PM Daily Market Commentary - 7/30/2014

By davefairtex on Wed, Jul 30, 2014 - 11:23pm

Gold closed off -3.00 to 1295.60 on heavy volume, while silver was up +0.05 to 20.66 on moderate volume.  Gold traded sideways until 0830 when it sank $5 to 1294 at the moment of the 2Q GDP release, stopping out 4k long contracts in one minute.  It then rallied strongly 20 minutes later to 1305 stopping out 4k short contracts, and then sold off again, closing slightly down for the day.  Silver took the GDP news a bit better - possibly the "industrial component" of silver liked the improved economic performance.

Today was a great example of "the market is rigged in both directions" as some set of big players whipsawed the market over a 20 minute period just hard enough to cause the stops on both sides to get triggered.  By end of day, gold moved just $3, but a decent amount of money changed hands through the manufactured volume.

The USD was up yet again, closing up +0.19 to 81.51, a level last seen in February this year.  The dollar was not dramatically affected by the GDP release, or the FOMC release - it was just bought all day long.  The general dollar uptrend has been pressuring gold.  While in America we see a falling gold price, the Europeans don't see it that way because of currency moves.  Here's a chart of gold, priced in Euros - gold in Euros has moved sideways over the past 6 weeks because of the rising dollar.  This is why I say "a rising dollar will most likely pressure gold."

GDX closed off -1.08% on moderate volume, while GDXJ was actually up +0.87% on moderately heavy volume.  Miners sold off early in the session but recovered towards the end, with GDXJ recovering much more dramatically.  Both miner groups managed to close just above their respective 20 EMAs, and the ratios GDX:$GOLD and GDXJ:GDX both still look positive.

While gold's chart is looking distinctly unhealthy right now, after 7 of the last 9 days has been down, and yet the miners continue to find support.  Do we believe the miners, or do we focus on gold's rough descending triangle?  My gut says this may just be a dollar phenomenon - "but on the other hand" those large red volume bars on some of those down days are definitely signs of distribution.

I think if the buck continues rising, gold is vulnerable to a sharp move below 1290.  The dollar move should end soon, it is very overbought now, but the market often doesn't listen to what I think it should do.  Let's see if gold still has support at 1290.  If it doesn't, we could lose $25 off the price of gold in a hurry.

Today we had the positive 2Q GDP report released at 0830, which caused the e-mini (SPX) futures to rise 9 points prior to market open.  However the gains did not hold - SPX sold off right after the open, tried rallying and then sold off more mildly into the close, ending flat on the day at 1970, just below its 20 EMA.  As I have mentioned before, its not the news that matters, its the market's reaction to the news that counts most.  Initial reaction to the news was positive, but traders used the rally as a selling opportunity.  VIX rose slightly +0.05 to 13.33.

The market used to rally on bad news and good news.  Now, it is being sold on good news.  This is a change in behavior I think is significant - and bearish.  At this moment, I'm leaning short - not just because of today's market reaction, but because of a number of factors, many of them technical.

Long term treasuries (TLT) were crushed today, the selling starting at 0830 on the 2Q GDP release, and then continuing throughout the day right into the close, with TLT closing down -1.39% on very heavy volume.  Bonds did not like the good economic news at all.

Brent crude was hit hard today, down -1.21 to 106.51, falling below its recent trading range.  Its West Texas cousin WTIC was off a more severe -1.61 to 99.42, with the selling starting immediately after a weekly petroleum status report at 1030 EDT.  Looking at the offending report, I saw nothing wrong - but I'm not an oil trader so what do I know?  Gasoline sales are up strongly and refineries are running flat out, but gas prices fell, as did oil prices.  It was a big move down today.  Something is letting the air out of oil prices; increasing economic activity should be pushing prices higher, but that's not what is happening.


davefairtex's picture
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war in europe?

Armstrong has an article today entitled "Why We Will Go To War With Russia" that has one take on why Obama may be pressuring Russia the way he is.  And then goes on from there to describe why that is such a risky strategy...

Obama ... seems to be speculating that sanctions could lead to a coup against Putin. However, he can also put Putin in a position where to personally survive, he needs war in Europe. But the West is in the same boat. The entire social network is collapsing. While the gold promoters predict hyperinflation, they fail to understand history. They will NOT print to meet obligations, they will (1) default, and (2) create war as a last resort.

... The powers that be know that the socialistic-economy is collapsing. There is no way to pay the pensions and survive without revolutions and massive civil unrest. The ONLY way to mitigate that cycle is to find an external enemy. This is in the political handbook handed down over the centuries.

This makes as much sense to me as anything I've heard - it also aligns pretty well with the history I've studied.

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Steady Option

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