PM Daily Market Commentary - 7/5/2018

davefairtex
By davefairtex on Fri, Jul 6, 2018 - 2:48am

Gold rose +4.80 [+0.38%] to 1258.80 on heavy volume, while silver inched up +0.03 [+0.19%] to 16.09 on moderate volume. The buck fell -0.19 [-0.20%], which helped the metals to some degree. The real action was in copper, which plunged -3.01%, making a fairly dramatic new low to 2.83. Is this Dr. Copper indicating an impending recession, or is it just about tariffs and China? Whatever the answer, plunging copper prices are not helpful for the metals overall.

Copper got my attention today by dropping -0.09 [-3.01%] to 2.83, which was a new low that dates back to Aug 2017.  Copper's strong line candle was bearish, and copper forecaster fell -0.37 to -0.53. Copper has fallen 15% (about 47 cents) in the past 18 trading days, which has driven copper's RSI-7 down to 9; how often does that happen? There were only 11 trading days since 1962 where copper's RSI has been <= 9. That tells you this has been a very sharp move for the premier industrial metal. And the fun part? Copper plunged to $2 during the not-a-recession year of 2016, so if we are entering a recession (China, tariffs, etc), copper has a lot further to fall.  If, if, if...

The metals are all linked; the correlations aren't perfect, but the influence of copper on both gold and silver is fairly strong, at least according to my models. So what happens to copper really does matter, even if you are just a goldbug.

In other news, it appears as though the EU is probably going to cave on auto tariffs. This was probably the reason that EU and US equity markets rallied today. Here are the series of headlines I saw:

Seems like progress to me.

Ok, enough fun with tariffs.

In gold, today's candle actually combines the price activity of both 4th and the 5th; during that time, prices mostly just chopped sideways with a bullish bias, and gold ended up closing relatively near the highs. Still, it was a fairly narrow trading range.  That said, gold did manage to print a swing low (65% bullish reversal), and gold's forecaster jumped +0.22 to +0.47. Gold did manage to crawl back above the 9 MA, which is a positive sign.  The falling dollar certainly didn't hurt.

COMEX GC open interest rose 3,354 contracts.

Rate rise chances (September 2018) jumped to 79%. This may have been due to the release of the minutes from the last FOMC meeting; members noted some indications of labor shortages and rising wages.

Silver did mostly the same thing as gold, chopping back and forth, but with a more negative bias than gold.  Silver was fortunate to close right around where it opened.  Candle print was a high wave/bullish continuation; forecaster moved up +0.09 to even, which was a buy signal for silver, although a very feeble one. Both the feeble move, and the feeble buy signal were not too surprising; silver and copper are fairly closely correlated. Did I mention that copper was shellacked today?  Silver looks to be the weakest performer of the group.

COMEX SI open interest fell by -2,552 contracts today.

The gold/silver ratio rose +0.15 to 78.23, which is somewhat bearish.

Miners moved higher today, with GDX up +0.93% on moderately heavy volume, while GDXJ moved up +0.94% on heavy volume. Both miners printed bullish continuation candles, and XAU forecaster moved up +0.09 to +0.47. Miners continue to look strong. XAU closed well above its 200 MA today, which is a positive sign. While gold and silver appear relatively weak, the miners continue looking good.

The GDXJ:GDX ratio was largely unchanged, while the GDX:$GOLD ratio moved higher. That's bullish.

Platinum rose +0.02%, palladium climbed +0.63%, and as mentioned, copper plunged -3.01%. Palladium has been chopping sideways for about 8 days now, while platinum is struggling to move higher after the big rally on Wednesday. Platinum forecaster issued a buy signal today, although not a very strong one.

The buck fell -0.19 [-0.20%] to 94.19. The buck actually sold off more substantially, making a new low to 93.88, but managed to bounce back. The high wave candle was a bearish continuation, but DX forecaster edged up +0.05 to -0.09; I guess it liked the end of day bounce. Weekly and monthly remain in uptrends, although they are both pointing at a potential bearish reversal in the near future.

Crude fell -1.35 [-1.83%] to 72.55. The selling pressure was caused by a bearish EIA report (crude: +1.2m, gasoline: -1.5m, distillates: +0.1m) which surprised the market, but not in a good way. The selling started immediately following the report release at 11 am. Forecaster moved down -0.06 to -0.16. All that said...Nick Cunningham at oilprice had a longer-term analysis triggered by some 4th-of-July Trump Tweets.  Nick's analysis suggested that, a) Trump doesn't realize that Saudi Arabia can't just flip a switch and pump another 2 mbpd, b) Trump is trying hard to zero out Iran's oil exports, which may well succeed, leading to c) higher oil prices, which may be beyond OPEC's control anyway, since they have very little in the way of spare capacity left.  My takeaway: today's EIA report might well just be a blip in the crude uptrend.

https://oilprice.com/Energy/Crude-Oil/Do-Trumps-Tweets-Point-To-Another-Oil-Crisis.html

SPX rose +23.39 [+0.86%] to 2736.61. The rally wiped out yesterday's losses and then some, causing forecaster to jump +0.95 to +0.26, which is a strong buy signal for SPX. Sector map has tech leading (XLK:+1.41%) with energy (XLE:-0.11%) and financials (XLF:+0.23%) bringing up the rear. That's mostly bullish – except for the lagging financials, which have been an ointment-fly now for the past 5 months.

And I just have to mention Tesla.  I have a small short position, so I'm biased, but they are facing a perfect storm: they haven't yet learned how to really mass-produce cars, and their 5-year grace period on competition from "real manufacturers" has just run out.  And Mr. Market has just given a giant raspberry (16% drop in 3 days) to Tesla's "success" in producing 5,000 cars (for the first time) this week.  Their competition - the real manufacturers - have just arrived with product in hand, and they know how to crank their cars out like sausages in an orderly proficient manner without needing to build tents in the parking lot. That's why they spend 5 years in design and testing.  You can't just ignore parts of the process without paying the price somewhere down the line.

https://www.engadget.com/2018/06/14/2019-jaguar-ipace-review/

I prefer the I-Pace over the Model X, and I really like the Model X. The I-Pace is less expensive (comparing the baseline S model to the 75D there's a $10,000 price difference) and feels more like a luxury car. But Jaguar and Tesla won't be the only worthy contenders for the title of best luxury EV SUV for long. We have the Audi E-Tron and the BMW iX3 coming. But for now, the I-Pace is the big cat in town and if you have a chance to get behind the wheel, do it.

So.  Cheaper price, no "deathmarch" to produce enough cars to satisfy demand, a profitable company, and for this reviewer, a better product.  And two other manufacturers will come to market this year too.  I think we've seen Peak Tesla, at least when it comes to valuation.

VIX fell -1.17 to 14.97.

TLT rose +0.29%, making a new high, with the forecaster issuing a buy signal, generally looking quite strong in spite of the rally in equities. TY didn't confirm, losing -0.02%. TY remains in an uptrend. 10-year yield rose +0.2 bp to 2.84%.

JNK shot up +0.40%, a large move which supports the risk-on sentiment from equity market.  Perhaps JNK bonds didn't like all the tariff talk with Europe - maybe that's why they've tanked over the past few weeks.

CRB fell -0.64%; 3 of 5 sectors fell, led by industrial metals (-1.56%).

Is the EU tariff problem over? I'm not sure if the “US tariff 2.5%, EU tariff 10%” regime is replicated in other industries. If so, Trump may not be satisfied with only this concession. Likewise, the EU is proposing some sort of multi-lateral trade negotiation rather than a bilateral deal which is what Trump wants. Still, the EU (i.e. the Germans) have more to lose than we do here, and they made the logical move. Likely, that's why they didn't join with China in forming an explicit mercantile-high-tariff-exporter club. My guess is, some sort of deal will happen with Europe, and in the near term too.

China is the larger problem; they have a much larger advantage, they really want to retain it, and so they are probably a tougher nut to crack. And unlike Merkel, who is performing an unsteady, blindfolded high wire act in a strong cross-breeze, Xi is firmly in charge. And most likely, the much-worried-about imposition of tariffs on Chinese goods, scheduled for tomorrow, is what caused copper's latest plunge. I don't think Xi will “blink” the way Merkel did. It might require a few months of real pain before an agreement can be reached.

But flip this around for a moment. If we assume that China and the US will – eventually – come to some sort of arrangement, that means that today's “artificially low prices” in various items, perhaps most importantly copper, and certainly PM, might well be a buying opportunity.

If we don't have a recession, of course.

Meanwhile, those miners just continue to do well. Money is flowing into the sector.

Nonfarm Payrolls report comes out tomorrow morning at 8:30 am. Fed is watching for increased pressure on wages – an increase in hourly earnings will probably increase the chance of two more rate raises this year. Its hard to know how that will affect PM.

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2 Comments

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 366
Platinum

Looks a bargain to me.

New_Life's picture
New_Life
Status: Gold Member (Offline)
Joined: Apr 18 2011
Posts: 366
GOLD

still bouncing off the uptrend to look like a bullish ascending triangle?

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