PM Weekly Market Commentary - 11/23/2018

davefairtex
By davefairtex on Sun, Nov 25, 2018 - 11:35am

On Friday, gold fell -2.82 [-0.23%] to 1229.39 on very heavy volume, while silver plunged -0.23 [-1.59%] to 14.26 on extremely heavy volume. The buck rose +0.24%, which accounts for gold's move, but not silver's much larger plunge. Palladium and copper both had bad days also, as did equities, junky debt.  And crude absolutely cratered, down -7.81%. It was a risk off day.

The weekly metals sector map is suggesting a possible bearish reversal in the metals, with palladium and platinum dropping back below the 9 MA. Gold led silver, seniors outperformed juniors – that's all fairly bearish. Gold (and gold/Euros) were the only two positive items. Last week's hopeful-tariff-rally is retracing, at least in part.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold/Euro $GOLD:$XEU 0.66% 0.15% rising rising rising rising ma200 on 2018-11-20 2018-11-23
Gold $GOLD 0.11% -5.02% rising rising falling rising ema9 on 2018-11-16 2018-11-23
Senior Miners GDX -0.10% -15.20% rising rising falling rising ema9 on 2018-11-15 2018-11-23
Platinum $PLAT -0.58% -10.77% falling rising falling rising ema9 on 2018-11-23 2018-11-23
Junior Miners GDXJ -0.87% -15.26% rising rising falling rising ma50 on 2018-11-23 2018-11-23
Silver $SILVER -0.90% -16.17% rising rising falling rising ma50 on 2018-11-23 2018-11-23
Copper $COPPER -1.36% -13.27% rising rising falling rising ema9 on 2018-11-15 2018-11-23
Silver Miners SIL -2.22% -26.28% rising falling falling rising ema9 on 2018-11-23 2018-11-23
Palladium $PALL -4.92% 10.83% rising rising rising rising ema9 on 2018-11-23 2018-11-23

Gold rose +1.75 [+0.14%] this week, essentially unchanged. The weekly doji candle was neutral, while the forecaster rose +0.13 to +0.02, which is a tentative buy signal. The monthly also edged into a buy signal this week, which puts gold in an uptrend in all 3 timeframes. Not by much, mind you, but there it is.

The December rate-increase chances rose to 74%.

COMEX GC open interest fell -18,503 contracts this week.

COT report was delayed due to the Thanksgiving holiday.

Silver fell -0.13 [-0.90%] on the week, with all of the losses coming on Friday's evil-looking bearish engulfing. Silver daily issued a sell signal on Tuesday, and at end of week, silver is in a downtrend in both daily and weekly timeframes.

The gold/silver ratio rose +0.95 to 85.61. That's bearish.

COMEX SI open interest fell -14,943 contracts this week. That's a big change – 7% of total OI, and/or the paper equivalent to 31 days of global silver production vanished. Someone is covering, I'm just not sure who it is.

COT report – delayed due to holiday.

Miners fell this week, with XAU dropping -1.23%. The damage happened on Friday.   XAU lost -2.87% and printed an evil-looking swing high (59% reversal). But even with that, XAU remains in an uptrend in both the daily and monthly timeframes. The monthly looks particularly hopeful – XAU has just chopped sideways for 3 months after its rough drop in August, and monthly forecaster seems to think that presages a move higher.  Certainly with an almost-4% drop in SPX, and a 6% drop in tech, the miners looked good by comparison.

GDX:$GOLD fell -0.25%, while the GDXJ:GDX ratio dropped -0.77%. That is somewhat bearish.

USD

The buck rose +0.46 [+0.48%] to 96.43. The buck rallied strongly on Monday and Friday, finally printing a daily buy signal at end of week. This leaves the buck in an uptrend in all 3 timeframes. Once more, the dollar has avoided any serious breakdown, and is back above all 3 moving averages.

The major moves included: Euro -1.50%, and AUD -1.36% (risk off).

On Sunday, the EU leaders formally agreed to the BRExit plan, and called upon the UK parliament to support May's redux of Neville Chamberlain's "Peace for our time" with Hitler at Munich.  Juncker said, “it was the best deal – and the only one possible.” In the pictures I saw, those EU leaders all looked pretty happy. I think there is a decent chance of a hard BRExit.  That could cause quite a strong market reaction.  GBP, in particular, could really take a hit.  The currency move will act as a shock-absorber, reducing the impact on normal people, but it will definitely cause a lot of fuss within the economy.

I wonder what Winston Churchill would do about BRExit, if he were still around.  Somehow I doubt he'd sign up for May's agreement.

US Equities/SPX

SPX plunged -103.71 [-3.79% to 2632.56. SPX fell 3 days out of 4, with the bulk of the losses coming on Monday and Tuesday. Friday's doji candle was not a reversal of any sort, neither was the weekly black marubozu. SPX ended the week in a downtrend in all 3 timeframes.

The sector map was a sea of mostly-red, with tech leading lower (-6.05%!!); somehow homebuilders did best. This was a bearish sector map. Our Friend Facebook is said to have a problem similar to “Big Tobacco”, while AAPL was off 11%. I wonder how the SNB feels about its AAPL holdings now.

Globally, the US was the second-worst performer this week, with Developed Asia doing best – where “best” actually means least-worst.

VIX rose +3.38 to 21.52.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Homebuilders XHB 0.94% -18.23% falling falling falling falling ema9 on 2018-11-21 2018-11-23
Gold Miners GDX -0.10% -15.20% rising rising falling rising ema9 on 2018-11-15 2018-11-23
REIT RWR -0.87% -1.89% falling falling rising falling ema9 on 2018-11-20 2018-11-23
Utilities XLU -1.40% -3.17% falling falling rising falling ema9 on 2018-11-21 2018-11-23
Cons Staples XLP -2.27% 0.04% falling falling rising falling ma50 on 2018-11-23 2018-11-23
Telecom XTL -2.54% -1.12% falling falling rising falling ema9 on 2018-11-12 2018-11-23
Healthcare XLV -2.61% 9.62% falling falling rising falling ema9 on 2018-11-19 2018-11-23
Financials XLF -2.95% -0.84% falling falling falling falling ema9 on 2018-11-12 2018-11-23
Industrials XLI -3.14% -2.35% falling falling falling falling ema9 on 2018-11-16 2018-11-23
Defense ITA -3.15% 4.01% falling falling rising falling ema9 on 2018-11-12 2018-11-23
Materials XLB -3.49% -9.40% falling falling falling falling ema9 on 2018-11-19 2018-11-23
Cons Discretionary XLY -4.09% 7.81% falling falling rising falling ema9 on 2018-11-12 2018-11-23
Energy XLE -4.87% -5.85% falling falling falling falling ema9 on 2018-11-12 2018-11-23
Technology XLK -6.05% -0.65% falling falling rising falling ema9 on 2018-11-12 2018-11-23

Gold in Other Currencies

[not available this week]

Rates & Commodities

TLT climbed +0.38%, a fairly lame move given the strong drop in equities. TY did even worse, rising +0.08%, mostly just chopping sideways. TY remains in an uptrend in the daily and weekly timeframes; the monthly is not yet convinced of the rebound. The 10-year yield fell -2.0 bp to 3.05%.

JNK fell -0.61%, making a new low on Friday. Junky debt continues to signal risk off. No doubt the strong move lower in crude didn't help matters any.

Crude fell for the 7th straight week, dropping -6.64 [-11.62%] to 50.50. This was the worst week yet; just when I think we might be slowing down, things sell off even more. Much of the damage happened on Friday, with oil prices closing almost at the lows for the day. Candles show no reversal yet; crude remains in a downtrend in all 3 timeframes. The EIA report wasn't great (crude: +4.9m, gasoline: -1.3m, distillates: -0.1m), but that happened on Wednesday, and the big moves were Monday and Friday. So what was proximate cause of the plunge? Well, take your pick: https://oilprice.com/Energy/Energy-General/Oil-Prices-Collapse-On-Supply-Surge.html

  • Permian production is projected to surge in 2019 due to the opening of new pipeline capacity; shale executives allegedly talk of a “flooding of Biblical proportions”. EIA projects US total liquids could hit 17.4 mbpd by end of 2019.

  • Saudi production hit 11 mbpd.

  • China's gasoline exports dropped to a 13-month low, suggesting an emerging glut in Asia.

I've never seen a move this bad in crude. I can't tell if this article is Goldman Sachs-style manipulation, or it is the real deal, and we're going to see crude back in the low 20s in 2019. If the latter, a lot of oil-related companies are going bankrupt – they have yet to recover from the 2014 smash.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +3.24 tons, with 762 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.83 -1.41% to NAV [decrease]
 PSLV 5.10 -4.74% to NAV [decrease]
 CEF 11.75 -4.39% to NAV [decrease]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a $5 discount for gold and a 8c premium for silver.

* Big bars premiums were: gold [1kg] 0.87% and silver [1000oz] is still sold out, while 100 oz bars have a premium of 5.04%.

Grey Swans & Geopolitics

  • Ebola: total cases 386, with 219 deaths. There were 36 new cases, with 5 of the new cases being healthcare workers. 39 healthcare workers have been infected to date. Things appear to be getting slowly worse; the 36 new cases is nearing a high. http://www.who.int/csr/don/22-november-2018-ebola-drc/en/

  • Turkey: the 10-year yield rose +25 bp this week to 16.26; the 16 level appears to be “support”. The TRY/USD pair fell slightly to 5.29. For now at least, Turkey appears to have stabilized.

  • Germany, Migration: Merkel wants to support a UN-backed agreement on migration, which has already been rejected by the “populist governments” of US, Australia, and Poland, among others. This is during “good times.” I suspect support for such agreements will turn down significantly when we tip over into a global recession.

  • Italy – Budget: Italy continues to state that it won't alter its budget. EU continues to talk about fines. No change this week.

  • China Tariffs: Trump meets Xi at the G-20 next week. After a “difficult” APEC conference where no communique was issued due to a struggle over wording (involving China and the US, naturally), there appears to be a lot of positioning in advance of the conference on both sides, as well as hints that there is some enthusiasm for a deal. One interesting tea leaf: Peter Navarro, a “China Hawk”, is being excluded from the Trump-Xi dinner (invite list: Trump, Xi, with 6 advisors on each side). Economic advisor Kudlow said there were “very detailed communications” between China and the US at all levels of government.  https://www.scmp.com/economy/china-economy/article/2174333/white-house-trade-adviser-peter-navarro-excluded-xi-jinping

  • Yield Curve Inversion: the 1-10 spread fell -2.4 bp to 37.6 bp. Spread continues to narrow.

  • US Congressional Elections, 2018: two weeks later, my conclusion aligns with a WAPO opinion piece: Democrats won the House, but Trump won the election. No grey swan. https://www.washingtonpost.com/blogs/post-partisan/wp/2018/11/07/democrats-won-the-house-but-trump-won-the-election

  • North Korea: No progress. My guess is, there will be no progress until China and the US come to a deal on trade.

  • Mueller Investigation: Trump's lawyers answered a batch of questions from Mueller's team, and Roger Stone (a Trump associate) said he was in plea negotiations with Mueller's office. I wonder what horrible thing they tripped him up on. Did he “lie to the FBI”? Perhaps he engaged in “bank fraud” by lying on a loan application. Or maybe he didn't file an FBAR.  I just wish they'd fired Mueller at the banksters after the 2008 bubble pop.  That would be something I could really get behind.

Summary

After last week's rally, most of the metals reversed direction yet again this week, with palladium suffering the most.  Gold managed to eek out a gain, which speaks well for the support for the yellow metal.  Equities made a new closing low, as did junk debt, while the move higher in treasurys looked feeble – especially given the strong move lower in equities. Most of all, crude was absolutely crushed on the supposedly-light-trading-day after Thanksgiving.  Crude better not fall any more dramatically next week – I'm competely out of transitive verbs.

Big bar gold premiums on gold remain low, silver's premium has increased, while ETF discounts decreased. There is no shortage of gold at these prices, but there does seem to be a shortage of silver, for certain products.

The COT report was delayed for a day due to the Thanksgiving holiday in the US.

I'm reasonably optimistic we will see some sort of agreement with China and the US on trade.  Certainly the willingness does seem to be there to do a deal: Trump won the elections, China gets no advantage from stringing this out further, they know he isn't kidding about the 25% tariffs, and the election shows that his base supports his activities.  Betting against him in 2020 is probably a bad idea.  Trump not bringing Navarro to the dinner sends a strong signal that a deal is entirely possible.  Will China give up on their IP theft and forced partnerships?  What will half a loaf look like?  Only half your IP gets stolen?   It also helps that Europe actually agrees with the US on most of the issues.  China wants to pretend it is still a "developing" nation for trade, so they can get these special carveouts, while in every other respect they want to be treated just like the superpower they actually are.  Who doesn't want to have your cake and eat it too?

We should know more after next weekend.  If a deal gets reached, the rally could be very strong, especially in the commodity space.  Probably equities too.  I wouldn't be short going into next weekend.

Oh yeah.  Bitcoin plunged -31.6% over the last 7 days, to 3788, and ETH is down -38% to 107 (and 93% down from the high).  Ouch.  I got my fingers burned a bit when my code suggested a reversal might be happening at ETH 130 - but fortunately it reversed itself within a day and got me out with only slightly singed fingers.  Stories abound of miners discarding equipment.  Looks like the $6000 cost-of-mining wasn't a real support level after all.  People want to sell, they sell, regardless of what it costs to mine bitcoin.

Bitcoin sure appears to be a risk asset at this point.

Weekly trends (in order of strength):

Uptrend: 10-year Treasury, USD, gold, platinum.

Downtrend: crude, SPX, bitcoin, copper, DJIA, miners, silver, BAA corporates, gold/Euros.

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