PM Daily Market Commentary - 7/10/2014

davefairtex
By davefairtex on Fri, Jul 11, 2014 - 5:34am

Gold closed up 8.70 to 1336.30 on heavy volume; silver was up +0.31 to 21.47 on moderately heavy volume.  Gold tracked sideways until 0500 EDT, at which point it spiked higher, breaking out to a new cycle high, stopping out a bunch of shorts.  It was some news release or event that caused the spike at exactly 0500, not some general bullish gold feeling or worry about Portugal.  After spiking and then moving even higher (high for the day was 1346), gold retreated into the close.

The USD rallied today, up +0.10 to 80.17.

The miners underwent some heavy distribution today, which is especially concerning given gold's breakout to higher ground on the same day.  GDX was off -1.99% on heavy volume, while GDXJ was down -3.04% on very heavy volume.  GDX printed a high volume "bearish engulfing" candle - more or less - which as its name suggests, is bearish.  GDX remains at its former breakout point which is slightly positive, but if GDX drives down back into that consolidation box again, that's confirmation of the reversal.  GDX move today is suggesting we may have a correction coming up - the ratios are all still positive, so right now I'd interpret this, worst case, as a correction within an uptrend.  That said - back in March we had a GDX breakout of a consolidation, only to see it sell off sharply into the April-May gold correction period.

GDXJ performed better than GDX did, in spite of its higher percentage point loss, on a chart basis anyway.  It printed a Dark Cloud Cover candle which sounds ominous - it should be, because its bearish.  If price closes tomorrow below 43, then its a confirmed bearish reversal for GDXJ.

SPX was hit hard in the futures markets prior to the open - at one point it was down 20 points.  It spent about 30 minutes down there after open, only to rally back in the later part of the session, closing down only -8 to 1965.  Buy the dip remains alive, at least in the broader market.  Housing had a very bad day, down -1.88%, while tech closed down only -0.22%.  The drama of a potentially more serious down day moved the VIX up to 12.59, the highest level in a month.

Bonds were up sharply on the initial SPX selloff, but then sold off by end of day - TLT was up only +0.03%.  It looks like bonds are projecting yet another "buy the dip" scenario unfolding in SPX.

Brent crude may have found support at long last; dropping briefly through the upper 107 range right at the do-or-die support line, it rallied and closed up +0.39 to 108.67.  However, volume was light, so I remain skeptical if the low is actually in for this move down in crude.

To me this is another reminder of how markets work.  The "sure thing" oil trade was to buy on all that Iraq unrest - and no doubt, almost everyone who wanted to buy, did buy, which is why price moved up to 115 so quickly.  How come oil didn't keep climbing?  Because everyone who wanted to buy was already in.  And without a series of fresh disasters rolling in, without IS taking Baghdad, profit taking started to happen.  And there were no buyers left (remember, they'd already bought in)...and that left only one way for oil to go...and that was down.

While others might imagine this to be proof of massive manipulation, I just see this as a good reminder: "sure thing -  everyone knows" trades are dangerous.  Heck, I was tricked too.  After all, it was a sure thing.  I figured oil was heading to 120.  Luckily I don't trade oil.  :-)

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