PM Daily Market Commentary - 7/11/2018

By davefairtex on Thu, Jul 12, 2018 - 3:22am

Gold plunged -14.00 [-1.11%] to 1241.90 on heavy volume, and silver dropped -0.27 [-1.65%] to 15.82 on heavy volume also. Trump's tariffs strike again; after market close yesterday, the Trump administration announced a 10% tariff on $200 billion in imports, to be imposed at the end of August after a public comment period. This caused the metals complex to plunge, led by copper which dropped -2.75% and hit a new low of 2.71. To pile on, the buck also shot up +0.64%, and oil absolutely cratered, dropping -4.89%.

Gold took a first leg down in Asia, dropping along with copper; it fell a second time during the US session as the USD shot higher, closing at or near the lows of the day. Candle print was a black marubozu, which was a bearish continuation. Forecaster plunged -0.31 to -0.42; that's a strengthening downtrend. While gold has yet to make a new low, 1238 is not very far away. Today's plunge took gold through its 9 MA. Gold is in a downtrend in all 3 timeframes.

COMEX GC open interest rose 3,094 contracts. That's a bad sign; after a drop like this, I'd expect to see some short covering, but that is not happening. Traders appear to be betting on a further drop in gold.  It looks like the traders who entered short a few days ago betting on "dead cat bounce" were correct.

Rate rise chances (September 2018) rose to 85%.

Silver fell in Asia along with gold, and then dropped again as the dollar took off in the US session. Silver also closed at its lows, printing a bearish continuation/black marubozu. Silver forecaster dropped -0.32 to -0.32, which is a sell signal for silver. Silver avoided making a new low by a very slim margin. Silver is also in a downtrend in all 3 timeframes.  If copper continues to fall, so will silver.

COMEX SI open interest rose by 410 contracts today. No short-covering here either.

The gold/silver ratio rose +0.42 to 78.48, which is bearish.

Miners were hammered today, for the first time in quite a while. GDX plunged -2.65% on very heavy volume, and GDXJ fell -2.57% on very heavy volume also. XAU was off -3.06%, with the XAU forecaster dropping -0.59 to -0.17 which is a belated sell signal for the miners. The pickup in volume and the big down day suggests that some traders are bailing out of their miner positions.  This was the largest down day this year.  It is probably not a signal we should ignore.

The GDXJ:GDX ratio was mostly unchanged, while the GDX:$GOLD ratio fell hard. That's bearish.

Platinum fell -1.95%, palladium dropped -1.50%, while copper plunged -2.43%. Palladium and platinum both avoided making new lows; palladium forecaster issued a sell signal yesterday, and platinum issued one today. Copper did make a new low – a fairly dramatic one.  The bounce last Friday was of the "dead cat" variety, it seems.

The buck rose +0.60 [+0.64%] to 94.42, breaking sharply higher shortly after the US market opened. The long white candle was a bullish continuation, and forecaster jumped +0.43 to +0.26, which is a buy signal for the buck. The move took DX back above its 9 MA. DX is in an uptrend in all 3 timeframes.  If the buck has resumed its uptrend, this will pile on the bad news for the metals.

Crude plunged -3.59 [-4.89%] to 69.85, selling off hard. The confirmed bearish NR7/strong line candle was quite bearish (59% bearish reversal); forecaster is offline while I'm testing my new code. This sell-off happened in spite of a very bullish EIA report (crude: -12.6m, gasoline: -0.7m, distillates: +4.1m). What was the plunge all about? Well, tariffs took oil down early in Asia, but then later, Libya lifted force majeure status and is once more shipping oil – this brings 700 kbpd of oil back online. Also, OPEC issued a forecast for 2019 that suggested oil demand growth would slow down, and non-OPEC production would increase.  Basd on the timing of the moves, I think today's move was mostly about Libya. Nick Cunningham has the story:

SPX fell -19.82 [-0.71%] to 2774.02. Much of the losses came overnight in the futures markets, but SPX did move a bit lower during the day. The swing high pattern had a 49% chance of marking the top, and forecaster dropped –0.34 to +0.40; that's still an uptrend. In truth, it didn't look all that bad to me. Sector map had energy leading lower (XLE:-2.12%) along with materials (XLB:-1.68%), while utilities did best (XLU:+0.90%). This looked like a commodities-driven move lower; bearish. The Shanghai Composite fell -1.76%.

VIX rose +0.99 to 13.63.

TLT moved up +0.39%, reversing back into an uptrend. TY didn't confirm, falling -0.01% and remaining in a downtrend. The 10-year yield fell -3.1 bp to 2.84%.

JNK moved down -0.08%, printing a swing high (45% bearish reversal), perhaps starting another leg down. Longer term, JNK is showing a pattern of lower highs and lower lows, which is a downtrend.

CRB cratered, dropping -2.75%. All 5 sectors fell, led by energy (-5.28%), with livestock (-4.37%), agriculture (-2.68%), and industrial metals (-2.44%) also hit hard. This took CRB clean through its 200 MA. The PM group was only off -0.80% - it got off fairly lightly by comparison. Things are starting to look much more bearish in the commodity space.

The tariff war just got much more serious. China was already starting to slow down – another $200 billion will probably push them right over the edge. China's problem is that their entire structure is built on unfair trade practices; long ago, they decided it was better to get more jobs for their people in exchange for paying higher prices for consumer products. That, and requiring foreign firms to hand over trade secrets to “local partners” in exchange for permission to sell their products in the Chinese market.

Can they abandon this policy? Probably not easily. And if they cave to Trump, the EU will demand the same thing. Clearly Xi was ready to give Trump a face-saving “headline” win earlier, in exchange for no real changes, but Trump wasn't satisfied with that outcome. He appears to want meaningful change in the US-China trade relationship.

Once again I think this policy is driven by some long-term strategic planners in the US military that are concerned that much of the US manufacturing base is on the territory of the other large power in the world, they continue to steal our technology, and peak oil is due to arrive in the near future. Trump is surrounded by current and former military; unlike the FBI and CIA, the services appear to be quietly supportive of the Trump presidency.

So, where are we?  The entire metals complex is once again heading lower, the buck might have just flipped back into an uptrend, and this time the miners have given us a shot across the bows: it may be time to run, not walk, from the entire complex. If China decides to respond in kind to Trump's tariff escalation, I expect the general commodity sell-off to escalate.

Yes, things could get worse.

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