PM Daily Market Commentary - 1/31/2019

By davefairtex on Fri, Feb 1, 2019 - 5:07am

Gold rose +0.83 [+0.06%] to 1325.93 on moderately heavy volume, while silver fell -0.01 [-0.09%] to 16.07 on extremely heavy volume. Bonds did relatively well (TLT:+0.86%) as did equities (SPX:+0.86%), while the buck moved higher (DX:+0.28%).

Gold made a new high to 1331.10, but was not able to hold onto the gains, falling back to near-even by end of day. The northern doji was quite bearish (a 41% reversal – the most bearish rating a northern doji can have), while forecaster declined, suggesting the the uptrend may be slowing. Gold's RSI-7 = 80, which is overbought, and volume is dropping. Gold remains in an uptrend in all 3 timeframes, but I suspect everyone who wanted to buy the “dovish Fed” news has already done so. We may be in for a retracement in the near future.

COMEX GC open interest rose 7,326 contracts.

Futures are showing a 1% chance of an cut in March, and a split in December (1% increase, 21% decrease). The chances of a rate cut continue to increase.

Silver tried rallying, managing to hit a new high of 16.20 at around 10:30 am, but then lost it all relatively soon afterwards. The spinning top candle was a bullish continuation, but forecaster moved lower, suggesting the uptrend might be slowing down. Silver's RSI-7 is 78, only slightly less overbought than gold. Silver remains in an uptrend in all 3 timeframes.

COMEX SI open interest rose +4,256 contracts. That's 9 days of global production in new paper. That's probably more shorts piling on.

The gold/silver ratio rose +0.10 to 82.20. That's mildly bearish.

Miners gapped up at the open, and rallied for most of the day, closing near the highs. GX moved up +2.30% on very heavy volume, while GDXJ climbed +2.11% on moderate volume. XAU was up +2.37%, the whilte marubozu candle a bullish continuation, while forecaster climbed into an even stronger uptrend. The selling pressure that was present in gold was completely missing in the mining shares – there was even a slight pop at end of day, and in the aftermarket as well. XAU is in an uptrend in all 3 timeframes.

The GDX:$GOLD ratio rose +2.24%, while the GDXJ:GDX ratio fell -0.19%. That's quite bullish.

Platinum rose +0.59%, palladium fell -1.11%, while copper rallied +0.40%. That's a mixed day for the other metals. Copper has recovered fairly strongly off its December lows, and may be looking at a breakout in the near future.

The buck rose +0.27 [+0.28%] to 95.02. The buck moved mostly sideways until about 10:30 am, when it took off higher – roughly the same time silver sold off. The bullish harami was neutral, while forecaster moved up somewhat, but remains in a downtrend. Harami candles aren't particularly strong, and this one is no exception. The buck remains in a downtrend in all 3 timeframes.

Crude fell -0.17 [-0.31%] to 54.27. Crude rallied to a new high of 55.37, then sold off, losing its gains and a bit more. The high wave candle was a bullish continuation, but forecaster moved down slightly – remaining in a fairly strong uptrend. Crude remains in an uptrend in all 3 timeframes.

SPX rose +23.05 [+0.86%] to 2704.10. Almost all of the gains happened during the trading day, vs the usual move overnight in the futures markets. The long white candle was a bullish continuation, and forecaster moved higher, pushing SPX into a moderately strong uptrend. SPX is inching its way back to the 200 MA; it would be a reasonably big deal if it closed above, and an even bigger deal if it managed to rise above the previous high right around 2800. SPX remains in an uptrend in both the daily and weekly timeframes.

Communication led (XLC:+4.08%) along with utilities (XLU:+2.11%), while materials (XLB:-1.50%) did worst. That's a pretty confusing sector map. FB was the cause for the XLC rally: it jumped +10.82% on a record $6.9 billion profit. Thats – what - $12 per user per year? On 2.3 billion users. (2.3 billion users x 6.9 x 4).

VIX fell -1.09 to 16.57.

TLT rose +0.86%, gapping up at the open and rising for much of the day. This is a new high for TLT, which remains in an uptrend, albeit a mild one. TLT is approaching the previous high set back in December. TY rose +0.29%, a strong move for the 10-year, making a new high, with the long white candle a bullish continuation, and forecaster moving into a stronger uptrend. TY is in an uptrend in both the daily and monthly timeframes. The 10-year yield fell -6.0 bp to 2.764%.  TY may be heading for a breakout above the previous high set in December.  This - right alongside an equity market rally?  Very curious.

JNK rallied +0.26%, a nice move for JNK, making a new high. Cousin HYB looks even stronger, and is now in a strong uptrend.

CRB fell -0.26%. with 3 of 5 sectors falling, led by livestock (-1.81%). PM continues to be the strongest sector, followed by industrial metals.

So a number of sectors saw inflows today; from treasury bonds, junky debt, equities, and the USD. Crude, gold, and silver didn't do so well, but the miners were quite strong.

Its a bit odd when risk assets rise alongside treasury bonds – the only thing I can think of is that the treasury market is expecting the Fed to stop QT at some point in the near future. Maybe there really was something for everyone in Powell's press conference.

Remember, however, all this new-found Fed dovishness was driven by all those pesky cross-currents, which at some point will presumably become chickens that come home to roost. Meaning, can “risk on” survive an actual global recession? One would think not: what happens in the rest of the world will almost certainly have a strong impact on the US.

Meantime, those miners sure are doing surprisingly well: up 7.2% just this week alone, and we aren't even finished with the week! Mining shares are a small sector, and so it doesn't take much of an inflow to make them jump higher.

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davefairtex's picture
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Posts: 5792
nonfarm payrolls +304k; AHE +0.1% m/m

Guess who forgot to mention Nonfarm Payrolls?

Headline +304k, increased participation rate +0.1%, average hourly earnings +0.1% m/m.

Chris had a comment elsewhere that talked about how payrolls tax withholdings are declining.  How does that align with rising employment?  It really kinda doesn't.

But the ISM MFG number came out today, and it was also fairly strong: at 56.6, it was at the top end of the concensus.  This doesn't look like contraction at all.

Construction spending was up too, +0.8% m/m.  That too doesn't look like contraction.

So the cross-currents, while present elsewhere (Italy has dropped into recession, for example), have not made it yet to America.

Of course, we have yet to see what effect the government shutdown will have on the numbers.

cmartenson's picture
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To pull one Employment Report oddity out
davefairtex wrote:

Construction spending was up too, +0.8% m/m.  That too doesn't look like contraction.

Let's look at just this one piece real quick.

Unfortunately the FRED data is lagged by a couple of months, but I think we can spot the disconnect easily enough just the same.

Construction is one of those areas where spending and hiring/employment are pretty well tied at the hip.  For good reason too; it's pretty much a pure-play labor game.  You want something built, that takes bodies.

Here's the hiring data inclusive of today's massive construction hiring:

Construction employment rose by 52,000 in January.

Job gains occurred among specialty trade contractors, with increases in both the nonresidential (+19,000) and residential (+15,000) components. Employment also rose in heavy and civil engineering construction (+10,000) and residential building (+9,000).

Construction has added 338,000 jobs over the past 12 months.

For those keeping score at home (338)/(7,126) is a hefty 4.7% gain over the past twelve months.

Here's the other side of that story (only inclusive through November, unfortunately): 

Notice anything odd?  Where employment has gone straight line upwards, construction spending has been trending down since May 2018.

Apples to apples, (Nov-17 to Nov-18) construction employment is up 4.6% while spending is up 1.8%.

That's a huuuuuuge gap.

How is it that employment is adding more and more workers each and every month but spending is wobbling about and mostly down for the past eight months?

How do we square up the housing start data (down) with more construction workers in residential?  It's all very odd.

I confess to having lost all faith in any of these numbers, on both the employment and spending side, so I really don't know what to believe anymore.

Michael_Rudmin's picture
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shifting center of gravity

Chris, as somone who is in the construction industry, I will say that it has often been pointed out that the northern climes, which are machine-intensive, have a very different construction style from the southern climes, which are labor intensive. So IIFFF construction spending increased greatly in the south, and even declined in the north (not that unusual for winter) you might well see spending grow only slightly, while labor grew greatly.

Not saying that's what is, only that it isn't impossible or even highly improbable.

Your real problem is that you are greatly deficient in trust right now.

bronsuchecki's picture
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The BLS employment "cartoon"
cmartenson wrote:

I confess to having lost all faith in any of these numbers, on both the employment and spending side, so I really don't know what to believe anymore.

Within this article are two detailed examples of how the BLS figures can't be trusted:

  1. The "the March 9th wage growth number ... is based on a statistically spurious result"
  2. "this systematic error was clearly visible and known to the BLS, which is staffed with very smart people, and they could have fixed it if they had wanted to"
davefairtex's picture
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Posts: 5792
here's the SSI data

So I ran off to the SS admin to get the OASI income data straight from the horse's mouth, so to speak.  Here's what it looks like.  I had to shove it through a 12 point moving average to get something that looks reasonable.  I plotted it against PAYEMS (in red).  Note that the 12-point moving avg will introduce a lag.

Here's the same data - this time without any MA.  The income data is very seasonal; June is the highest month, with Dec next, then April, with November the lowest.  Just eyeballing things, it appears that 2 lines continue moving higher, one is flat, and the top one took a steep drop in 2018.  Roughly speaking, this series tends to lag, rather than lead.

Raw data available here:

Select OASI/Month/All Years and then hit GO.

cmartenson's picture
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Posts: 6062
Thanks Bron

...that's a really excellent analysis and description.  I usually never miss and Epsilon Theory letter, but I missed that one.

The summary being, the BLS is in the narrative manufacturing business and they do a great job of it, enabled of course by a media machine that acts as if the wages growth numbers were spectacularly important each and every cycle when, in fact, they are statistical garbage for the most part.

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