PM Daily Market Commentary - 2/4/2015

davefairtex
By davefairtex on Thu, Feb 5, 2015 - 3:13am

Gold fell -4.40 to 1265.00 on moderate volume, while silver dropped -0.11 to 17.25 on moderate volume too.  Gold was sold starting late in Asia through morning in NY, finding support at the 200 MA, recovering into the close in NY.

That 200 MA has provided support for gold over the past week or so, however with each of gold's rallies being progressively less vigorous, we are seeing a bearish descending triangle forming in gold.  These patterns often end badly.  However sometimes a breakdown through the base can sometimes be a headfake - just to make sure everyone doesn't start to think that trading is easy.

The USD dropped today, losing -0.58 to 93.68.  This is because the Euro had a good day, closing up +1.28% to 114.83, as did the Pound (+1.00%), the CAD (+1.17%), and to some degree the AUD (+0.59%).  Market-moving news looked like a mixture of a polite NEIN (from German FinMin Schauble) regarding the Greek Smart Debt Engineering proposal, alongside the rally in oil helped these currencies to rise vs the dollar.

Greek FinMin Varoufakis met with Schauble today in Berlin, where Schauble summarized the meeting: "we agreed to disagree."  Varoufakis disagreed with this summary (!) saying "We agreed to enter into a discussion for a joint solution for all European partners."  The currency markets seem to like it when the Germans say no.  What's the next move from Varoufakis?  The unpayable debt still remains.  Either Greece caves, a renegotiation takes place, Greece leaves the Eurozone and defaults, or - as Mish suggested today - Greece remains within the Eurozone and defaults.  That's pretty much it for choices.  I see #1 and #4 as unlikely, which I believe leaves #2 or #3 as the more-likely outcomes.

Syriza came out of the gate crazy, then looked reasonable for a few weeks, which led to a NEIN from the Germans.  I think crazy is due to make an re-appearance sometime soon.  If reasonable didn't work, what remains?

Mining shares did well again, with GDX up +1.39% on light volume, and GDXJ rose +2.03% on moderately light volume.  Senior miners rallied steadily all day long, and managed to close just above its 200 MA.  That's a positive sign especially with dropping gold (the GDX:$GOLD ratio is looking much stronger now), but the declining volume on this slow move higher suggests a lack of enthusiasm.  The higher volume on the down-days is also a warning sign.  If gold drops through its base, miners could sell off hard.

SPX rallied strongly through its 50 MA, closing right near the top of its recent trading range.  SPX closed up +21.01 to 2062.52.  Over the past week, it appears that SPX likes oil price rallies; SPX has moved higher on each day when the oil price rose.  VIX dropped -1.48 to 16.85.

Long bond ETF TLT fell -1.10%, erasing gains from yesterday's rally.  I guess the low isn't in for bonds just yet.  JNK rallied +0.59%, building on its breakout from three days ago.  JNK is sending a "risk on" message right now, looking bullish, now above both its EMA-9 and its 50 MA. 

The commodity index ($CRB) rose +1.22%, recovering somewhat from yesterday's sell-off.  It remains above its EMA-9 which is positive.

WTIC confounded my expectations for a drop - it rallied strongly today, up +2.22 [+4.56%] to 50.92.  There is a big struggle going on for direction in oil, and the magnitude of this struggle shows up in the volume, which has been very heavy for the past 4 trading days.  Currently, WTIC remains comfortably above its EMA-9, but still below the falling 50 MA.  The fact that WTIC has closed above its EMA-9 for 5 days in a row is more bullish than oil has been in months and the rally today showed there is a huge bid underneath prices here in the 45-50 range.

If oil can close above its 50 MA, that would be quite bullish.

Bullish momentum in gold seems to be fading a bit, oil has a strong bid in the 45-50 range, and we are just now starting to see a return to "risk on" from JNK, SPX, and the falling long bond.  However, I think where we go next depends on the news out of Europe.

Unpayable debt + Syriza in power = something interesting will probably happen.

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