PM Daily Market Commentary - 3/5/2018

By davefairtex on Tue, Mar 6, 2018 - 7:34am

Today, gold fell -2.80 [-0.21%] to 1320.90 on moderate volume, while silver dropped -0.09 [-0.57%] to 16.44 on very light volume. The buck rose +0.13%, appearing as though it might be trying to reverse once more.

Gold rallied during Asia, but then sold off fairly steadily during London and New York, bouncing back slightly before the close.  That said, it was a fairly narrow trading range.  Gold's long black candle was slightly bearish, but the forecaster disagreed, rising +0.05 to +0.34.

COMEX GC open interest fell -3,775 contracts today.

Rate rise chances (March 2018) rose to 89%.

Silver rallied in Asia also, but then sold off along with gold; silver had a larger trading range, and its drop was somewhat more intense.  Silver's long black candle was neutral, but the forecaster dropped -0.20 to -0.25, moving deeper into downtrend.

COMEX SI open interest rose 3,006 contracts today. My guess is, that's managed money going short.  At some point, I suspect the commercials are going to catch managed money off-sides on the silver trade.  The historically large managed money net short position usually doesn't work out in their favor.

The gold/silver ratio rose +0.29 to 80.35 That's bearish.

Miners did surprisingly well today, with GDX up +0.74% on moderate volume, and GDXJ climbed 0.25% on very light volume.  Miners closed near their day highs, with a chunk of the move happening in the last 5 minutes of the trading day.  While the candle prints were both neutral, XAU forecaster thought that today's performance was very bullish, rising +0.41 to +0.38, which is a buy signal for the miners. It is also a 3 candle swing low. For the miners to rise on a day when the metals fell is a strong positive sign.  Miners still need to re-cross the 9 MA

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

Platinum fell -0.40%, palladium dropped -0.76%, and copper dropped -0.19%. While the other metals all moved south, the moves were not particularly large.  They could be stabilizing at these levels.

The buck rallied today, rising +0.12 [+0.13%] to 89.71. Special mention goes to the CAD, which plunged -0.76%...CAD has fallen more than 5% over the past five weeks, breaking to a new multi-month low.  Is that NAFTA, the Trump Tariffs, or something else?

Mostly, the currency markets were neutral after the two important political events in Europe this past weekend: the SPD party members approved the grand coalition with the CDU with 66% voting yes, paving the way for Merkel's 4th term, while M5S and Lega Nord made large gains in the Italian elections. The final tally in Italy had the vote totals as follows: M5S 32.2%, PD 18.9%, Lega Nord 17.7%, Forza Italia 13.9%, and a pair of smaller parties at 7.7%.  Big losers were the mainstream parties; vs the previous election results, the PD lost 1/3 (down 6.5%), and Forza Italia lost about the same (down 7.7%).

The guardian has a good article laying out the different coalition possibilities, and the problems with each one. By far the most interesting is M5S + Lega Nord, which risks the left wing of M5S rebelling, but is actually the most logical of the combinations, bringing together the Euroskeptics from both sides of the political spectrum.

Crude jumped +1.13 [+1.84%] to 62.56. The driver for the rally was thought to be a pipeline shutdown in Libya, taking 400k bpd offline for the moment. The rally resulted in a swing low (55% chance reversal) along with a forecaster buy signal (+0.32 to +0.19). It has been a choppy few weeks for crude, but independently of the geopolitics, there do seem to be buyers every time price drops down to the 60 level.

SPX rallied along with crude, up +29.69 [+1.10%] to 2720.94. SPX also printed a swing low (53%) but the slow-moving SPX forecaster has yet to react positively to the move, remaining in a downtrend. Utilities led the charge (XLU:+2.04%) along with financials (XLF:+1.40%) with staples bringing up the rear (XLP:+0.87%). A large number of sectors printed swing lows today, and the ratings were fairly high. That's positive for equities overall.

VIX fell -0.86 to 18.73.

TLT moved down -0.27%, which is a 3-candle swing high. TY also dropped, losing -0.13% which is also a 3 candle swing high. Given the large move higher in equities, this wasn't actually that negative a performance from bonds.

JNK fell -0.06%; JNK remains in a downtrend, and given how well equities did, that suggests that interest in JNK is actually fairly weak right now.

CRB shot up +1.31%; 3 of 5 sectors rose, led by energy (+1.81%). That took CRB back above both the 9 and 50 MA lines. Over the last 6 weeks, the agriculture group has done best, up 10%.

SPX followed through off Friday's positive performance; call it dip-buying, but maybe not a return to risk, given JNK's lame performance. Is this just a counter-trend rally, or does it foreshadow a move to new highs?

The monthly correlations show that, in general, rising long-term rates (both AAA, and BAA) are bad for equities, with rising BAA rates being substantially more negative. Right now, both are rising, but the sole saving grace is that the BAA/AAA ratio isn't moving higher. Both junky and regular bonds are being sold with roughly the same enthusiasm. So that's not risk off, that's just a concern about higher yields.

What's more, my new monthly recession predictor (which uses data that dates back to 1920) isn't showing any signs of impending doom.

And now we also have corporate money flooding in from overseas to fund stock buybacks. Corporations have been the largest single buyer of equities for quite a while now, and that looks to accelerate, courtesy of the Trump Tax Cuts.

My read: new highs for equities are not out of the question. My sense is, a lot of it depends on where the price of oil goes next.  Oil seems to have a bid, at least for now.

On the currency front, Germany managed to dodge the populist bullet, which kept the Euro from selling off. Perhaps that counter-balances the uncertainty following the Italian elections. However if M5S and Lega Nord agree to form a government, that could change in an instant. Would gold benefit? Currently, gold-in-euros remains in a (multi-year) downtrend. That suggests the answer is “probably not.”

Miners are making some strong positive noises; might this mark the lows?  It probably depends (as usual) on where the buck goes next.

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