PM Daily Market Commentary - 3/22/2018

By davefairtex on Fri, Mar 23, 2018 - 1:46am

Gold fell -3.60 [-0.27%] on very heavy volume, while silver dropped -0.20 [-1.18%] on moderately heavy volume. The buck was largely unchanged, up +0.12%, but the big news wasn't in currencies or the metals, it was in equities: SPX plunged -2.52% (DJIA: -2.93%) probably because of the Trump Tariff news – what he calls “reciprocal tariffs”; $60 billion on Chinese products.

Gold moved slowly lower for much of the day, moving a bit higher into the close.  It was a relatively narrow trading range.  Candle print was a bearish harami – actually neutral – and the forecaster moved down -0.12 to +0.28, which still leaves gold in an uptrend. This could also be viewed as some profit-taking after yesterday's big rally. Certainly compared with equities, gold did quite well.

COMEX GC open interest rose 13,981 contracts today – 43 tons of paper gold. It was yet another large OI increase today. For reference: 50,000 contracts were added on the day of BRExit.

Rate rise chances (June 2018) dropped to 79%.

Silver sold off a bit more briskly than gold, following copper lower.  The candle print was the same as gold, however: a bearish harami with a neutral rating. Silver forecaster rose +0.03 to +0.54; silver forecaster isn't concerned about today's drop. Silver ended the day back below the 9 MA, which is a negative sign.

COMEX SI open interest rose 3,104 contracts today. That's 482 tons of paper silver, or 7 days of actual global silver production.

The gold/silver ratio jumped +0.74 to 81.15. That's bearish.

Miners sold off today, with GDX down -1.65% on moderate volume, while GDXJ dropped -1.35% on moderate volume also. There were more bearish harami patterns, but these were more negative: GDX with a 35% reversal chance, and GDXJ with a 44% reversal chance. XAU forecaster echoed the concern, dropping -0.56 to -0.06, which is a sell signal for the miners. Looking at the group: HUI (sell), GDX (uptrend: +0.47), GDXJ (uptrend:+0.16). My guess: the miners were dragged down by falling equity prices.  However, they didn't drop as badly as most of the other sectors, so there is some hope they will avoid disaster.

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

Platinum fell -0.91%, palladium dropped -0.59%, and copper plunged -1.82%. Copper made a new low today, entirely erasing yesterday's gains and then some. Both palladium and copper are in downtrends.

The buck rose +0.10 [+0.12%] to 89.47. Signals were mixed today; the long white candle might be a bullish reversal (34%) but the forecaster fell -0.23 to -0.07; looking closer, it seems I have a bug in the DX forecaster.  I used a timeseries (DBAA) that updates with a 1-day delay.  That means yesterday's forecast gets changed when today rolls around - when yesterday's value for DBAA arrives.  So although yesterday DX emitted a sell signal, it did so again today when yesterday's forecast value changed ... this is probably too complicated to go into.  Just say that I'm swapping the bad indicator out, and the new DX forecaster isn't finished just yet.

Crude fell -1.28 [-1.95%] to 64.21. Trump Tariffs were held responsible for the drop in crude prices – probably markets are guessing that a trade war will dampen economic activity around the world, which will reduce demand for oil. Candle print: dark cloud cover (37% bearish reversal), and forecaster fell -0.28 to +0.40. That's still an uptrend; the selling in crude stopped right at yesterday's breakout point, which is a positive sign.  Crude may not be done with its rally just yet.

SPX plunged -68.24 [-2.52%], gapping down at the open, and then falling substantially more after the details of the Trump Tariffs were released. The closing black marubozu was a bearish continuation, and SPX forecaster fell -0.31 to -0.93, which is a strong downtrend. SPX closed at the lows of the day.  Sector map shows that financials led the market down (XLF:-3.69%) along with industrials (XLI:-3.30%) while utilities did best (XLU:+0.44%). This is a classic bearish pattern. Most sectors were down at least 2% on the day.  There appears to be support at the 200 MA - which is another 2.5% drop away.

VIX shot up +5.48 to 23.34.

TLT rose sharply today, up a big +0.99%. The plunging equity market caused a flight to safety which has finally resulted in bonds getting a strong bid. There's probably some short-covering going on too.  TY agreed, rising +0.35% and printing a swing low – 70% bullish reversal. Forecaster rose +0.21 to +0.28, which is a stronger-looking uptrend. The 10-year ended the day at 2.80%.

JNK plunged -0.61%, making a new low. Forecaster plunged -0.71 to -0.80, which is a steep downtrend for JNK. JNK is echoing the risk off sentiment in equities.

CRB fell -0.40%, dropping back to rest on the 50 MA. 3 of 5 sectors dropped, led by industrial metals (-1.14%). Since commodity pits close at 2:30 pm, and much of the price action came after the tariff announcement, CRB's move today doesn't show the true extent of the hit.

The prospect of tariffs leading to a trade war is causing consternation; a 2.5% drop in equities is a large move. This conjures up a vision of the Great Depression and Smoot-Hawley; of course, back then we had a large trade surplus, so the tit-for-tat trade war devastated our exports. Now we're an importer, so the impact will be different. Mostly – rich people will be taking a proportionally larger hit, because they end up consuming more. And, most importantly, Trump is almost certainly looking to make a deal - that's what he does.  How long that takes, and how much damage happens in the meantime including (maybe) slowing down the world economy, is an open question.

In addition to the tariff announcement, the White House announced that John Bolton was going to take over as National Security Advisor. If Trump actually listens to him, this could result in a great deal of new military action – in Iran, Syria, and North Korea – which the nation and the world can ill afford right now. However, if we think about Trump-the-dealmaker, how might the Bolton appointment help? There is a chance that this might just be Trump bringing a “bad cop” into the administration, right before the negotiations with the North Koreans. "Who is the baddest bad cop I can bring to my upcoming meet with KJU?"  [Turns on Fox.  Sees Bolton.  Points Finger.]  "Him!  That's the guy!  Tell McMaster he's out."

It is almost like I have a video feed from the West Wing.

The risk, of course, is that he actually listens to Bolton and we get into a bunch of costly and never-ending new wars.  Of course if Bolton becomes too annoying, Trump will show him the door too.  Bolton should probably keep his briefings short.  And avoid using words like "moron."

I think it is more likely than not that Trump is looking to set the stage for a deal with North Korea, Iran, and the China trade deficit in time for the midterms.  On the way to this party, however, I expect we'll see increased volatility in risk assets.  And hopefully he doesn't actually listen to Bolton.


At least gold looks as though it is finally getting a bit of a safe haven move now.

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Uncletommy's picture
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"I think it is more likely than not that Trump is looking to set the stage for a deal with North Korea, Iran, and the China trade deficit in time for the midterms.  On the way to this party, however, I expect we'll see increased volatility in risk assets.  And hopefully he doesn't actually listen to Bolton."

I still can't figure out whether Mr. Trump is a buffoon, clever-like-a-fox, possessed with dumb luck or just well versed in the art of illusion. The Chinese certainly don't depend on his mental and political gyrations to determine their political and economic future. Trading a H.R. McMaster or Rex Tillerson for a Bolton certainly indicates, IMHO, a pathology. If the Chinese were to set up a gold based crypto-currency to start trading internationally, can you imagine the impact that could have on North American and European trade sector. The Chinese wouldn't have to fire a single shot to do some serious damage to the West's modus-operandi. 

Reviewing Steen Jacobson's interview with Chris, in light of the shenanigans going on in Washington, gives me pause to review my portfolio. Given the potential deflationary moves he is making and the performance of the markets, a 15% slide in values seems very likely. Going short to move into cash seems "dicey" especially if China decides to unload some US treasury bills. Are PM's a sound option? Are buying some more canning jars and vegetable seeds a better investment? Are these more indications of the developing Long Emergency? Investing in Cannabis may have double benefits!

davefairtex's picture
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Posts: 5683
dumb luck?

Uncle Tommy-

Trump managed to win the Presidency as basically a third-party candidate after weaseling his way into the Republican Party, never having held office before.  Ever.  He shrugged off scandals that would have torpedoed any normal politician, and figured out how to connect directly with his base (via twitter - at age 72) thus bypassing the mainstream media gatekeepers.  He continues to use this tool even when in office, to the shock and horror of his minders.  He also sorted out the weak points - the issues that neither party was addressing - and he pushed those weak points for all they were worth.  He turned his wealth (which his opponents tried to make a liability) into an asset.  "I'm REALLY rich!" he said.  His base loves him.

Republicans would absolutely love him to just fall into a well and never emerge - but did I mention that his base loves him?  They would just be torched at the polls if that happened.

So, were these just accidents?  Did he bumble his way into office?  I don't think so.  That just doesn't happen, unless you have the machine on your side.  And the machine was most definitely NOT on his side.  Nobody won the Presidency for him.  He did it all himself.  Contrast with Jeb Bush.  Bush had the machine behind him, tens of millions of dollars just for the asking, big donors, etc.  Everything was all lined up behind him.

Trump crushed him like a bug.  Effortlessly.

Trump apparently has a very short attention span, he has a thin skin, he has poor impulse control, he doesn't care about the details of policy except from the 30,000 ft view, he has a "truth problem", and by all accounts, he's just ruthless.

But given what he had to overcome to get into office, he is absolutely not a fool.  In fact, he's probably a genius, although not the kind we are accustomed to seeing.  To use a Nassim Taleb construct: he's Fat Tony.  We are, of course, much more comfortable with Presidents who look and talk like Dr. John.  I know I am.  Obama: a perfect Dr. John.

And, I suspect, Trump has a plan.  And I also suspect that Bolton will be tossed aside if he gets too annoying.

And if I'm wrong, we're in very deep trouble!

So I hope I'm not wrong. :)

Uncletommy's picture
Status: Platinum Member (Offline)
Joined: May 3 2014
Posts: 633
excellent observations!

Thanks, Dave. Your explanation is extremely insightful! However, I wish I could say, "comforting". Nevertheless, I just installed a zipper on my mattress and am digging a hole under a stump in the back forty!

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683

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