

Things were looking good for the buck until Trump announced steel & aluminum tariffs, which were at the high end of the expected range. In addition, in his testimony to the Senate starting at 10 am, Fed chair Powell suggested that the economy is not overheating – the economy is strong, but not too strong. Just right, I guess. This all conspired to send the Euro higher (+0.61%) starting at about 10:20 am.

Gold was in the process of selling off, down as much as $17 at one point (to 1303), when the Euro rally started at about 10:20; by end of day, gold was almost back to even. That's not a great performance for gold given the strong move in the Euro, but gold at 1318 definitely beats gold at 1303. So on the one hand, gold in Euros fell -0.83% on the day, which is not a positive sign, and the new low on the gold/USD chart is bearish. On the other, gold's high wave candle had a 44% chance of marking a low, and gold forecaster jumped +0.31 to -0.02, which is almost a buy signal for gold.

COMEX GC open interest fell -15,388 contracts today.  That's a lot of short-covering; 47 tons of paper gold vanished.  Commercials ringing the cash register, perhaps?

Rate rise chances (March 2018) fell to 83%.

Silver also fell for much of the day, making a new low to 16.16 before the Euro rally rescued it. Silver looked a lot stronger than gold, managing to almost stay even when measured in Euros. Silver's high wave candle was neutral rather than bullish, and silver forecaster moved down -0.01 to -0.03. Silver's out-performance today suggests there is a strong underlying bid for silver.

COMEX SI open interest rose 874 contracts today.

The gold/silver ratio fell -0.42 to 79.93 That's bullish.

Miners looked a bit different today; they were in the red, down about 2% until about 2:20 pm, and then they suddenly took off, keeping most of the gains into the close. GDX climbed +1.03% on very heavy volume, while GDXJ rose +1.63% on very heavy volume also. XAU forecaster jumped +0.18 to -0.15. That's still a downtrend, but its an improvement.  Like silver, XAU avoided making a new low today, which is a positive sign.

Today, the GDXJ:GDX ratio rose, as did the GDX:$GOLD ratio. That's bullish.

Platinum plunged -1.76%, palladium cratered, and copper dropped -0.11%. Copper's southern doji could be a reversal (38%), platinum's drop drags it deeper into a downtrend, and palladium – I'm not sure what happened to palladium, but its not a positive for the metals.

The buck tried again to confirm that double bottom today which ultimately failed, with the dollar dropping -0.27 [-0.30%] to 89.97. The bearish engulfing candle was neutral, and the dollar forecaster fell just -0.04 to +0.29; today's drop was not enough to derail the uptrend.

Crude fell -0.22 [-0.36%] to 61.33. Crude fell for much of the day, making a new low to 60.18, bottoming out along with gold and silver at about 10:30 am. However the rebound wasn't enough to drag crude back to even. The high wave candle was neutral, and the crude forecaster dropped -0.03 to -0.23. Is this a low for crude? Probably not yet.

SPX plunged -36.16 [-1.33%] to 2677.67. SPX tried rallying, and topped out along with the buck at 10:30 am. It then sold off fairly hard, bouncing back somewhat by end of day. The long black candle could be a low (35% reversal), but the forecaster disagreed, dropping -0.66 to -0.40 – that's a sell signal for SPX. The sector map shows industrials (XLI:-1.96%) and financials (XLF:-1.73%) led lower, while utilities did best (XLU:+0.02%).

VIX rose +2.62 to 22.47.

TLT rallied again today, up +0.48%. Bonds rallied as equities fell, breaking out above its recent congestion area. TY agreed, up +0.38%, and the TY forecaster shot up +0.24 to +0.16 – a buy signal for TY.

JNK cratered today, down -0.88%, gapping down at the open and selling off all day long. JNK forecaster fell -0.52 to -0.46, which is a sell signal for JNK.  Risk off.

CRB was unchanged on the day, with 4 of 5 sectors moving lower. Agriculture was the sole winner, up +1.81%.

Let's divide the market-world into two distinct groups: the equity-bond (risk on/risk off) axis, and the commodity-currency axis.  For sure there are items that affect both groups, but these are the rough groupings that I see happening right now.

For the equity-bond axis, this marks 3 straight days down for SPX, and treasury bonds are finally catching a bid as a result.  JNK sold off hard, in spite of the relatively neutral day for crude; the JNK:IEF ratio absolutely cratered (-1.15%), and that's a very bearish sign for risk assets.  Rising long rates are bad news for equities, rising BAA (junk) bond rates are even worse, but when the BAA-AAA ratio rises, that's the worst sign there is, using FRED timeseries that date back to the 1920s.

For the commodity-currency axis, we saw a Euro rally driven by ... I'm not sure what.  Comments by Powell? Protectionism from Trump?  It was not quite enough to mark a low for the metals, but it certainly did arrest the plunge.  And yet, platinum and especially palladium were not helped much at all by the Euro rally.  Perhaps that's some bleed-over from the equity market risk off move.

For PM, I'm watching the buck for clues as to where things go next.  Gold in Euros continues to look weak, and that suggests no safe haven move yet for gold.  Until a safe haven bid manifests, we won't see a sustained bull move in the yellow metal unless the buck craters.  Given the situation in Europe, I don't see that happening anytime soon.

Italian elections as well as the SPD vote are this coming Sunday.  Tomorrow is the last day for traders to get positioned for this event.  I'm guessing that will be dollar positive, and possibly also risk off.

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davefairtex's picture
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5166
WALCL updated

Here's the Fed balance sheet, updated (inspired by Wolf Richter), with the black line smoothed by an MA4, while the red is the original (noisy) series.

The red line clearly shows the blip everyone got excited about last month.  OMG the Fed is dropping money into the market!  But the MA4 makes this blip go away.  More likely, the blip was just something that happens every month, having to do with when the various groups of bonds mature.

After looking at the treasury website, here's their auction schedule.  The 3/10/30s are auctioned every 2 weeks, on a Thursday.  The 2/5/7s are auctioned every month or so.  Its a very choppy schedule.  So the resulting maturity schedule would be equally choppy, and might not align smoothly with when WALCL is generated every week.

Fed balance sheet reduction is proceeding apace.  The red line plunged 18 billion dollars over the past week.  Sometimes things are a conspiracy, and sometimes they have a simple (and relatively benign) explanation.

Eannao's picture
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 137
Sometimes things are a conspiracy....

"Sometimes things are a conspiracy, and sometimes they have a simple (and relatively benign) explanation."

Dave, thanks for keeping a cool head and digging until you find the facts. It really helps that you are an independent thinker and don't rush to the conspiratorial conclusion.

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