PM Weekly Market Commentary - 2/8/2019

davefairtex
By davefairtex on Sun, Feb 10, 2019 - 9:01am

On Friday, gold rose +4.51 [+0.34%] to 1319.32 on moderately light volume, while silver climbed +0.09 [+0.57%] to 15.82 on very heavy volume. Bonds rallied [TLT +0.43%], while equities were largely unchanged [+0.07%], as was the buck [+0.12%].  Not all that much happened on Friday.

The major, market-driving news this week (at least in the US) had to do with hints that the US-China trade negotiations were perhaps not going quite as well as expected. Both Trump and his advisor Kudlow said as much on Thursday; this caused risk assets to sell off, and resulted in a reversal of gold's nascent downtrend.

In spite of the late-week rally in PM, we saw a turn lower in the metals sector map. Junior miners are leading the seniors lower, and silver is leading gold lower. Palladium and copper are both doing well. The bearish move for PM has taken both miner ETFs as well as silver below the 9 MA.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 4.71% 44.02% rising rising rising rising ema9 on 2019-02-01 2019-02-08
Copper $COPPER 1.55% -8.46% rising rising falling rising ma200 on 2019-02-08 2019-02-08
Gold/Euro $GOLD:$XEU 0.88% 7.80% rising rising rising rising ema9 on 2019-02-07 2019-02-08
Silver Miners SIL -0.15% -8.58% rising rising falling rising ema9 on 2019-02-08 2019-02-08
Gold $GOLD -0.23% -0.18% rising rising falling rising ema9 on 2019-02-08 2019-02-08
Silver $SILVER -0.53% -3.33% rising rising falling rising ema9 on 2019-02-06 2019-02-08
Senior Miners GDX -1.02% 3.04% rising rising falling rising ema9 on 2019-02-07 2019-02-08
Junior Miners GDXJ -1.55% 3.19% rising rising falling rising ema9 on 2019-02-06 2019-02-08
Platinum $PLAT -2.81% -17.76% falling falling falling falling ma50 on 2019-02-07 2019-02-08

Gold fell -3.03 [-0.23%], selling off for the first part of the week, then recovering on Thursday and Friday. On Friday, gold printed a reasonably bullish-looking swing low (50% reversal) pattern on the daily chart, and daily forecaster issued a buy signal. Gold ended the week in an uptrend in all 3 timeframes.

The March 2019 rate-cut chance is at 1%, while the Dec 2019 rate-cut chance is at 18%, while the rate-increase change is 3%.

COMEX GC open interest fell -861 contracts this week.

COT report was updated this week, but it lags badly behind; last update was for January 11th. I'll post updates once they bring it up to the current day.

Silver fell -0.09 [-0.53%]. As with gold, silver fell for the first part of the week, but was then mostly-rescued by the bad news from the US-China negotiations. Silver's daily-chart swing low on Friday wasn't as strong (just 43% bullish), and daily forecaster remains in a downtrend. Silver is in an uptrend in both the weekly and monthly timeframes, but it lags behind gold on the daily, and the weekly uptrend is definitely not as strong.

The gold/silver ratio rose +0.17 to 82.98. That's slightly bearish.

COMEX SI open interest rose +6,859 contracts this week; that's 14 days of global production in new paper.

Miners did a bit better than the metals; XAU rose +1.32% on the week. On Thursday, XAU looked as though it might be entering a correction, but on Friday the buyers appeared and pulled XAU back above its 9 MA, and back into a daily uptrend – although the daily uptrend remains a weak one. The weekly uptrend, on the other hand, looks quite strong.  XAU is in an uptrend in all 3 timeframes.

GDX:$GOLD fell -0.79%, and the GDXJ:GDX ratio dropped -0.54%. That's bearish. The miner ETFs are lagging behind the XAU index.

USD

The buck rose +1.07 [+1.13%], a fairly big move, moving higher for 5 days in a row. The rally took the buck back above its 50 MA, and also caused a bullish change on the daily and weekly forecaster. A weekly bullish engulfing candle print was very bullish (69% reversal). At the end of this week, the dollar downtrend of the last few months appears to be over. The buck is now in an uptrend in the daily and weekly timeframes, with the monthly on the verge of issuing a buy signal too.

There were some fairly large currency moves this week: AUD [-2.27%], EUR [-1.25%], and GBP [-1.24%]. That's BRExit confusion, poor economic performance in the EU, as well as some dovish comments by an RBA governor.

US Equities/SPX

SPX moved up +1.35 [+0.05%] to 2707.88; it was essentially unchanged this week. What actually happened was that SPX rallied to a new high, then it topped out and reversed, with the daily forecaster issuing a sell signal on Thursday. The weekly long black candle was mildly bearish (38% reversal). Still, SPX remains in an uptrend in both the weekly and monthly timeframes.

Sector map had defense and utilities in the lead, with materials and energy leading the market lower. This sector map was mixed – let's call it neutral. Certainly the energy sector didn't much like the strong move lower in crude.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Defense ITA 3.07% 6.60% rising rising rising rising ma200 on 2019-02-04 2019-02-08
Utilities XLU 2.07% 17.07% rising rising rising falling ma50 on 2019-01-31 2019-02-08
Technology XLK 1.98% 9.64% rising rising rising rising ema9 on 2019-01-30 2019-02-08
REIT RWR 1.89% 18.39% rising rising rising rising ma200 on 2019-01-25 2019-02-08
Industrials XLI 1.66% 0.07% rising rising falling rising ma200 on 2019-02-07 2019-02-08
Homebuilders XHB 1.15% -9.73% rising rising falling rising ema9 on 2019-01-24 2019-02-08
Cons Staples XLP 1.07% 0.35% rising falling rising falling ma50 on 2019-01-31 2019-02-08
Cons Discretionary XLY -0.06% 6.96% rising rising rising rising ema9 on 2019-02-07 2019-02-08
Telecom XTL -0.19% 2.95% rising falling falling falling ema9 on 2019-02-08 2019-02-08
Healthcare XLV -0.89% 11.11% rising falling rising falling ema9 on 2019-02-07 2019-02-08
Gold Miners GDX -1.02% 3.04% rising rising falling rising ema9 on 2019-02-07 2019-02-08
Financials XLF -1.46% -5.49% falling falling falling falling ema9 on 2019-02-07 2019-02-08
Materials XLB -1.51% -8.22% falling falling falling falling ema9 on 2019-02-06 2019-02-08
Energy XLE -3.01% -5.67% rising falling falling rising ema9 on 2019-02-07 2019-02-08

Globally, the US was the best-performing equity market this week, with Latin America doing worst.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
United States VTI 0.17% 4.95% rising rising rising rising ma50 on 2019-01-17 2019-02-08
Emerging Asia GMF -0.47% -8.68% rising rising falling rising ema9 on 2019-02-08 2019-02-08
Europe IEV -0.94% -10.20% rising falling falling rising ema9 on 2019-02-07 2019-02-08
Developed Asia VPL -1.30% -8.73% falling falling falling rising ema9 on 2019-02-07 2019-02-08
Eurozone EZU -1.71% -13.88% falling falling falling rising ema9 on 2019-02-07 2019-02-08
Latin America ILF -3.82% -4.90% rising rising falling rising ema9 on 2019-02-06 2019-02-08

VIX fell -0.42 to 15.72.

Rates & Commodities

TLT rose +1.15%, making a new high on Friday. TLT ended the week in a relatively strong (daily) uptrend. TY rose +0.33%; this move caused the weekly forecaster to issue a buy signal, which puts TY in an uptrend in all 3 timeframes. The 10-year yield fell -5.9 bp to 2.63%.  TY looks set to make news highs; it is signaling risk off fairly strongly.

JNK moved higher, rising +0.17%; what it really did was make a new high and then reverse, just like SPX. JNK remains in an uptrend by a slim margin. Junky cousin HYB issued a daily forecaster sell signal, and the weekly doji candle print was fairly bearish (43% reversal). I'm not sure we've reversed for real in junky debt just yet – but there are definitely some hints of trouble.

Crude fell -2.48 [-4.46%], dropping 3 days out of 5, with daily forecaster issuing a sell signal on Tuesday. The weekly move was enough to cause the weekly forecaster to issue its own sell signal also. The long black candle is somewhat bearish (38% reversal).  The monthly remains in an uptrend. The EIA report was neutral – the market rallied off the release – but the upward impulse only lasted for a day.  Crude may well be heading lower from here, but I'm not totally convinced just yet.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -15.28, with 802 tons remaining in inventory.

* ETF Discount to NAV:

 PHYS 10.64 -0.66% to NAV
 PSLV 5.72 -3.73% to NAV
 CEF 12.89 -3.46% to NAV

* Premium for physical (via Bullion Vault: https://www.bullionvault.com/gold_market.do#!/orderboard) vs spot gold (loco New York, via Kitco: https://www.kitco.com/charts/livegoldnewyork.html) shows no premium for gold, and a 2c premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.34% and silver [1000oz] 3.45%.

Grey Swans & Geopolitics

  • Ebola: total cases 735, with 488 deaths (fatality ratio: 62%). Over the last 21 days, there were 119 new cases. Although the data is fairly uneven, the number of new cases continues to slowly increase. https://www.who.int/csr/don/07-february-2019-ebola-drc/en/

  • Italy – Migration: France recalled its Ambassador to Italy over a meeting di Maio had with some French Yellow Vest protesters near Paris. The last time this happened was at the start of the Second World War. This event was the culmination of a long series of problematic interactions between the two countries, essentially driven by migration, and aggravated by a fair amount of hypocrisy by Macron. The NYT had a good article laying out all of the puzzle pieces in a refreshingly propaganda-free article: https://www.nytimes.com/2019/02/07/world/europe/france-italy-ambassador-yellow-vests.html

  • China - Tariffs: As mentioned, on Thursday Trump said that a Trump-Xi meeting prior to the March 1 tariff deadline was “not likely”, and his advisor Kudlow said there was a “pretty sizable distance” between the US and China. Boom. Risk off.

  • BRExit – Nigel Farage has announced a new BRExit party, approved by the UK Electoral Commission on Friday. Farage says this new party will be put in play if BRExit is delayed past the March 29th deadline. It would most likely draw support from both left and right, and could possibly upend politics in the UK. "If Mrs May and Jeremy Corbyn do not welcome the prospect of this new electoral threat, and would like me to retire from frontline politics, they have a very straightforward opportunity to keep themselves happy. All they have to do is deliver a proper Brexit – the one which 17.4 million people voted for in June 2016. Otherwise, this threat will turn into a promise." Mr. BRExit is back, and he's not happy at all.

  • Yield Curve Inversion: the 2-10 spread fell -2 bp to 16 bp. Yields on both instruments fell, just the 10-year fell more than the 2 year.

  • North Korea: Trump announced that recent talks with US and DPRK diplomats had been productive, and that the Trump-Kim summit would be held in Hanoi at the end of February. Can you imagine a time-traveler from 1968 hearing this news? A US President will fly to Hanoi, to meet with the North Korean leader. Mind=blown. I'm sure some people will find something negative to say about this, but I think it is great. Talking is a lot better than missile launches and nuclear tests. https://www.reuters.com/article/us-northkorea-usa-envoy/trump-says-north-korea-talks-productive-summit-will-be-in-hanoi-idUSKCN1PX2B1

  • Mueller Investigation: no news. The investigation appears to be winding down.

Summary

A “pretty sizable distance” between the US and China caused trouble in risk this week; it could also have been due to a second month of contraction in German manufacturing (https://wolfstreet.com/2019/02/07/german-industrial-production-falls-the-most-since-2009-new-orders-plummet/). Regardless, the by-now predictable outcome was: bonds and gold rally, while equities, crude, and junky debt retreat.

Big bar gold premiums on gold remain low, while silver's premium has increased slightly. There is no shortage of gold or silver at these prices.

No COT report this week – it looks as though they are still catching up.

With all the near-term market noise going on, I don't want to forget about the macro environment. Chris posted his “recession is here!” warning, and I went to look at my own charts for evidence one way or the other. I found it; in one of my favorite charts that for some reason I didn't notice, following last month's Payrolls Report:

You can clearly see a large jump in the number of people who are working part time – for economic reasons, mainly due to “slack business conditions."  In the past, this has been a fairly reliable indicator of an impending recession, and certainly this month's large move that runs clearly against the downtrend in place since approximately 2013 is a warning shot fired across the bows of the equity market.  Equities do NOT DO WELL when this number rises.

Could this be a byproduct of the month-long government shutdown, which hit January especially hard? Perhaps. February will bring more clarity.  In the meantime, it is a good idea to start being extra careful out there.  It is entirely possible we are in recession right now, perhaps aided by the impact of the government shutdown, as well as the hangover from the importers front-running the US-China tariffs.

Weekly trends (in order of strength):

Uptrend: Junky debt, miners, SPX, gold, USD, gold/Euros, 10-year Treasury, silver.

Downtrend: platinum, crude, copper.

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