PM Daily Market Commentary - 7/12/2018

davefairtex
By davefairtex on Fri, Jul 13, 2018 - 3:23am

Gold rose +5.80 [+0.47%] to 1247.70 on moderate volume, and silver climbed +0.15 [+0.95%] to 15.97 on moderate volume also.  The buck crept up +0.07% - it was not a factor today.  The other metals bounced too, with all-important copper up +0.91%.  Dead cat bounce or sign of a recovery?  That's the question, isn't it?

Gold moved higher in fits and starts today; it was a relatively narrow trading range, but gold did close relatively close to the highs.  The bullish harami was not bullish - it was a bearish continuation pattern instead.  Forecaster rebounded +0.17 to -0.27; that's not enough for a reversal. Gold remains below its 9 MA, and is in a downtrend in all 3 timeframes. Today's rebound, while an improvement, didn't mark a low.

COMEX GC open interest rose 8,082 contracts. Looks like traders are continuing to short gold.

Rate rise chances (September 2018) remains at 85%.

Silver rallied more strongly than gold, even moving briefly back up above 16 for a time, eventually erasing more than half of yesterday's loss.  Candle print was a bullish harami, which had a 44% chance of being a bullish reversal pattern.  That looks better than what we saw for gold.  Forecaster wasn't impressed though, falling -0.11 to -0.40.  Silver remains below its 9 MA, and is also in a downtrend in all 3 timeframes.

COMEX SI open interest rose by 748 contracts today. It seems that today's rally wasn't a short-covering rally.

The gold/silver ratio fell -0.37 to 78.10, which is bullish.

Miners moved higher today, with GDX up +0.64% on moderate volume, and GDXJ rose +0.43% on light volume. The mining shares gapped up at the open, rallied for the first few hours, and then sold off for the rest of the day. XAU forecaster fell -0.25 to -0.38. Any “buy the dip” sentiment lasted for just the first two hours of the day – then traders proceeded to sell the rally. I take this as a bearish sign.

The GDXJ:GDX ratio fell, while the GDX:$GOLD ratio moved higher. That's neutral.

Platinum rose +1.69%, palladium climbed +1.23%, while copper rose +0.91%. None of the 3 metals had a bullish candle pattern; only the palladium forecaster issued a buy signal. We still need to do some more work before the other metals put in a low.

The buck moved up +0.07 [+0.07%], inching up after yesterday's big rally. Trading range was quite narrow; the short white candle was a bullish continuation, and DX forecaster moved up +0.17 to +0.34. DX is in an uptrend in all 3 timeframes.

Crude fell -0.10 [-0.14%] to 69.75. Crude moved slowly higher until just before the US market opened, selling off fairly briskly around 8:45 am.  It made a new low to 69.23, but then managed to come back for the most part by the close. Still, the high wave candle print was a bearish continuation, and the new paint-not-yet-dry forecaster for crude rose +0.12 to -0.24, which is still a downtrend.

SPX rose +24.27 [+0.87%] to 2798.29, closing just below round number 2800. Prices rose in the futures markets overnight, and then continued to rise once the US market opened, closing at the highs for the day.   That tells us the candle print was a white marubozu, which was a (50%) bullish reversal off yesterday's mild swing high. Forecaster ticked down -0.01 to +0.41, which is a moderately strong uptrend. Today's move took SPX to a new closing high that dates back to March 2018. Sector map shows tech leading (XLK:+1.58%) along with industrials (XLI:+1.17%), with staples bringing up thre rear (XLP:-0.13%). This is a mostly-bullish pattern. XLK broke out to a new all time high. If you are short XLK, good discipline suggests closing out your position on breakouts like this, because there is no overhead resistance (selling pressure) once such a breakout occurs. Further underscoring the danger of being short right now, SPX is in an uptrend in all 3 timeframes.

And if there is any sort of breakthrough in the China/tariff situation, I would expect risk assets to scream higher.  Just looking at my charts, the bias appears to be fairly strongly bullish right now - all except for the banks, which continue to look ugly.

The SSEC rallied +2.16% also.

VIX fell -1.05 to 12.58.

TLT inched down -0.01%, which is basically no change. TY did slightly better, up +0.03%. The 10-year yield fell -1.1 bp to 2.85%. That's a fairly good performance on a day when equities rallied so strongly.

JNK rallied +0.28%, jumping to a new high and printing a bullish (58%) confirmed NR7. No more swing high. While today JNK confirms the risk on mood in equities, the overall JNK chart sure doesn't look as good – JNK remains mired in a pattern of lower highs and lower lows, in spite of today's rally. I would not be a buyer of JNK – the longer-term chart looks terrible.

CRB rose +0.61%, recovering a small amount of yesterday's plunge. All 5 sectors moved higher, led by agriculture (+1.45%). It was a modest bounce following a large decline. Does it mean anything?  I'm not sure.

So what caused the strong bounce in the US equity market? And the bounce in commodities? And the rally in the SSEC? Here's a possibility:

https://www.bloomberg.com/news/articles/2018-07-12/china-plays-for-time-in-trade-war-with-subtle-shift-in-rhetoric

Commerce Ministry spokesman Gao Feng said the government will take “necessary” steps to hit back, but when pressed he stopped short of repeating a previous pledge to respond with “quantitative” and “qualitative” measures and didn’t outline specifics about which measures China would retaliate with.

On Wednesday, China’s Vice Minister of Commerce Wang Shouwen said “when we have a trade problem, we should talk about it.” While that came amid fresh threats of retaliation from Beijing, it matches some willingness from the Trump team to resume talks at a high level, according to a person familiar with the administration’s thinking.

If the Chinese come back to the table, we can expect the markets to scream higher, led by copper. Until then, it will be a news-driven market, with prices tossed hither and yon by hints dropped by each side along with the inevitable tea-leaf reading.

One interesting impact already from the whole spat: Elon Musk has announced a deal with the Chinese government in Shanghai to open a factory there that would - maybe, possibly, 5 years from now - produce 500,000 cars per year.  The interesting part?  Under new rules implemented as a direct result of Trump's trade negotiations, no joint venture partner is required.  Tesla would be one of the first companies to benefit from this rule change.  https://techcrunch.com/2018/07/10/tesla-reaches-deal-to-build-electric-vehicle-factory-in-china/

In related news, Trump went to a NATO meeting, informed our allies that they'd better start ponying up more money for defense, and then complained that Germany was doing business with Russia while at the same time asking the US to protect them – from Russia. Art of the Deal suggests he's not interested in increased defense spending. He wants something else. Perhaps it has to do with trade?  https://www.theguardian.com/us-news/2018/jul/11/nato-summit-donald-trump-says-germany-is-captive-of-russians

I get the distinct sense that Trump is enjoying himself.  And the media still has no real clue what he's up to.  Possibly that's because they are still too blinded by their anger at Trump's electoral victory?   Wolf Richter thinks it is because Corporate America's propaganda arm has control over them: https://wolfstreet.com/2018/07/12/stock-markets-see-the-us-winning-the-trade-war-defying-corporate-lobby-media-propaganda/

Regarding the China/tariff situation, we might be able to get some hints out of what might happen next by watching prices. Insiders get clues well before they hit the media, and armed with this information, they run off and buy stuff that they know will rally. Their bankers notice their behavior, and they buy alongside them. This moves markets. If we see this happen in the absence of any real information...it could be a tell.

Tune in tomorrow for the next installment.  Right now, there is never a dull moment.

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