PM Daily Market Commentary - 5/6/2014

davefairtex
By davefairtex on Tue, May 6, 2014 - 9:49pm

Gold was down -1.80 to 1307.70 on moderate volume; silver was down -0.03 to 19.58 on light volume.  PM basically traded sideways today in a narrow trading range.  It was a boring day for PM.

The dollar was hammered today, down -0.40 [-0.50%] making a new cycle low, closing at 79.15.  The move started in Europe, at 0815 GMT, and was driven by a big spike higher in the Euro which caused the buck to drop.  It was suggested (by Trader Dan) that the move in the Euro was due to surprisingly positive PMI reports for Spain, Italy, and England.

If the dollar breaks below 79 - presumably caused by the euro breaking 140 - it could lead to a whole lot of selling in the buck.  I don't know why it would do that at the moment (there doesn't seem to be any "macro reason" for a big dollar selloff right now) but ... when the buck sits at 79.15, its just something I can't ignore.  And that descending triangle pattern on the weekly chart looks quite bearish.   Money seems to be flowing back into emerging market currencies, the pound is at multi-year highs, and even the commodity currencies (CAD and AUD) are climbing again.

The fact that the move higher in the euro didn't seem to help gold at all is not a great sign for the yellow metal, because this currency move was big.  Under normal circumstances, gold should have gone up by perhaps $10 or so but today - nothing.  Right now, there doesn't look to be a catalyst for gold in either direction.

The miners slowly sold off today, with GDX down -0.53% on light volume and GDXJ was down -0.89% on relatively light volume.  The light volume and the slowly dropping price suggests little interest in buying the miners, although the selling was not particularly enthusiastic either.

The US equity market sold off today, closing down -17 points on moderate volume.  The drop in the buck in Europe seemed to start the move lower in the futures markets overnight, and once NY opened, the selling continued, steadily pushing prices lower.  Bank stocks, which usually tend to lead the market higher, are looking really ill right now - much worse than the overall market - as are the homebuilders.

 

4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
article on market cycles - casey research

Good article describing six different market tops, and how watching "market leaders" for that particular cycle was helpful in identifying possible market topping patterns.  Market leaders were different each time, and once they started to sell off, that marked the end of that particular bull market in equities.

This is especially timely since we have seen some big sell-offs in biotech (IBB), and social media - selling far in excess of what's actually happening on the broad SPX index.

Again the message here - watch the market leaders.  They are the canary in the coal mine.  Only - they aren't the same for every cycle...

http://www.caseyresearch.com/cdd/buying-at-the-top-again

The current cycle’s leaders appear a bit more diverse than in the past, but certainly social media, health care, and biotechnology have captured investors’ fancy the most. Note that each of the six cycles, including the present one, was led by different industry groups. It is also worth noting that the leaders in each of the previous cycles always underperformed in the following cycle, and usually by a substantial margin. I expect the same to happen to the current crop of momentum stocks in the next cycle.

These momentum stocks usually all follow a similar pattern. As the cycle progresses, they attract more and more favorable attention, the slope of their advance steepens, and they eventually go parabolic. Investors become attracted to these stocks more for their momentum and outperformance characteristics than for their fundamental strengths.

Sure, a positive fundamental narrative will accompany the move, but momentum is really drawing the interest. That’s what I meant earlier when I said momentum begets momentum. Unfortunately, it also works in reverse. Once the parabolic slope is broken and the momentum reverses, investors stop accumulating these stocks and start distributing them.

Also, once these leaders go in reverse, the broader market will follow. Thus, the recent break in the biotechnology and social media stocks, as well as other popular momentum stocks, is an important signal that the current market cycle is at or very near a peak—and that a cyclical bear market will soon follow.

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3210
big drop in Chinese bar buying?

The following from Reuters caught my eye:

In physical market news, Chinese buying has been subdued as a weaker currency has discouraged importing banks from purchasing big quantities.

China's demand for gold bars fell nearly 44 percent in the first quarter of 2014 from a year ago, while total gold consumption edged up about 0.8 percent, the China Gold Association said on Wednesday.

(source)

I don't have time to dig further at the moment, but thought I'd put it out here now for Dave/Jim H or anyone else to add clarity to, as this data point (44% YoY drop) sounds an off-note to other sources.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5967
A drop or a switch?
Adam Taggart wrote:

The following from Reuters caught my eye:

In physical market news, Chinese buying has been subdued as a weaker currency has discouraged importing banks from purchasing big quantities.

China's demand for gold bars fell nearly 44 percent in the first quarter of 2014 from a year ago, while total gold consumption edged up about 0.8 percent, the China Gold Association said on Wednesday.

(source)

I don't have time to dig further at the moment, but thought I'd put it out here now for Dave/Jim H or anyone else to add clarity to, as this data point (44% YoY drop) sounds an off-note to other sources.

Always the interesting phrasing by the MSM.  While noting the 44% drop in 'bar demand' they also slip in total demand having 'edged up' 0.8% higher.

I guess fewer bars more jewelry?

At any rate, 2013 was a record year so I guess 2014 has 'edged' that out so far?

In case they need help, other useful words and phrases they could use would be 'a plummeting rate of increase,' eeked, 'desperately clawed higher,' and barely.

However I'm sure their anti-gold thesaurus is well populated so no help needed.

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2882
Maybe it's just me...
cmartenson wrote:

In case they need help, other useful words and phrases they could use would be 'a plummeting rate of increase,' eeked, 'desperately clawed higher,' and barely.

However I'm sure their anti-gold thesaurus is well populated so no help needed.

...but my "Sarcasm-O-Meter" is picking up some elevated readings from Dr. Martenson the past few days. surprise

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