PM Daily Market Commentary - 2/6/2019

davefairtex
By davefairtex on Thu, Feb 7, 2019 - 2:48am

Gold fell -8.70 [-0.66%] to 1311.38 on light volume, while silver fell -0.19 [-1.17%] to 15.67 on heavy volume. The buck climbed +0.35% - the rising dollar appeared to help push the metals over the cliff, at least to some degree anyway.

Gold moved slowly lower for much of the day, falling off a bit of a cliff in the afternoon in New York. It appeared that the rising buck helped pull gold prices lower today. The confirmed bearish NR7 was indeed bearish, and forecaster dropped into a mild decline. Gold is now through its 9 MA. Gold remains in an uptrend in both the weekly and monthly timeframes.

COMEX GC open interest rose 2,145 contracts on today's decline. That's not so good; looks like the shorts are piling in as price falls.

Futures are showing a 1% chance of an increase in March, and a split in December (6% increase, 11% cut).

Silver sold off in Asia, tried rallying before the US market opened, but the rally failed, and silver plunged for much of the rest of the day. Silver also issued a confirmed bearish NR7, which like gold was bearish, and forecaster issued a sell signal for silver too. Silver also is through its 9 MA. Volume is starting to pick up on today's decline; that's bad news. The weekly forecaster also issued a sell signal today – that puts silver in a downtrend in both daily and weekly timeframes. It looks like we may get that buying opportunity in silver after all. Critical support for the uptrend is down around the 200 MA, at roughly 15.67.

COMEX GC open interest rose 1,175 contracts. As with gold, it looks like the shorts may be piling in as price declines.

The gold/silver ratio rose +0.40 to 83.32. That's bearish.

Miners rallied in the morning, making a new high, but then sold off hard in the afternoon along with the metals, dropping all the way through to the close, and closing right at the lows. GDX fell -1.72% on heavy volume, while GDXJ dropped -2.23% on extremely heavy volume. XAU fell -1.24% - not as bad as either ETF – but the high wave/shooting star candle was somewhat bearish (36% reversal), and daily forecaster dropped substantially, but remains in an uptrend. XAU is in an uptrend in all 3 timeframes, and it remains above the 9 MA. The mining shares continue to be the best performer in the group, at least looking at the chart, but today's high volume sell-off in the afternoon is definitely of some concern.  A break through the 9 could lead to a fair amount of selling.

The GDX:$GOLD ratio fell -1.07%, while the GDXJ:GDX ratio dropped -0.51%. That's bearish.

Platinum plunged -1.57%, palladium dropped -0.30%, while copper rose +0.23%. Copper had a failed rally today, but its shooting star candle wasn't actually a reversal. Copper managed to close above its 200 MA too, which is a positive sign. It sure looks like copper is just about to break above its 5-month trading zone. That feels to me like happy news from China.

The buck climbed +0.33 [+0.35%] to 95.83, moving strongly higher, ending the day right under the 200 MA. The white marubozu candle was a bullish continuation, while forecaster moved higher into uptrend, which now looks quite strong. Today's move was enough to cause the monthly forecaster to issue a buy signal, which puts the buck in an uptrend in all 3 timeframes.  Wow, what a change from last week.  The end of the shutdown, a "mostly-unity" speech by Trump for the SOTU address, and so-far still positive noises out of the US-China trade negotiations, while across the pond there is disarray in the UK and concern on the continent due to impending BRExit.

Large currency moves were AUD [-1.46%], and to a much lesser degree, EUR [-0.28%]. Why did AUD crater? Looking around at the FX news, I see a reference to a speech by an RBA governor yesterday, who suggested rates might have to go lower (currently 1.5%, an all-time low) if unemployment were to rise while inflation remained low. Falling rates are generally bad for the currency; for instance, if you threaten to drop the rates you are paying Mrs Watanabe to borrow her family's savings, she will bring her money back home to Japan, and your currency will plunge.

Crude rose +0.24 [+0.44%] to 54.35. Crude made a new low to 52.86 prior to the EIA report, but rallied hard when the report was issued. Report looked relatively neutral (crude: +1.3m, gasoline: +0.5m, distillates: -2.3m) but the market seemed to really approve, jumping more than a buck after the report was published. Still, the high wave candle was neutral, and forecaster inched higher but remained in a downtrend. Crude ended the day slightly above its 9 MA. Crude remains in an uptrend in both the weekly and monthly timeframes.

SPX fell -6.09 [-0.22%] to 2731.61. Mostly SPX chopped sideways today, trading in a relatively narrow trading range. The short black/NR7 candle was unrated, while forecaster edged lower but remains in a strong uptrend. SPX remains in an uptrend in all 3 timeframes, and just below its 200 MA.  To my eye it looks as though momentum is fading a bit as SPX confronts that 200 MA.

Sector map shows sickcare leading (XLV:+0.41%) along with tech (XLK:+0.23%) while communications (XLC:-1.05%) and REITs (XLRE:-0.27%) did worst. That's a neutral sector map.

VIX fell -0.19 to 15.38. That's a new 4-month low in the VIX.

TLT rose +0.05%; the long bond continues to chop sideways. TY also rose +0.05%; this was enough to trigger a buy signal on the weekly chart. TY is now in an uptrend in both the weekly and monthly timeframes. The 10-year yield was unchanged at 2.70%.

JNK climbed +0.03%, inching higher once more. JNK remains in a mild uptrend, continuing to support the current risk-on mood.

CRB rose +0.34%, with 2 of 5 sectors moving higher, led by energy (+0.87%). Commodities are chopping sideways with a slight upward bias – above the 50, but below the 200, which tells us that they are recovering somewhat, but remain in a longer term downtrend.

So what happened to gold today? It looked to me as though the shorts were finally able to push price through the 1315 support, and once that happened, price moved down fairly quickly.  I'd say that a chunk of today's move was due to the dollar rallying for 4 of the past 5 days, and that finally took its toll.  Certainly the rallying buck has most likely reduced the enthusiasm of managed money to buy the dips in gold, and so today's decline is the result of that change in sentiment.

So far, at least, the miners remain in fairly good shape, but I'm not sure that continues if gold keeps moving lower. And now gold appears to be tied to the buck; the Euro is sliding, as is GBP due to BRExit uncertainty.

If a real BRExit actually happens, I'd expect the buck to rally some more. That deadline is March 29th.  If May gets her Unconditional Surrender document passed, then that will result in a rally in both the EUR and GBP, and the buck will start falling once more.

Gold now appears to be entering a correction.

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6 Comments

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 179
GBP vs USD

Dave,

I'd be interested in your opinion on GBP vs USD, so I figured I'd post here.

I've been living in the UK for the past 2 years and earning and saving GBP. I'm trying to decide whether to exchange my GBP for USD. 

I know that currency trends are hard to predict and that GBP is already low vs USD, but I'm afraid it will go lower in the case of a disorderly Brexit. Of course, it could go higher if Brexit is resolved sucessfully. 

I'm more likely to need USD in the future than GBP as I'm likely to move back to the States. So do I convert to USD now or take the chance that GBP will improve?

Any insights would be appreciated.

E.

phusg's picture
phusg
Status: Bronze Member (Offline)
Joined: Jul 16 2014
Posts: 61
risk v reward

If you're more likely to need USD in the future, then waiting with converting is a bet on Brexit resolving succesfully for UK business. Personally that's too unpredictable for me.

If you want to expose yourself to risk for reward then maybe there are more predictable ways for you to do this?

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 179
Risk reduction

phusg,

thanks for the insight. 

By converting to the currency I'm going to need in the future (USD) I'll be reducing an element of unwanted risk. Otherwise I'm just trying to play the currency markets. 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5792
GBP

While I really don't follow GBP that closely, I did create a chart for it a while back.  It looks as though the major trend remains down, with the current up-move - possibly - a reaction rally that was similar to the one we saw back in 2016.

Having said that, I ran my candle code on the January swing low - it was really positive, an 82% reversal move.  That's good for 6 months, supposedly.

Maybe...if it violates the low from December 2018 then bail out?  Otherwise hang on and see how the BRExit thing turns out.  The problem with that strategy is, the violation of Dec 2018 could well be a large, sudden move, similar to the BRExit move back in 2016. 

And BRExit concerns are just a part of the picture.  There is also the (likely, impending) global recession that I suspect will be upon us by mid-year, if not before.  When that strikes for real, money will probably move briskly into USD.  So independent of BRExit, I'd pick USD over either GBP or EUR at this moment in time.  Plus those T-bills yield 2.4%.  Better than a poke in the eye with a sharp stick.

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 179
GBP

Dave,

Thanks for the analysis. How much is the consultancy fee?!

Think I'll convert to greenbacks. (Only 0.4% conversion cost with TransferWise.)

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5792
fee??

My goodness, this was not financial advice.  So no fee. :)

After noticing the "working part time/economic reasons" jump last month from the payrolls report, I'm even more convinced that USD will be the place to be for the next little bit of time.

Unless and until those proponents of MMT get hold of the levers...my goodness again!

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