PM Daily Market Commentary - 7/26/2018

davefairtex
By davefairtex on Fri, Jul 27, 2018 - 12:42am

Gold plunged -9.70 [-0.79%] to 1222.10 on very heavy volume, while silver dropped -0.24 [-1.50%] to 15.39 on moderate volume. The buck rallied strongly, up +0.44%; currency drove metals today, no question about it. And what drove the buck?

The rise in the buck was really all about the ECB meeting; the Euro fell heading into the meeting, and dropped further after the press conference where Chairman Draghi said he wasn't going to increase rates until Q3 2019, and that there were no changes to the asset purchase program. I guess the European economy is doing so well, there's no need to stop penalizing depositors. Or something like that. Looking at Draghi's policy actions, it sure sounds like Europe is still teetering on the brink of some calamity.

Gold tracked the Euro today, moving lower in Asia, and then dropping again following the ECB press conference, closing right at the lows of the day. The long black candle was mildly bearish, and forecaster dropped -0.22 to +0.10. That's still an uptrend, but one that is fading relatively rapidly. Today's plunge pulled gold back below the 9 MA. Gold really needs the Euro to stop dropping for it to have any chance of recovery.

COMEX GC open interest rose 3,349 contracts.

Rate rise chances (September 2018) remains at 88%.

Silver tracked the Euro also, moving steadily lower all day long. Silver's confirmed bearish NR7 print was bearish (43% bearish reversal), and silver forecaster dropped -0.15 to -0.00, which caused a sell signal for silver. The plunge took silver back below its 9 MA, which is now in a downtrend in all 3 timeframes.

COMEX SI open interest rose by 2,867 contracts today. The shorts just continue to build in silver.

The gold/silver ratio rose +0.16 to 79.38, which is bullish.

Miners fell, with GDX down -1.88% on very heavy volume, while GDXJ dropped -1.57% on heavy volume.  XAU did much worse than the ETFs, falling -2.94% and making a new low. XAU forecaster dropped -0.55 to -0.56. That's a strong downtrend. It is earnings season, and several miners have reported bad earnings and have sold off quite hard as a result. The miners are starting to look fairly unpleasant, pointing to lower prices for the group overall. On the chart, XAU appears ready to make a much larger breakdown – if it does this, the selling in the miners could get very intense. That would – probably – only happen if gold fell below 1210. XAU is in a downtrend in all 3 timeframes. Momentum suggests the breakdown is the more likely outcome.

The GDXJ:GDX ratio rose +0.31% while the GDX:$GOLD ratio fell -1.10%. That's bearish.

Platinum plunged -2.29%, palladium dropped -1.16%, while copper fell -2.04%. It was a terrible day for the other metals – worse for them on average than gold and silver. Platinum seemed particularly affected by the ECB meeting outcome.  It turns out that, when Draghi does nothing, he ends up causing a whole lot of fuss.

As mentioned, the buck rose +0.41 [+0.44%] to 94.40. The buck edged up prior to the meeting, and then really took off after the press conference, closing right near the highs of the day. The bullish engulfing candle was mildly bullish (36% bullish reversal) and DX forecaster jumped +0.55 to -0.00. The day's rally was enough to pull the buck back above both the 50 and 9 MA lines, which was a positive sign. Additionally, it also pulled the weekly forecaster back out of its sell signal...the dollar is right on the cusp of resuming the uptrend.

Crude rose +0.27 [+0.39%] to 69.54. Today was a relatively narrow trading range today; the short white candle was neutral. Forecaster jumped up +0.12 to +0.10, which puts crude back into an uptrend. Crude is in an uptrend in both daily and monthly timeframes.

SPX fell -8.63 [-0.30%] to 2837.44. All of the market's losses happened overnight in the futures markets, following the bad revenue guidance from FB (and the consequent 20% drop in the share price), however the market moved higher once it opened, printing a short white candle which was a bullish continuation. It appears as though the fallout from the FB earnings miss didn't carry over to the larger market. The forecaster fell just -0.03 to +0.61, which is still a strong uptrend. SPX remains in an uptrend in all 3 timeframes. Sector map shows energy (XLE:+1.09%) in the lead along with utilities (XLU:+1.07%), while tech brought up the rear (XLK:-1.54%). Sector map looked a bit bearish.

VIX fell -0.15 to 12.14.

TLT fell -0.19%, moving slowly lower. TY edged down too, dropping -0.03%, making a new low. The 10-year yield rose +3.9 bp to 2.98%. It appears as though bonds are preparing to break 3% once more.

JNK rose +0.06%; it is in a clear uptrend right now – even though the 10-year rates are rising, so are junk debt prices, which is a bit surprising, and definitely supporting the risk on situation.

CRB rose +0.17%, with 2 of 5 sectors moving higher, led by energy (+0.77%).

As more details are emerging about the US/EU trade talks, the news just gets more positive. It now turns out that the US and EU are going to work together to resolve issues they both have with China and its market abuses, while they sort out the details of a tariff and subsidy reduction program over the next four months. It will be interesting to see if truck tariffs (the US charges 25% - that's why trucks are so very profitable for US automakers) are included in the mix or not. That tariff protection might also explain why US automakers have decided to stop producing cars entirely.

https://uk.reuters.com/article/uk-usa-trade-trump-policy/trade-deal-with-eu-trade-greater-in-scope-than-expected-u-s-official-idUKKBN1KG31E

Meanwhile, the picture for gold and silver is not looking very good. I had hoped that a bounce in industrial metals would cause a reversal for the metals, but I'm not seeing that happening when I read the tea leaves. The miners look terrible – new lows just today – while the open interest in gold and silver just continues to climb. The shorts don't look worried, and they continue to pile in regardless of where the price moves. Instead of covering on the rallies, the shorts are doubling down.  That's all pretty bearish.

Ultimately, it may well just be about currency. If the dollar breaks higher...I think gold definitely loses 1210 support - the shorts will pile in even harder if the buck breaks out above 95 - and maybe even before. Right now, the US economy doing well.  Why buy flood insurance when the sun is shining so brightly?

Unless something changes, I think we - probably - lose 1210 support.

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