PM End of Week Market Commentary - 4/25/2014

davefairtex
By davefairtex on Sat, Apr 26, 2014 - 1:28pm

On Friday gold closed up +13 to 1303.60 on moderate volume - silver was up +0.06 on heavy volume to 19.72.  Gold rose steadily higher after the asia trading session into the close, while silver basically just traded sideways within a trading range.  Mining shares did well, with GDX +2.19% on moderately heavy volume, and GDXJ up +4.41% making a new high on heavy volume.  Miners closed at their highs for the day, and did especially well in the last hour of trading.

For the week gold was up +9.00 [+0.70%] silver +0.08 [+0.38%] GDX +3.78% and GDXJ +8.02%.  Miners hit bottom on Monday, and began rallying a few days ahead of the metal, which made a high volume low on Thursday.  While the picture for PM is improving vs last week, we still aren't out of the woods yet; if the rally is all about the Ukraine, then the move higher in gold is subject to changes in the geopolitical situation, which is a precarious thing to base a trade on since things could change instantly.

If I pretend there's no geopolitics involved, that high volume low on Thursday looks pretty convincing.  Its always nice to see a big high volume "flush" (i.e. a low, with lots of longs stopped out) to mark a low on the chart.  Its less fun if you were one of those longs that got flushed, however!  I'm just glad I wasn't awake to watch silver drop (momentarily) below 19.  While I'd say the odds are the low is in for silver, the chart still looks pretty ugly.  I'll be happier when silver can close above 20 again.

US Equities/SPX

SPX continued higher, breaking above the previous lower high, which appears bullish - there was a selloff on Friday, but it found support at the 50 MA.  Things seem to be looking relatively positive for the large cap stocks, but the charts of the tech darlings and biotechs still look unhappy, as do homebuilders and banks.  And utilities continue to make new highs having rallied steadily since January.  That's never a good sign.

Downside insurance remains cheap - the VIX is only at 14, which says "puts" on SPX remain quite inexpensive.  They are a measure of the overall level of complacency, which seems pretty high to me.

Miners

What a difference a week makes.  GDXJ bottomed Monday, and spent the week climbing higher.  GDXJ is not out of the woods yet - it needs to make a higher high before the downtrend is officially over, but it has rallied above the 20 EMA, up-day volume looks good, and it has managed to rally back above that support level it broke last week.

I focus on GDXJ these days since it seems to be the "tell" for the PM market at the moment.  If traders are selling GDXJ, it seems to lead to bad things for PM overall, while if traders are buying, good news for PM eventually seems to follow.  These tells often change though, so you have to keep watching to see how things are interacting at the moment.

GDX looks pretty similar to GDXJ, although its up-day volumes are a bit weaker.

The USD

The buck dropped most of the week, but it was down only very modestly, off -0.11 to 79.83.  It seems to be meandering generally lower, and at least right now doesn't seem to be affecting gold's performance at all.  Sometimes the currency relationships with gold are strong, and other times they aren't.

Rates & Commodities

TLT had another good week - it was up +1.16%, and it made yet another new high on Friday.  Over time, the US long bonds just seem to be chewing their way ever higher.  While nobody likes the idea of getting 3.2% for a 20 year loan to our drunken Uncle Sam, perhaps the other opportunities look even worse.  From a chart perspective, that 20 year treasury looks very strong.  Come to think of it, it looks similar to the utility stocks - a strong and steady rally ever since January 1.  At this point, all three moving averages are pointing higher, with the price of TLT above them all.  Very strong, at least on the daily chart.

Commodities moved a little, up +0.26%.  Copper did really well, breaking above its consolidation area and closing up +2.38% for the week.  Is China all fixed?  Seems unlikely, but maybe - ok for now?

Physical Supply Indicators

* Shanghai premiums on the Au9999 contract were up big this week, +6.92 to 15.76.  Delivery volumes shot higher too this week as well.  Something Interesting happened to gold in China this week.  Normally Shanghai premiums don't rise when COMEX gold price rises - but that's what is happening.  Whenever unexpected things occur, it always gets my attention.

* The GLD ETF dropped -3.00 tons this week to 792.14 tons.

* Registered gold at COMEX dropped -0.36 tons to 24.64.

* ETF Premium/Discount to NAV; gold closing (15:59 close price) of 1302.30 and silver 19.70:

   PHYS 10.81 -0.32% to NAV [up]
    PSLV 7.79 +1.58% to NAV [down]
    CEF 13.97 -5.23% to NAV [up]
    GTU 45.67 -5.26% to NAV [up]

ETF premiums are mixed, mostly up, with CEF and GTU performing best.

Futures Positioning

The COT report is as of April 22nd.  Managed Money bailed out of 3.9k short positions but that's about it for the changes in positioning this week.  Producers remain historically low on their short exposure, which I interpret to be a bullish sign longer term.

Moving Average Trends [20 EMA, 50 MA, 200 MA]

Gold: short term NEUTRAL, medium term UP, long term UP.

Silver: short term DOWN, medium term DOWN, long term NEUTRAL

The moving averages are at inflection points right now, so it is easy for price changes to move them around. Gold has moved just barely back above its 200 MA which is somewhat bullish, while silver remains below all 3 of its moving averages - and that's bearish.

Summary

Gold made a new low on Thursday this week on very high volume, and silver did as well.  Often high volume activity like this marks a trend change, especially when it comes at the end of a long-ish move down.  Miners started their rally a few days earlier, which if this low sticks, will have been "the tell."

Looking at the various ratios and averages, gold's moving averages are either flat or positive, while silver's averages are flat or negative.  The GDX:$GOLD has started to rally and so has GDXJ:GDX.  Both of them are showing the first signs of a trend change, which I'd say is "early bullish."  The gold/silver ratio has backed off its highs a bit, but is still quite bearish.  In sum, gold is improving, while silver still sucks.

Producers remain at all-time low short positions, which is usually a sign that we're relatively near to a low point.  This is a bullish signal, but its not as good of a timing indicator the way the ratio charts can be.

Shanghai premiums jumped up this week, as did gold delivery volumes.  GLD tonnage dropped, ETF premiums dropped a bit.  With Shanghai premiums jumping on a week when gold actually rose in price, I think that looks very bullish to me.

The junior miner reversal on Monday & Tuesday ended up giving us a glimpse of what the week would hold for PM.  As long as they keep leading, I think PM will continue moving higher.  And those premiums in Shanghai are definitely worth watching.  I'll report on them daily next week since I think something unusual is happening over there right now.  Unusual, and bullish. 

 

1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
SPX selloff

A first-hour "buy-the-dip" attempt to push SPX above Friday's high failed, and SPX has pretty much continuously sold off since then, now down -12.  A lot of other things look much worse than SPX - things I tend to regard as "risk on" market leaders.

What's more, two positive economic reports this morning did not lead to a rally.  Pending home sales were unexpectedly up after a long string of disappointments, and a Fed manufacturing survey also came in more positive than expected.  In fact, that survey was released right at the high of the day.  The market started to tip over and sink right afterwards.

So an older trader saying: "its never the news itself that matters, its the market's reaction to it that counts."

So after a long bullish move, when the market sells off on good news, its a bad sign.

We'll see how we close today; if we close below the 50 MA, that's another bad sign.  However, a trend change in such a big market as SPX doesn't usually happen overnight.  Its a process, with lots of head-fakes in both directions confusing everyone in the process.  In the meantime, accumulate evidence.  Look at the former market leaders: tech, banking, homebuilders, and biotech.  Which direction are they leading - up or down?  How does the market perform at resistance?  Does it sell off on good news?

Going short after rallies is the customary low-risk way to enter short.  FWIW, that's not today.  :-)

 

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