PM Daily Market Commentary - 7/31/2014

davefairtex
By davefairtex on Fri, Aug 1, 2014 - 1:10am

Gold closed down -12.50 to 1283.10 on moderately heavy volume, while silver was off -0.24 to 20.42 on moderate volume.  Gold's descending triangle broke down, with gold dropping through its 50 and 200 MA lines making a new cycle low on some decent volume.  That gold correction is not finished yet.

Silver however has managed to avoid making a new low, remaining above both its 200 MA and its 50 MA.  For some reason it has more buyers, and this has kept the gold/silver ratio in relatively bullish territory.  However silver is forming its own descending triangle; if gold doesn't rally soon, we could see silver sell off strongly on a break below 20.37 support.  Silver needs to break that downtrend line to avoid this outcome.

The USD made another high today, but only moved up slightly, closing +0.03 to 81.54.  The dollar has gone up 14 of the last 16 days - at some point, it will correct, and that will relieve some pressure from PM, but that day was not today.  The buck did print a hammer candle, which could mark the top if tomorrow we can manage to close below today's low.  Money started flowing into the buck in early June, and it just hasn't stopped all month long.

Both miner ETFs had a bad day today, with GDX down -2.12% on moderate volume, while GDXJ was off -2.96% on moderately heavy volume.  Miners more or less followed gold lower today, with a sell-off right at the close.  The miner ratios are at the edge of leaving bullish territority - they are hanging on but not by much.  You can see this too in the GDX price chart.  It has not yet made a new low, but it is quite close to doing so.  A break below 25.75 will likely lead to a high volume selling day which so far, GDX has managed to avoid.

SPX, well what can I say?  By the time the market opened, the futures were already down 15 points, and the selling just continued all day long, with every rally being sold.  The 50 MA which has provided decent support in the past was good for a 15 minute bounce.  There is a support zone of sorts at around 1900 - the last breakout point and a nice round number.  Why did the equity market tank so hard today?  Who can say.  It was just its time.  The selloff on yesterday's 4.0% GDP print was our "tell".   VIX shot up to 16.95.  Put buyers benefit twice on days like today - once when prices drop, and another time when option volatility shoots higher.  Good for them - buying puts has been a sucker's bet for the past long while now.

Long term treasuries (TLT) did not have a particularly good day, surprisingly, as TLT closed off -0.30% on some really heavy volume.  Things looked worse earlier in the day and TLT did rally back, but from what I can see money is not flowing into long bonds just yet.  This leads me to think this move down in equities may not be strictly about expectation of bad economic performance.  If that were the case, bonds should have rallied.

Here's a fun chart: junk bonds (JNK).  It shows the market truism - market is an escalator on the way up, but an elevator (and sometimes just the elevator shaft) on the way down.  Lest you think that gold is singled out for big moves lower.

Brent crude was off -0.49 to 106.02, but the big story was WTIC, absolutely hammered, losing -1.77 to 97.65, making a new low on huge volume.  This also took down energy equities, which had been doing relatively well up until now.

Remember that "sure thing" ISIS oil trade?  That was "so $10 ago" back in mid-June.

Commodities have almost retraced the entire rally that started in February.  A good chunk of this is the poorly performing crop futures (wheat, soybeans, corn) and energy, but the  drop in commodity prices isn't helping gold & silver.

Today, a lot of things were just sold.  Traders are going "risk off" - something has them spooked.  Perhaps its concern over Ebola (how's that for a black swan?), or maybe it is the words of the Former Maestro that has given traders the visceral sense that the Fed isn't going to step in to rescue the market this time around.

Now we watch to see when the buying will start.  Five years of buy-the-dip isn't axed in one 40-point down day.

 

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