PM Daily Market Commentary - 8/21/2014

By davefairtex on Fri, Aug 22, 2014 - 3:16am

Gold closed down -15.20 to 1277.30 on heavy volume, while silver was almost flat, down just -0.03 to 19.42  on moderately heavy volume.  Gold made a new cycle low, broke 1280 support, and drove through the 200 MA all in the same day.  Silver also set a new low, but rebounded into the close, printing a hopeful-looking hammer candle.

The bulk of gold's loss came at 0203 EDT - one of those "wee hours of the morning" jobs, which happened to be 0703 London, or 1503 Japan if you have a more international viewpoint.  While it could have been a news story, my sense looking at the intraday price action is that things looked weak, and the shorts wanted to see if they could run gold through 1280 support with a big enough sell order.  The first shot through 1280 was bought, but that rally failed and the damage was done, and price eventually dropped below 1280 before the US market opened.

Interestingly, silver didn't really follow gold down as much as one might have expected given its performance over the past month or so, and the rally back was much more substantial.  As bearish as I've been recently on silver, this change in behavior has my attention.  This relatively bullish silver behavior also caused the gold/silver ratio to drop -0.66, a big move.  The gold/silver ratio is still in bearish territory, but it may have topped out in the last few days.  My sense: silver has bidders down around 19.30-19.40.  Another possibility: traders might be unwinding some long gold/short silver trades too - basically closing out bets on a rising gold/silver ratio.

The USD tried to continue its rally today but failed, dropping -0.08 to close at 82.21.  I'm loathe to call a dollar top, but it is a bit overbought and now would be a reasonable time for the buck to take a rest.  If it does, that would probably help PM to find a low.

GDX was down -2.21% on heavy volume, closing below its 50 MA for the first time since mid-June.  GDXJ did a bit better, down only -0.71% on moderate volume, but it closed below its 50 MA today as well.  While it is good that mining shares didn't collapse given gold's big move lower, they are starting to look a bit tired.  Large volume on today's GDX selloff confirms this - serious selling occurred today.  Still, mining shares haven't actually broken support yet, which is one bit of positive news, and they remain far above their 200 MA.  They continue to outperform gold.  Still - that high volume drop through the 50 MA has me concerned.

SPX broke to a new all time closing high today, closing up +6 to 1992.  This is the fourth straight up day in a row, and 8 of the last 10 days have been up.  At some point, SPX will start to get tired (it is looking a bit overbought right now) and perhaps if the dollar corrects and money flow into the US slows down, so will SPX.  Once again, put buyers have been crushed - VIX is now 11.76.   It is still not back to "supremely complacent" levels but it is getting much closer.

Long term treasuries (TLT) were up +0.56%, a good day for bonds.   Once again TLT has bounced off its 20 EMA, a continued sign of strength.  Were I long TLT, I'd be especially heartened that bonds did so well on a day when SPX made a new all time high.

Crude rallied, with Brent up +0.35 to 102.63.  Two up-days in a row looks to be an improvement, but I won't be convinced until crude breaks its downtrend line.  I care about crude because its tough to make an inflation case with constantly falling oil prices.

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