PM Weekly Market Commentary - 3/22/2019

davefairtex
By davefairtex on Sun, Mar 24, 2019 - 2:00am

On Friday, gold rose +4.60 [+0.35%] to 1319.14 on extremely heavy volume, while silver fell -0.04 [-0.26%] to 15.44 on moderate volume. The other metals cratered along with SPX [-1.90%], while bonds screamed higher [+1.55%] and the buck continued moving higher [+0.17%] too. It was a dramatic and surprising end to the week – bonds the big winner, and equities the big loser.

Big news of the week was the FOMC telling us the future of the balance sheet reduction: they're slowing QT in May, and stopping it altogether in September. Also important was the sense I got from “reading” Powell at the press conference: all his comments about data looking good right now and their expectations for growth felt very fake. My guess: he and the rest of the gang are fully expecting a recession to hit in the near future.

This week the miners are leading metal, silver is – just barely – leading gold. Its a relatively bullish-looking sector map.  Friday's plunge in the other metals took them down to the bottom of the list.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 2.22% -9.60% rising rising falling rising ema9 on 2019-03-12 2019-03-22
Senior Miners GDX 2.15% 5.95% rising rising rising rising ema9 on 2019-03-20 2019-03-22
Platinum $PLAT 2.01% -10.63% rising rising falling rising ema9 on 2019-03-15 2019-03-22
Junior Miners GDXJ 1.24% 2.06% rising rising falling rising ema9 on 2019-03-19 2019-03-22
Silver $SILVER 0.95% -5.74% rising falling falling falling ema9 on 2019-03-15 2019-03-22
Gold $GOLD 0.91% -1.13% rising rising rising rising ma50 on 2019-03-18 2019-03-22
Palladium $PALL 0.45% 55.37% rising rising rising rising ema9 on 2019-03-22 2019-03-22
Gold/Euro $GOLD:$XEU 0.21% 6.94% rising rising rising rising ema9 on 2019-03-22 2019-03-22
Copper $COPPER -2.06% -5.80% falling rising falling rising ema9 on 2019-03-21

Gold rose +11.95 [+0.91%] this week. Gold made new highs, and also managed to close back above the 50 MA. Volume was extremely heavy following FOMC. The weekly long white candle was a bullish continuation, and weekly forecaster jumped higher, issuing a buy signal for gold. Gold is now back in an uptrend in all 3 timeframes.  The strong volume on a decent move higher is a bullish sign.

The May 2019 rate-cut chance is at 4%, and the Dec 2019 rate-cut chance is 59%, with an 18% chance of 2 rate cuts. That's a huge change from last week – it is very bearish.

COMEX GC open interest fell -8,682 contracts this week.

The COT report shows little change in the commercial net, dropping just 7.1k, while managed money net rose by 13k. That was mainly short covering (-12k). The COT isn't at any sort of a turning point right now, which is no change from last week.

Silver climbed +0.15 [+0.95%] this week. Silver made new highs, but it doesn't seem to be doing quite as well as gold. The weekly spinning top was a bullish continuation, and forecaster moved higher, issuing a buy signal for silver. Silver's rally this week also unwound the monthly sell signal; this puts silver back into an uptrend in all 3 timeframes.  Unlike gold, silver's volume remains relatively weak, and the weekly uptrend isn't particularly strong just yet.  Perhaps Friday's smash in the other metals is taking a toll on silver.

The gold/silver ratio fell -0.11 to 85.27. That's neutral.

COMEX SI open interest rose 6,129 contracts this week.

Commercials changed little this week, and managed money changed little also. Silver COT report is not at any decisive turning point at this time.

Miners moved up this week, with all the gains happening post-FOMC. XAU rose +1.75%, daily and weekly forecasters issued buy signals, and now the miners are back into an uptrend in all 3 timeframes.

GDX:$GOLD rose +1.23%, while the GDXJ:GDX ratio fell -0.90%. That's somewhat bullish.

USD

The buck rose +0.07 [+0.07%] to 96.10. The buck made a huge plunge on Wednesday post-FOMC, but then rallied even harder on Thursday wiping out all the losses. The weekly high wave candle was a bearish continuation, and weekly forecaster moved up slightly, but remained in a downtrend. The buck remains in a downtrend in both daily and weekly timeframes.

The big currency moves: GBP: -0.57%, EUR: -0.26%, JPY: -1.38%.

SPX fell -21.77 [-0.77%] to 2800.71. The big move for SPX came on Friday – a 1.90% plunge that happened for no reason I could see. (That's generally bad). Small caps did much worse: the Russell 2000 was off -3.62% on Friday. Friday's daily swing high was bearish (48% reversal), daily forecaster dropped sharply and issued a sell signal. Weekly spinning top was not a reversal though, and weekly forecaster moved lower, but remains in an uptrend. As a result, SPX ended the week in an uptrend in the weekly and monthly timeframes - but the weekly uptrend appears to be slowing.

Financials did worst by far, while consumer discretionary actually managed to move higher. Tech was actually positive. This was a confused sector map – certainly bearish for the financials though, which tends to be generally bearish overall.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 2.15% 5.95% rising rising rising rising ema9 on 2019-03-20 2019-03-22
Cons Discretionary XLY 0.97% 9.28% rising rising rising rising ema9 on 2019-03-12 2019-03-22
Cons Staples XLP 0.69% 6.95% rising rising rising rising ema9 on 2019-03-21 2019-03-22
Utilities XLU 0.52% 17.54% rising rising rising rising ema9 on 2019-03-21 2019-03-22
Technology XLK 0.45% 11.02% rising rising rising rising ema9 on 2019-03-11 2019-03-22
Energy XLE -0.06% -2.55% rising rising falling rising ema9 on 2019-03-22 2019-03-22
REIT RWR -0.32% 16.20% rising rising rising rising ema9 on 2019-03-21 2019-03-22
Homebuilders XHB -0.76% -7.17% falling rising falling rising ema9 on 2019-03-22 2019-03-22
Industrials XLI -1.41% -1.18% falling rising falling rising ema9 on 2019-03-22 2019-03-22
Healthcare XLV -1.49% 11.38% rising rising rising rising ema9 on 2019-03-22 2019-03-22
Defense ITA -1.84% 0.09% falling rising falling rising ema9 on 2019-03-22 2019-03-22
Materials XLB -1.93% -4.92% falling rising falling rising ema9 on 2019-03-22 2019-03-22
Telecom XTL -2.26% -0.68% falling rising falling rising ema9 on 2019-03-22 2019-03-22
Financials XLF -4.84% -8.39% falling rising falling rising ma50 on 2019-03-22 2019-03-22

The US was the second-best performing equity market this week; Latin America did worst.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Developed Asia VPL -0.49% -9.36% rising rising falling rising ema9 on 2019-03-22 2019-03-22
United States VTI -1.00% 5.60% rising rising rising rising ema9 on 2019-03-22 2019-03-22
Emerging Asia GMF -1.13% -8.22% rising rising falling rising ema9 on 2019-03-22 2019-03-22
Europe IEV -1.73% -5.89% rising rising falling rising ema9 on 2019-03-22 2019-03-22
Eurozone EZU -2.39% -10.49% rising rising falling rising ema9 on 2019-03-22 2019-03-22
Latin America ILF -5.34% -11.02% falling falling rising falling ma50 on 2019-03-22 2019-03-22

VIX jumped up +3.60 to 16.48.

Rates & Commodities

TLT screamed up +2.55%, vaulting to a new high, with most of the gains coming on Friday. TLT ended the week in a strong uptrend. TY had a good week too, up +0.97%. It too broke to a new high, and is now at levels last seen back in January 2018. TY is in an uptrend in all 3 timeframes. The 10-year yield plunged -13.8 bp to 2.46%.  Bonds look very, very strong right now.

JNK rose +0.14%; it fell along with equities on Friday, but the drop wasn't enough to erase this week's rally. JNK remains in an uptrend. So far no panic yet in junky debt.  Also - the BAA.AAA differential has moved down off its highs, ending the week at 1.07%, which reinforces the "no panic yet" in low-quality debt.  While other things are signaling recession, this particular indicator isn't suggesting that it will be a horrid one.

Crude rose +0.26 [+0.44%] to 59.15. Crude fell on Friday along with equities, printing a daily swing high (53% bearish). Daily forecaster issued a sell signal on Thursday. Still, the weekly northern doji was a bullish continuation, and while the weekly forecaster dropped, it was not enough for a sell signal. Crude is in an uptrend in the weekly and monthly timeframes.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +9.99 with 781 tons remaining in inventory.

* ETF Discount to NAV:

 PHYS 10.61 -0.83% to NAV [decrease]
 PSLV 5.63 -2.76% to NAV [increase]
 CEF 12.86 -2.75% to NAV [increase]

* 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 discount for gold, and a 2 cent premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.30% and silver [1000oz] 3.57%.

Grey Swans & Geopolitics

  • Ebola: total cases 980, with 610 deaths, which is 53 new cases this week. There were a spike in new cases from a pair of provinces which have recently suffered “security challenges.” https://www.who.int/csr/don/21-march-2019-ebola-drc/en/

  • EU – Interesting poll about people's perceptions in Europe: 38% of citizens feel that immigration is their top concern, with terrorism coming in at 29%. 48% of people said they tended not to trust the EU, and 49% do not believe their voice is heard. (Maybe that's because they know that they are ruled by unelected bureaucrats). Support for the Euro: 74%. Biggest Achievement: free movement of people, goods & services at 58%.  My takeaway: concept good, governmental structure faulty, immigration: a problem.  http://https://www.reuters.com/article/us-eu-eurobarometer/immigration-terrorism-top-concern-list-of-europeans-poll-idUSKBN1JA2FX

  • EU – Elections, May 23: will the UK get to vote in the EU elections? Are “Russian Hackers” going to be blamed for populist gains? (Allegedly Russian hacker groups are sending phishing emails trolling for information). Will the populists score a major victory? These are the current stories making the rounds.

  • China - Tariffs: Lighthizer and Mnuchin are traveling to Beijing next week in the ongoing trade negotiations. The largest remaining stumbling block is the “enforcement mechanism.” What happens if China backslides on the deal? In the past, China has promised many things, which were then followed by no action. Reading the tea leaves, there will be no Trump-Xi summit where the final issues get hammered out. Xi has no interest in going to a meeting, only to be faced with the risk that Trump will walk out. China wants the meeting to be strictly ceremonial. https://www.scmp.com/news/china/diplomacy/article/3002709/china-us-prepare-final-push-trade-talks-dates-set-beijing

  • BRExit: The EU has given May an extension to 22 May if Unconditional Surrender passes Parliament next week, but the deadline becomes April 12th if it doesn't. The April 12th date was driven by the start of the upcoming EU elections. Looking at the currency markets, it appears as though traders are betting on Parliament to avoid hard BRExit; the pound is moving slowly higher, in fits and starts, with a lot of volatility. Markets boil all the complexity down to a single figure – price. Right now, it is not projecting hard BRExit.  Why do I talk about price?  Because the news flow is so complicated, I can't figure out even what the latest moving parts are.  May seems completely out of her depth - her only plan is to keep pushing Unconditional Surrender.  https://www.theguardian.com/politics/2019/mar/22/brexit-qa-how-likely-are-we-to-crash-out-of-the-eu-with-no-deal

  • Yield Curve Inversion: the 1-10 spread fell to -0.01%.  That's a yield curve inversion, for the first time since 2007.  This is a very big deal.

  • North Korea: Trump tweeted that he was cancelling a collection of new sanctions on North Korea. It was unclear which new sanctions he was referring to, and the confusion caused the usual fuss in the media. To my eye, Trump appears to be targeting Kim – saying in effect, I'm overriding my own advisors on issues because I believe in you just that much. It seems as though its a bit of theater, with Trump, advisors, and the press all playing their parts.

  • Mueller Investigation: Mueller has issued his report. It did not recommend any further indictments. AG Barr is now going to construct a summary of the report over the weekend and decide how much to make public. Mueller's team indicted 5 Americans: Manafort (lying on 2 bank loan applications, income tax evasion, failure to declare lobbying for a foreign power), Papadopoulous (lying to the FBI), Flynn (lying to the FBI), Cohen (lying to Congress), and Stone (lying to the FBI, obstruction, witness tampering). I guess there wasn't any “Collusion with Russia” after all – but the team really cleaned up on those “lying” charges. Mueller: improving honesty in America one FBI interviewee at a time. https://www.bbc.com/news/world-us-canada-47671715

Summary

Bonds.  Got bonds?  They were the star this week.  They have been clinging to an uptrend all during the 3-month equity market rally, and this week they finally broke out to new highs.  Big money has figured out where it wants to go.  If you look at the 3-month Treasury yield, and the 10-year yield, they have been moving in opposite directions.  This tells you that big money is selling short term Treasury bills, and exchanging them for the longer term bonds.  Yield on the 10-year has plunged to 2.45%, which is lower than the 2.46% yield on the 3-month bill.  Same thing happened on the 1-year Treasury: currently at 2.45% also.  The yield curve is now inverted by a very small margin for the first time since 2007.

This is not an "economic signal" for a recession - i.e. its not about industrial production, employment, inflation, producer prices - it is a financial signal.  Big money has decided a recession is becoming more likely, so it shifts from the short term debt into the longer term debt.  Big money wants to lock in yield during the recession - that's because the Fed will drop rates, which will cause the 1m and 3m bills to end up yielding almost nothing.  Money is fleeing, anticipating a flurry of Fed rate decreases.  This shows up in the Fed Funds Futures projections too.  We are now looking at one, maybe two rate cuts by December 2019.

The driver for the move in bonds was definitely the FOMC meeting announcement, and most likely, the announcement that QT was coming to an end.  That took out a big seller of Treasury bonds, and it was also a signal that the Fed is worried about a recession.  The equity market rally on Thursday now looks like just a headfake.

Gold and silver did relatively well - gold isn't the big safe haven yet.  That's because confidence in the US government remains intact.  Big money wants a yield, and since US treasury bonds still provide a yield (unlike, say, German government bonds), they remain the go-to haven when things start to look recessionary.

Big bar gold premiums on gold remain low, and most ETF discounts increased. There is no shortage of gold or silver at these prices.

The COT reports don't show either gold or silver at any sort of turning point, and there was not much change in positioning this week.

Big question for me: is this the top for equities?  Certainly seeing the RUT (Russell 2000) crater on Friday, it suggests that we might be at or near the highs.  We might need some more economic weakness before things start to move down more dramatically.  That's because junky debt is not being sold with any real enthusiasm.  Traders aren't getting scared just yet. 

The volume increase on the GC contract is a good sign, as is the rally in the mining shares.  While the 10-year treasury remains the go-to place for big money, gold remains a safe haven, although a secondary one.  That's what prices are telling me right now.

Weekly trends (in order of strength):

Uptrend: 10-year Treasury, miners, crude, gold, platinum, gold/Euros, silver, SPX.

Downtrend: USD, copper, DJI.

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2 Comments

Eannao's picture
Eannao
Status: Silver Member (Offline)
Joined: Feb 28 2015
Posts: 184
Gold - the secondary safe haven (for now)

Dave,

Thanks for an excellent summary.

I particularly appreciated the clarity and simplicity of your explanation of the signal sent by the inverted Yield Curve... a financial signal of recession.

Keep up the awesome work!

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5932
thanks

Thanks Eannao.  :)

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