PM Daily Market Commentary - 5/29/2018

davefairtex
By davefairtex on Wed, May 30, 2018 - 3:08am

Gold fell -2.90 [-0.22%] to 1298.30 on heavy volume, and silver plunged -0.15 [-0.91%] to 16.37 on heavy volume also. The buck shot higher [+0.70%], US long-dated treasury bonds screamed higher [+2.19%], US equities sold off [-1.16%], and gold in Euros rallied +0.80%. Today was all about a flight to safety due to the return of the long-sleeping sovereign debt crisis in the EU.

The driving force for the move was uncertainty in Italy; where to begin? The Italian President, a holdover from the previous (PD) government, decided to reject the M5S/LN candidate for foreign minister, who was a qualified individual but a euroskeptic. M5S and LN have both called for President Mattarella's impeachment, and/or new elections, which will probably leave M5S and LN even more firmly in charge. Salvini of LN has charged that the Italian President was operating under orders from Brussels, which seemed to have some basis in truth given the comments from the unelected (but legislatively powerful) German EU Commissioner who hoped out loud that markets would (hopefully) whack Italian bonds so hard that the Italian voters would choose not to elect “populists” going forward. I'm not kidding – this is really what he said. Of course, the EU promptly made him walk back that burst of impromptu truth-telling:

"My worry, my expectation, is that the coming weeks will show that the markets, government bonds, Italy's economy, could be so badly hit that these could send a signal to voters not to elect populists from the left or right," Oettinger had told Deutsche Welle television in an interview.

Given that the ECB has single-handedly destroyed the bond market for Eurozone sovereign debt, and they remain the only bidder left for Italian bonds at current prices, making this “come true” is child's play. ECB: “just stop bidding.” Presto, an Italian bond market collapse.

And indeed, that's what we saw today. Italian 10-year bond yields jumped a ridiculous 67 basis points in one day. I'm guessing everyone is selling, and the ECB has stopped buying. Will Salvini and M5S be able to credibly finger the real culprit behind all the shenanigans?

https://www.reuters.com/article/us-eurozone-bonds/italian-bonds-suffer-worst-day-in-more-than-25-years-idUSKCN1IU16G

This is how the EU deals with disagreeable election results. Remember German FinMin Schauble, on the voters in Greece: “new elections change nothing.”  Indeed.

Gold tried to rally today, hitting a high of 1311.30 before falling back. Candle print was a swing high/long-legged doji (44% bearish reversal), and forecaster dropped -0.36 to +0.39. That's still an uptrend. However, gold in Euros broke out to new highs, and GC.EUR forecaster rose +0.06 to +0.59, which is a strong uptrend. GC.EUR is in an uptrend in all 3 timeframes. If we factor out the currency effects of the dollar rally, gold actually did well today.

COMEX GC open interest fell -4,006 contracts.

Rate rise chances (June 2018) plunged to 79%. Hmm. The market is thinking that, just perhaps, the Fed won't raise rates if the Eurozone is in the middle of imploding.  The market could be right.

Today, I'm going to show you gold-in-Euros, just for a change: breakout two days ago, strong uptrend.

Silver moved steadily lower all day long, ending up printing a swing high (60% bearish reversal), and the silver forecaster dropped deeper into downtrend (-0.23 to -0.42). Silver is in a downtrend in all 3 timeframes. The flight to safety didn't seem to help silver very much - the dollar rally isn't doing silver any favors.  Silver is back below all 3 moving averages.  This isn't a great sign.

COMEX SI open interest fell by -910 contracts today.

The gold/silver ratio rose by +0.54 to 79.31. That's bearish.

Miners moved lower today – gapping down, trying to rally, but ultimately failing, with GDX off -0.72% on heavy volume while GDXJ dropped -0.79% on moderately heavy volume. Candle prints were relatively neutral. XAU forecaster dropped -0.07 to +0.05, which is right on the edge of a sell signal. Monthly XAU forecaster remains in uptrend, though, which suggests a bid remains underneath the mining shares.  The 50 MA continues to provide support.

The GDXJ:GDX ratio fell, as did the GDX:$GOLD ratio. That's bearish.

Platinum rose +0.54%, palladium dropped -0.40%, while copper dropped -0.71%. Both platinum and palladium forecasters issued sell signals, and copper is in a downtrend.

The dollar shot up +0.66 [+0.70%] to 94.45. The buck made a new high; candle print was a bullish continuation/long white candle. DX forecaster rose +0.35 to +0.51. DX forecaster is in a strong uptrend on the daily chart, and is in uptrend in all 3 timeframes.  You can see that the buck has been on a tear since about mid-March.

Crude plunged -0.63 [-0.93%] to 66.87. Crude made a new low to 65.90, but managed to bounce back fairly strongly by end of day. The spinning top candle was mildly bullish (36% bullish reversal), but forecaster moved up just +0.07 to -0.61, which is still a strong downtrend. Crude is in a downtrend in all 3 timeframes.  No buyers yet for crude at 66.

SPX fell -31.47 [-1.16%] to 2689.86. SPX fell for most of the day, with a nice rebound in the last 30 minutes of trading. Candle print was a bearish continuation/long black candle, while forecaster dropped -0.22 to -0.59. That's a strong downtrend. SPX is now showing a sell signal on the weekly timeframe also. Financials led the market lower (XLF:-3.34%) while utilities did “best” (XLU:+0.00). This is a bearish sector map.

VIX shot up +3.80 to 17.02. Risk is back.

TLT screamed higher, up +2.19%, with the TLT forecaster up +0.10 to +0.68. This is a new high for TLT that dates back back to January 2018. TY confirms the move, shooting up +0.95%, with TY forecaster up +0.07 to +0.77 – that's a strong uptrend. TY isn't doing quite as well as TLT, but it is not far from the March 2018 highs. The 10-year yield dropped to 2.76%.

I have to say, this was the perfect setup for bonds. All that worry (from me included) about huge supply from both the Fed and the US government served to get literally everyone on the wrong side of the boat – short US treasury bonds. Then the Italian debt starts to plunge, and money floods into US bond assets, with an emphasis on the US long-dated treasury. Bam – a massive short squeeze powers US treasury prices higher. Last week's “sure thing trade” turns into this week's massive loser. Market's job is to hose as many people as possible. I just feel fortunate I bailed out of my short relatively early on. And who knows – it could all reverse again tomorrow.

JNK fell -0.45%, making a new low. JNK forecaster issued a sell signal today – somewhat belated. That sure seems like risk off.

CRB fell -0.75%, with 3 of 5 sectors moving lower, led by energy (-1.51%). Commodities have pulled back from their highs, but remain above the 50 MA – in a longer term uptrend.

Today money fled the EU for the safe haven of the USD. If anyone is harboring any thoughts of the US dollar turning into confetti in the near future – please just look at the recent price action. Big Money fled Europe for the safety of the buck - as it has for the past two months. Big money is NOT fleeing to the safety of the RMB (due to replace the buck “any day now” as reserve currency, because “the petrodollar is over” because of some gold-backed oil futures contract, etc), nor is it fleeing to the Ruble. King Dollar remains supreme.

Someday, it will change. Someday, the US will lose reserve currency status. But we will only know that when, in a crisis, money flees to somewhere other than the USD.

Today's move might mark an near-term extreme. Jumping into a trade right now is quite dangerous. We could wake up tomorrow and the market could rip the other direction.

Risk is back. Gold is doing well, all things considered, but currently the buck and the long bond are the stars of the show.  Be careful out there.

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