PM Daily Market Commentary - 10/15/2014

By davefairtex on Wed, Oct 15, 2014 - 10:46pm

Gold closed up +8.90 to 1241.30 on extremely heavy volume; silver was up +0.06 to 17.44 on heavy volume.  PM sold off for the first half of the trading day, with gold hitting 1221 and silver 17.02, but PM started to recover at around 0700 EDT.  Then at 0830, a collection of negative economic reports came out that caused the dollar to sell off really hard, which drove gold up to 1250 and silver to 17.82 - new highs for this cycle in both gold and silver, which of course stopped out a whole bunch of shorts.  Gold held on to about half its gains, but silver was not so fortunate, almost returning to its starting point.

The dollar had a very eventful day today, dropping a huge 1.50 points between 0730 and 0940 causing all sorts of mayhem - equity market sold off, gold, silver, and treasury bonds shot higher, junk bonds sold off and made new lows.  The buck ended down -0.83 to 85.08, still a big down day even after its partial recovery.

Mining shares had another so-so day, with GDX up +0.37% on moderate volume, and GDXJ was up +0.08% on light volume.  Mining shares did have a decent rally until about 1330, after which they sold off into the close losing most of their gains - the mining share sell-off coincided in time with the recovery in SPX.  It looked almost like money was sucked out of miners and poured into SPX.

SPX had an exciting day, at one point it was down almost 50 points, but it ended the day down only -15.21 closing at 1862.49.  Volume was very heavy.  SPX bottomed around 1330 EDT, and it rallied through to the close.  Even with the rebound, the VIX was up +3.46 today to 26.25.  Could this be a cycle low for SPX?  It could be.  We would need confirmation of a close above 1875 tomorrow.

Long term treasuries (TLT) had the craziest day of all, blasting higher on the strength of the dollar drop, bond shorts fleeing for cover as TLT made new cycle highs with a vengeance.  At one point I saw the long bond up 3% on the day - an insanely large move.  However, it did not hold on to all that gain, closing up only +0.79%.  To me, that sort of price action smells like a top - a massive break higher that mostly ends up being sold.  The last remaining bond shorts capitulate in a frenzy of covering, and with no more shorts left, that marks the top.  Or so the theory goes anyway.  JNK had a big selloff today too, but along with SPX it recovered nicely closing down only -0.18%.

Commodities had a bad day, off -1.08%.  Oil made new lows; WTIC down -1.18 to 81.09, Brent down -1.29 to 84.12.  Volume on both oil contracts was massive.   Oil equities on the other hand rallied strongly, appearing to have put in a low, with most oil stocks I watch in positive territory by end of day.  Possibly: oil equities may be leading oil itself.

The trigger for the excitement today was the release of three different unexpectedly bad reports at 0830; a bad Empire State manufacturing survey, a poor Retail sales report, and an unexpectedly low Producer Price Index (inflation) number.  I say these were the trigger because I can trace the start of the decline in equities and the USD as well as the rally in bonds to the time of those reports - 0830 EDT.  The manufacturing survey may have been the most important - it hinted that the INDPRO number (due to be released tomorrow at 0915 EDT before market open) might be a whole lot more negative than expected.  According to my research, INDPRO is a primary driver of SPX.  In the past when INDPRO has started to tip over and sink, so does SPX.

It will be interesting to see what tomorrow brings.  While the big high volume candle in SPX hints at a possible low - that could all change right at 0915 EDT if INDPRO comes in seriously lower than expected.  My guess is, a bad INDPRO number will send the dollar lower, the metals higher, and SPX to new lows.

Never a dull moment these days...

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