PM Daily Market Commentary - 7/9/2014

davefairtex
By davefairtex on Thu, Jul 10, 2014 - 1:39am

Gold closed up 7.00 to 1327.60 on heavy volume; silver was up +0.08 to 21.16 on moderate volume.  Gold rose steadily in Asia, tracked sideways in London, and had a modest $7 spike higher at 1430 EDT, but it could not hold its gains into the close.  The only event I could find on the calendar at 1430 was a speech by the ECB chairman Draghi, where he called for more integration within the eurozone.

http://www.nytimes.com/2014/07/10/business/international/draghi-calls-for-closer-economic-integration-in-europe.html

The USD dropped -0.16 to 80.07 - it is looking weak and this should be supportive for gold.

GDX broke out of its consolidation range today in style, up +2.61% on moderately heavy volume.  GDXJ did much the same thing, only more so - it was up +5.41% on heavy volume.  At this point, miners are clearly leading gold, both in volume and in price.  The GDX:$GOLD ratio broke out to new highs today, with GDXJ:GDX ratio close behind.

The breakout in GDX actually happened right after the open at 0930 but it was modest at first - the bulk of the price move happened immediately after gold's spike higher at 1430.  Now we see if the price of gold gets pulled up by the miners, which would be my expected outcome from this breakout.

Breakouts deserve charts, and here's one of GDX:

SPX rallied back today, closing up +9 to 1972.  The market appears to have bounced off its 20 EMA once again.

Bonds were mostly flat - TLT was up only +0.08%.  If it can't climb, it will probably drop - an even more likely outcome if SPX finds the attraction of SPX 2000 (a mere 28 points away) too irresistible to ignore. 

Brent crude sold off yet again, down -0.66 to 108.28.  WTIC (West Texas crude) was off a much steeper -1.53 to 101.94.  There was no single event that caused the drop, - it just sold off starting mid-day in London and didn't stop dropping until market close in NY.  Only a buck lower, and the whole move higher in oil from issues in Iraq will (from a technical standpoint) just have been a big head-fake.  The 107.50 area is critical to hold, if you are long oil - a break below that level will invalidate the longer term pattern of higher highs and higher lows.  While oil is quite oversold, the selling seems quite steady and strong right now; I would be nervous if I were long.

 

4 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5058
gold breakout - and SPX futures market selloff

Something happened at 0500 EDT - likely in Europe - and both gold and silver spiked higher and have now broken out to new cycle highs, following GDX and GDXJ's breakout yesterday.  Looks like the miners "knew something was up" with the metals - this seems to work more often than not, both on the upside as well as the downside.

We also have a decent-sized sell-off in the e-mini futures, with SPX off -17 as of right now.  Another "something" happened around 0300 EDT, but it resulted in a steady selloff, not some spike as with gold.  There was nothing on my calendar at 0500 EDT that should have caused this.  We'll find out in time though.

The gold move was definitely an "event", while the SPX selloff was more gradual - but 18 points down in the futures markets is a very big move prior to market open.  I haven't seen this happen for quite some time - maybe even years now.

Wendy S. Delmater's picture
Wendy S. Delmater
Status: Diamond Member (Offline)
Joined: Dec 13 2009
Posts: 1982
Cause of the Event?

Here is what seems to have triggered the event:

Futures Tumble, Bunds Soar To Record, Gold Surges As Europe Is Broken Again; Espirito Santo Halted  (via Zero Hedge)

The scandal which we first reported yesterday, after observing the record collapse in the bonds of troubled Portuguese lender Espirito Santo International following the failure to make a bond payment, has quickly escalated and overnight went nuclear. . . Early on in the European trading session, following a report in Diario that E.S. International is considering an insolvency request, Espirito Santo Financial Group, which holds 25% of Banco Espirito Santo, fell as much as 16.15% to EU1.09 and traded over 15% lower at EU1.10, at the same time as Banco Espirito Santo fell as much as 7.15% to EU0.571.This was aggravated by creditors concerns that anything was contained after yesterday's failed damage control attempt by the parent.

Then things went from bad to worse after Espirito Santo Financial announced it has suspended trading in its shares and bonds due to its exposure to ESI, adding the decision was taken due to “ongoing material difficulties” at its largest shareholder Espirito Santo International, according to regulatory filing.  ESFG says it “is currently assessing the financial impact of its exposure to ESI”. ESFG also suspends bond issued by fully owned subsidiary Espirito Santo Financiere. We will have the full, convoluted, org chart of Espirito Santo shortly.

So it looks like the genie is out of the bottle. Remember that Europe has done nothing about the circular firing squad that is their sovereign banking system. It's jumping from the sovereign banks into the private sector, too.

German Bund futures went up by as much as 46 basis points.

European bank, travel & leisure stocks went down. American S&P futures fell hard in the premarket.

Nickel, WTI crude oil went down. Gold and silver, however, have exploded this morning: gold  over $1340 and silver over $21.50.

Finally, US equity futures are tumbling. This may be the day contagion and volatility finally comes back with a vengeance, which is great news for all those who plodded through months of centrally-planned boredom and artificial stability. Let the games finally begin.

Carlos P's picture
Carlos P
Status: Bronze Member (Offline)
Joined: Jan 26 2009
Posts: 34
Clarification needed

I have seen a lot of news saying the bank is insolvent. That´s not quite right.

The problem with the Espirito Santo Group is mostly related with the holding company of the bank and insurance business (ESFG) , which itself has a problem related to commercial paper of the holding company of the family (ESI). The bank (BES), was used as a vehicle to sell these securities to costumers but the holding company (ESFG) has already booked a provision to refund the costumers.

The insolvent companies in the group are ESI and ESFG. The bank itself just recently raised around 1 Bn Euros in a equity offering and, according to the new solvency ratios/rules it is quite above the required thresholds.

I mean, we all know all banks are insolvent in the long run, because of the exponential credit system. But BES is not any more or less insolvent than any other regular bank, at least for now.

 

Time2help's picture
Time2help
Status: Diamond Member (Offline)
Joined: Jun 9 2011
Posts: 2765
Do Not Worry

The plunge protection team is on the job.  Looking for S&P unch for the day.

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