PM Daily Market Commentary - 1/3/2019

By davefairtex on Fri, Jan 4, 2019 - 5:44am

Today, gold shot up +9.80 [+0.76%] to 1299.84 on heavy volume, while silver jumped +0.21 [+1.38%] on very heavy volume. The buck fell -0.56%, SPX plunged -2.48%, the 10-year yield plunged -10.7 bp to 2.55%, a gigantic move. Bonds are just going nuts right now.

What's more, 35 minutes after the Asia open, the USD/JPY currency pair appeared to go virtually 'no-bid', plunging 3.4% over a 5 minute period. This didn't come out of the blue – the move came after the currency pair had fallen (or rather, JPY had risen) some 5% over the past three weeks, which is a very strong move. Another contributing factor could be that Japan has a national holiday right now – the Japanese stock market is closed this week – and perhaps there are fewer people on duty right now at the banks with the authority to take major risks. Lastly, the AAPL earnings warning release (and the resulting plunge in equity futures) came perhaps an hour before the plunge in USD/JPY.

We all have to have someone to blame for things these days. For this one, I blame Mrs. Watanabe, at the very least for setting up the situation.  That, plus "someone" got to run the stops of the shorts and make a whole lot of money just before the market opened in Tokyo.

What's more, the US market has thoroughly bought into the upcoming-recession story, so much so that the futures markets are now projecting a 10% chance of a rate cut coming in March, and a 44% chance of a rate cut by December 2019, and a 10% chance of TWO rate cuts. You can be forgiven for feeling a bit of rate-expectation-whiplash right now, the change is as large as I've seen over a very short period of time. This was probably helped by the Dallas Fed President, who suggested a pause in the rate-increase campaign, as well as opining that the Fed should be “very open” to “making adjustments in this balance sheet runoff if we need to.”


Gold made another new a new high to 1300.54 [front month was only 1296.90, but my code does calendar weighting which tries to eliminate contract roll jumps]. I like to talk about new highs since a new high today is a good sign that tomorrow will be up. There was steady buying of gold as the US equity market fell. The closing white marubozu was mildly bearish (34% reversal), but forecaster jumped higher, signaling a strengthening uptrend. Gold remains in an uptrend in all 3 timeframes.  Gold is right at round number 1300; I've had to go to a weekly chart to provide context.  Also, gold's RSI-7 is 85, which is overbought.

COMEX GC open interest rose +10,106 contracts. That's a fairly large increase in OI.

As mentioned – 10% chance of a rate cut for the March 2019 meeting, and 44% of a cut by the December 2019 meeting.

Silver moved steadily higher all day long, making a new high to 15.81, keeping almost all of those gains into the close. The long white candle was a bullish continuation, and forecaster moved higher too. Silver has moved into a very overbought condition, with RSI-7 = 87. Silver has risen 7 days in a row.  Silver remains in an uptrend in all 3 timeframes.

COMEX SI open interest rose +369 contracts. No shorting here at RSI 87.

The gold/silver ratio fell -0.53 to 82.11. That's bullish. Silver continues to surprise – at least it surprises me – during what appears to be a safe haven move.

Miners did quite well, with GDX up +2.04% on heavy volume, while GDXJ jumped +3.69% on very heavy volume. XAU rose +1.73%,making a new high, and finally breaking out above the previous high, confirming the long-forming double bottom pattern. Miners are not overbought, with RSI-7 at just 66. The long white candle is a bullish continuation, and forecaster moved higher into uptrend. XAU remains in an uptrend in all 3 timeframes. Miners finally seem to be moving higher.

The GDX:$GOLD ratio rose +1.27%, and the GDXJ:GDX ratio climbed +1.62%. That's bullish – just the pattern you want to see in a PM bull market move.

Platinum rose +0.34%, palladium climbed +0.64%, while copper plunged -1.30%. Copper made a new low, and generally looks pretty unhappy – falling along with equities – while palladium made a new all time closing high, and platinum appears to be trying to put in a low. Today was an all time low for the platinum/gold ratio.

The buck fell -0.54 [-0.56%] to 95.76. One day up strongly, the next day down. The bearish harami was neutral, while forecaster inched lower – remaining in a mild downtrend. The buck is back below the 9 and 50 MA lines. It is also in a downtrend in both the daily and monthly timeframes.

Contributions to the DX move included: JPY [-1.31%], EUR [-0.53%], and GBP [-0.45%].

Crude was all over the map today, but ended up +0.52 [+1.11%] to 47.18, managing to close above 47 for the first time in a couple of weeks. Crude appears as though it might be ready to break higher; while today's spinning top was neutral, forecaster moved higher into uptrend. Crude is in an uptrend in both the daily and monthly timeframes, and is quite close to a buy on the weekly – as well as a potential weekly swing low. The signs point to a breakout higher in the near term for crude.  Can it continue to rally in the face of bad news from the equity markets? That's the question.

SPX plunged -62.14 [-2.48%] to 2447.89, dropping back through the 2500 level as well as the 9 MA. The black marubozu candle was a bearish continuation, and daily forecaster plunged almost to the point of a sell signal – but not quite. Roughly half of today's move was attributable to AAPL's earnings warning given yesterday after market close. SPX remains in a downtrend in both the weekly and monthly timeframes.

Sector map had tech leading down (XLK:-3.13%) along with industrials (XLI:-3.04%), while REITs (XLRE:+0.46%) and utilities (XLU:-0.02%) did best. That's a bearish sector map for sure.

VIX rose +2.23 to 25.45.

TLT jumped +1.14%, which is another new high for TLT. TLT remains in a strong uptrend. TY did very well also, rising +0.55%, also making a new high. TY's long white candle was a bullish continuation, and forecaster remains in a very strong uptrend. TY remains in an uptrend in all 3 timeframes. As mentioned earlier, the 10-year yield fell a massive -10.7 bp to 2.55%. 10-year rates are very oversold; RSI-7 is 12. Rates have retraced back to early 2018.  You can see in the DGS10 (10-year rate) chart below just how enthusiastic the plunge has been, with 8 of the last 9 weeks being down.

JNK rose +0.03%. Say what? Yes, that's really what it did, I checked twice. HYB actually rose +0.66%. Junky debt is not confirming the rising worry from equities. Its hard to believe.  How can this be?

CRB rose +0.68%, with 3 of 5 sectors rising, led by energy (+1.23%). PM continues to be the strongest commodity sector by far.  Commodities also aren't selling off along with equities.

So what does this all mean?

Well the tech sector got whacked hard by AAPL's warning, and AAPL itself fell -9.98%, with almost all of that happening on the gap-down open. However, both oil and energy equities and junky debt are bucking the trend, and banks didn't do all that badly. Is today's equity market move just confined to APPL and friends? Maybe so.

The large bond market move would normally be a sign of panic.  But instead, I think it was – probably – about that Fed President's speech. Bond futures didn't move all that much overnight – they spiked higher on the AAPL news, and then lost it all by the open. The real move (and all the volume) came around and after 10 am. My guess: bonds moved because of the hints that the Fed might want to consider “adjusting” the balance sheet rolloff. There is a lot of demand right now for US treasury bonds, and if the Fed slowed the roll-off, demand for bonds would effectively increase, since the Fed would become yet another buyer. So today wasn't a bond market panicking over impending disaster, it was just traders front-running the Fed.  As they love to do.

I don't want to spoil the gold party, but given the overbought levels, round number 1300, and the lack of support from all the other items, we may be approaching a near-term top for the metals.  Maybe.  Something to watch anyway.  Given the elevated RSI levels, now is probably not the time to be buying PM as the result of some belated attack of FOMO.

Along with the move higher in crude, and the complete absence of panic in junky debt, my guess is that the equity market isn't ready to crack quite yet. Of course...that could all change tomorrow, where we have two important events which could change the picture dramatically:

  1. Nonfarm Payrolls. I'll be watching for the “working part time for economic reasons” entry. If that jumps higher, that's bad.  [One issue: do we get nonfarm payrolls during a government shutdown??]

  2. Fed chairman Powell will be giving a speech. Will Powell sound more dovish? We saw the bond market's response to the Dallas Fed President's trial balloon. Will Powell walk that hint back or will he reinforce it?

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1 Comment

Cold Rain's picture
Cold Rain
Status: Gold Member (Offline)
Joined: Jul 26 2016
Posts: 392
Friday Morning

TGIF Tank Gold, It's Friday.  What a wipeout.  Guess the real tell will be after Powell speaks.

I've heard a lot of talk about the Fed holding rates steady here.  And certainly the market isn't pricing in any rate hikes in 2019.  I don't quite get that.  If the Fed can hike during periods of 1-3% growth, why would they stop here?  The only material difference that I see is that we've had a little stock market "glitch" (as some call it).  Employment is still strong, and the economy looks at least in as decent a shape as it has been over the last couple of years.

We know the tax benefits are dwindling and that earnings comps aren't favorable.  But other than the period soft econ data that we see (and have seen over the past several years), I'm not seeing why there is this massive expectation of a pause.  They need to get their tool back and get rates higher.  I know the bond market is signaling trouble ahead, but that may not be as reliable as in the past, given the abnormal monetary policy over the last decade, which has created distortions and dislocations everywhere.

Anyway, good move by PMs recently.  Hate to see it all unwound in a day.  Hopefully, it turns around or at least stops the bleeding.

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