PM Daily Market Commentary - 3/18/2014

davefairtex
By davefairtex on Wed, Mar 19, 2014 - 1:11am

Gold closed down -12.00 to 1355.30 on heavy volume.  Silver dropped -0.36 to 20.83 on moderate volume.  Gold fell all day long starting in asia.  It tried rallying during NY trading but failed, closing near the low.  Even so, gold remains above all three of its moving averages, while silver drove through both its 20 EMA as well as its 200 MA today.

The dollar was basically unchanged, up +0.01 to 79.53.  It had a decent-sized trading range today but ended up going nowhere.

GDX closed down -1.38% on moderately heavy volume, while GDXJ was off -2.38% on heavy volume.  While GDX closed right at its 20 EMA, GDXJ closed below its own 20 EMA.  Both miner ETFs had good rallies through mid-day, but they both sold off into the close.

Miners today looked somewhat better than yesterday - at least there was a rally attempt, but sellers outnumbered buyers, which suggests to me that we may still have some more downside to come.

Ratio-wise, GDX:$GOLD is starting to drop, GDXJ:GDX is looking at best neutral, and the gold/silver ratio is now at 65.08, up +0.55 today alone which is bearish.

One wrinkle here is that our central planners - the FOMC - are currently in the middle of another one of their meetings, presumably trying to decide just how to get the "free market" to do what they want.  Tomorrow at 2pm EST they publish their post-meeting statement, which often leads to all sorts of fireworks.  Taper, don't taper, suspend tapering for a time - based on my macro data which still looks largely positive, they will continue tapering.  The question is, what does the market expect them to do and how will it react?  To add to the fun, we also get a Chair Press Conference at 230pm.  (n.b. Janet Yellen has let it be known she is to be called the Chair, not Chairwoman or Chairperson.  FYI.)

Commodities rallied back today, moving up +0.57%.  We're not back to the races yet, but if commodities consolidate here for a while, I think that's bullish.

Copper had a big trading range but closed unchanged.  Perhaps copper is waiting for the outcome of the much talked-about China debt default extravaganza.  Some of amount of default and upheaval is likely built into the price, but I also think that if things actually get bad, copper has a lot more downside in front of it.

Speaking of copper, I read an interesting article on how copper's drop could be affecting various gold mining stocks.  One miner that I watch, NGD, took quite the dip the other day and I wondered why.  Turns out, at their best "gold" mine, they produce twice as much copper (revenue-wise) as they do gold!  They're a copper miner in gold clothing!  Here's the article: http://wallstcheatsheet.com/business/check-your-gold-miners-for-copper-exposure.html

SPX continued rallying again today, +13 points to 1872, with 1880 the all-time-high.  I think its almost guaranteed that the big guys will shoot SPX above 1880 just to hose the shorts at 2pm on the Fed Meeting press release, even if its only just a spike higher.  Will it close at a new ATH?  That's the more important question.  Volume seems light right now - likely the longer term traders don't want to open new positions prior to the meeting.

Oh, and regarding all the fuss about Russians selling treasury bonds leading to a massive debacle - so far, the treasury market seems unaffected, as does the USD.  I'll keep an eye on the Treasury's "Major Foreign Holders" report which appears monthly with a 6 week lag, but next report isn't out until mid-April.

Russia doesn't have many t-bonds - MFH report suggests $132 Billion as of Jan 31 2014.  Since January, the Ruble has lost 10% vs the USD, which does suggest a whole lot of capital fleeing Russia.  If Russia was selling Treasury bonds, it isn't selling enough of them to keep its currency from dropping.

Armstrong suggests that it is possible to detect foreign policy "issues" before they occur by watching currency movements.  The well-connected rich people hear what is going on, and start moving their money out prior to the news hitting the front pages.

 

2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
Russia, currencies, and newsflow

So I have this bit of software I wrote that watches news headlines and tries to figure out whether the headline is a "war" (unrest, etc) headline, a "finance" headline, and so on.  This was one of my many experiments trying to figure out if newsflow could be used to predict anything.  So, let's apply it in the case of Russia, the Ruble, and see if we would have been successful selling the Ruble based strictly on newsflow.

In this particular case, you can see that the Ruble/USD (black line) started to break higher (which means the Ruble weakened - more Rubles needed per USD) about a month prior to the news about all of Russia's "war" activities hitting the wires.  The red line (labeled "russia problem") is the number of "war" news headlines per week seen by my software.

So after seeing this - do you feel like you want to trade newsflow, or prices?  The right move as a trader would have been to sell the ruble after it broke upwards on that initial move in mid-January.  There was no news on the wires to justify the sale, but by the time the news hit in late February, your Rubles would have lost 6% of their value.

It also may explain why Armstrong claims his computer can predict political unrest - by watching capital flows, among many other indicators.  Capital moves first, and the news headlines eventually follow.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
bottom in copper today?

So we may have a bottom in copper today - copper spiked down to 2.877 on some pretty heavy volume and the rebound off that low has been pretty good, now trading around 2.94.  Copper needs a close above 2.95 to really cement this rebound.  However if it does, silver will likely follow.  So far silver has echoed copper today, and as a result we may also see the low in silver too.  The fact that silver touched 20.50 (a strong support level) and bounced off it also helps this thesis, plus there was one of those high volume downspikes, which always makes me happy when they get bought.

Of course the FOMC meeting minutes may trump these moves if something shocking develops, but as of right now I think there's a chance our three-day gold correction may be coming to a close.  It will depend if traders hold their current positions into the close after that FOMC meeting press conference.

Remember those "copper miners in golden clothing"?  They'll probably do well if copper puts in a bottom.

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