PM Daily Market Commentary - 7/17/2014

By davefairtex on Fri, Jul 18, 2014 - 5:08am

Gold continued moving higher today, rising +18.50 to 1318.70 on heavy volume.  Silver was up +0.36 to 21.19 on moderately heavy volume.  The rally in gold started around 1115 EDT - there was no massive spike, just a series of breakouts higher.  Was this about the civilian airliner shootdown, the Israeli invasion of Gaza, or something else?  I don't know.  It certainly felt like a news event, rather than an economic report.

The USD was down slightly, closing off -0.04 to 80.58.  The trading range for the buck was narrow today, it is currently looking a bit more bullish on the daily chart, with the 50 MA about to cross the 200 MA in a "golden cross."  The weekly chart still looks bearish, however.

The miners had a great day today, with GDX rallying strongly alongside gold starting at 1115 EDT.  GDX closed up +2.70% on heavy volume, while GDXJ was up a massive +7.33% on the highest volume in six months.  It looks to me like the sharp rally in gold caught the shorts by surprise; possibly they (like me) were expecting the downtrend in mining shares & the metal to continue a bit longer.  That certainly seemed to be the setup, until events intervened.

SPX closed off -23 to 1958. Through the first part of the morning it looked like SPX was on the path to be setting a new all time high, but around 1030 EDT it hit a wall, and then started to sell off, and the selling just didn't stop until market close.  SPX closed below its 20 EMA, and all the excitement caused the VIX to jump spectacularly, up more than 3.5 points in one day, to close at 14.54.  Looks like the VIX is a buy anytime it drops below 11.

TLT (bonds) gapped up in the morning and just kept climbing, finishing the day up +1.26% and breaking out to a new cycle high.  The move in bonds didn't seem to be directly tied to weakness in the equity market (i.e. the TLT move up didn't happen at the same time SPX started moving lower) - rather, TLT was strongly bid the whole day.  The 20 year treasury, surprise winner of 2014, up about +15% YTD.

Brent crude continued its rally today, closing up +0.72 to 107.89.  WTIC had an even better day, up a big +2.24 on very heavy volume.  Oil prices popped at about the same time as gold.

I think the move higher in PM and in oil was geopolitical/turbulence-related.  Will the "safe haven" turbulence premium remain?  That's the key question for me.  I'm always a bit wary of buying such rallies, because if and when the news fades, so will the rally.  These sorts of events seem really good at forcing the shorts to cover, but in the long term, often its just a flash in the pan.  If the world doesn't end, traders who bought the bad news eventually take profits and move on.



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