PM Daily Market Commentary - 2/11/2015

davefairtex
By davefairtex on Thu, Feb 12, 2015 - 3:30am

Gold fell -15.10 to 1218.30 on moderately light volume, while silver dropped -0.12 to 16.78 on moderate volume.  Gold traded sideways until just after the NY open, when it sold off about $12 in about 30 minutes, and never recovered.  Silver fell too, but by a proportionally smaller amount.  Gold has now plunged through its 50 MA, while silver remains above its own 50.

Silver is now looking better than gold.  However both charts look bearish.

USD rose +0.36 to 95.18 climbing gradually higher towards its previous high of 96.  Closing prices are a bit confused today, since a lot of price action took place after the US market closed; there was an announcement by CNBC that quoted "a source" as saying that a deal had been reached.  This caused the buck to plummet, the Euro to jump higher, and the US equity market (futures) to rise sharply.  Once this proved to be incorrect, markets returned to previous levels.  However, the closing values of some items (the Euro for instance) took place prior to the Euro's retracement back to the old levels.  So for instance, Stockcharts has the Euro up +0.25%, while having the buck up +0.38% - because the instruments had different closing times.

Mining shares sold off today on gold's fall, with GDX closing off -1.97% on moderately light volume, while GDXJ did slightly better, down -1.57% on light volume.  There was less selling in GDX than I expected, given the drop in gold and the break of support.  I suppose that is positive.  Nobody looks particularly motivated to sell the miners, they are just drifting lower.  Still, after the break of support, I'm a bit nervous for the miners.

The GDX:$GOLD ratio is just starting to turn down, but GDXJ:GDX has actually been rallying for more than a week now.  Perhaps anyone who wanted to sell juniors is already out, its hard to say, but the ratios look better than gold itself does right now.

SPX closed mostly flat, down -0.06 to 2068.53.  There was a brief, slight drop after mid-day in NY but the market recovered by the close.  After hours there was a strong move higher in the futures markets on the false news that a deal with Greece had been reached, but those gains evaporated once that turned out to be incorrect.  VIX dropped -0.27 to 16.96.

Long bond ETF TLT rose +0.19%, finding support at its 50 MA.  TLT printed a small hammer candle and staged a reasonably strong rally after a positive 10 year treasury auction.  We might have a low for bonds, though it requires confirmation tomorrow.

The CRB (commodity index) dropped -0.74%, falling through its EMA-9 heading back into bearish territory.  The commodity index is starting to look weak again.  The strong medium term downtrend in commodities remains unchanged, even though in the short term we've had a modest rally.

WTIC fell -1.52 to 49.44, also falling through its EMA-9.  Oil is weakening, and it would not surprise me to see a re-test of the 44 lows after about a week or so.  It too remains in a medium term downtrend, defined by its falling 50 MA.

The markets seem to be traders are too worried about the outcome; gold certainly doesn't show any concern, neither do US treasury bonds or the US equity market.  Still, the buck is slowly climbing so perhaps some element of fear remains.

Do I believe the markets are correct in their overall sense of things?  They feel too optimistic to me.  To date, every single Euro-can has been successfully kicked down the road, so in that sense the markets are betting on history to repeat itself.  Will SYRIZA go along, like all the other peripheral-nation governments have in the past?  My gut says no - or at least, not enough.  After the meeting today, FinMin Varoufakis would not even agree to a joint statement detailing a near-term roadmap for resolving their differences.  But he made it sound so nice:

“I was given a wonderful opportunity and a very warm welcome to present our views, our analysis, our proposals both regarding the substance and regarding the road map,” Mr Varoufakis said. “Since we are meeting again on Monday, I think it is simply better move to the Monday meeting.”

Dutch FinMin Dijsselbloem, chair of the Eurogroup finance minister group, was a bit more testy:

“We simply tried to work on [the] next steps over [the] next couple of days; unfortunately we were unable to do that,” said Mr Dijsselbloem. “Will people be starting work in Athens or elsewhere? Not between now and Monday, because we need to have common ground on the process forward.”

These two distinct meeting summaries suggest the following to me: Brussels feels a sense of urgency and really wants this to go away.  Varoufakis on the other hand shows no apparent concern about time pressure, and seems perfectly happy to discuss the shape of the conference table.  (See: http://www.history.com/this-day-in-history/procedural-questions-cause-difficulty-at-the-peace-talks).

Even with his clothing, Varoufakis is sending a subtle signal saying he's not willing to "go along" even on something that pretty much everyone else agrees to go along with.

Without a massive three-letter-intelligence agency to do our worldwide snooping for us, we outsiders are reduced to reading the tea leaves like this.  Now we get to wait until Monday to see what the next installment in the drama will bring.

As of right now, no hints of a low in gold have appeared.  COMEX buyers have just not shown up.

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6 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5070
RT retrospective on Yanis Varoufakis

Greek FinMin Varoufakis appeared on RT a relatively large number of times in the past few years; once he entered office, RT did a retrospective trying to suggest that he might not be a "tough talking radical who doesn't mince words", as suggested by some in the MSM.

There is something challenging and direct about the man, while at the same time he is entertaining and perhaps even a trifle theatrical.  I encourage you to watch the video, perhaps you will see what I see - a picture of a guy who is really saying what he thinks, prior to his entry into politics, although quite possibly setting the stage for his eventual appearance.  It is almost like one of us here who has a very clear vision of what needs to happen, has a strong belief system, and just happens to be given the chance to affect the course of his nation's destiny.

Some quotes of note:

Let me tell you about an experience I had in Brussels when I was talking to one of the Commissioners...I put to this commissioner the point that it seemed to me as an economist quite idiotic to increase VAT in a country whose recession is skyrocketing...so I said to this commissioner, "Why are you doing it?  Isn't the EU's objective to increase the tax take, not to push it down?"  Let me tell you what the answer was. "You are quite right, we know what will happen, but this is a lesson we are trying to teach Italy, the Rome government in particular, as to what they should be expecting to [fall] upon them if they don't do as they are told."

When asked how Greece gets through its current problems (Debt/GDP ratio of 174%, July 2014) without a massive restructuring, he replied:

It won't.  Massive restructuring will have to happen, if Greece is to get through....

Not only do we have a serious sovereign debt problem, but we have a serious tackling of our banks, which are insolvent - remember Greek banks have non-performing loans in the region of 40% - and these are like two or three problems that are simultaneously running, and they have to be tackled at once, and unless and until these problems are tackled at once, then the Greek story will continue along its sad path.

When asked if the Greek debt burden is sustainable (related to previous question above):

No!  It isn't!  It was never going to be sustainable.  You see, the great crime of the EU was that, knowingly (unless of course they are complete idiots, and I don't believe the people are idiots, I think they are quite smart folks) what happened in 2010 has continued to happen since then, is there was a cynical transfer of banking losses from the books of the banks onto the shoulders of the taxpayers, and those who effected that cynical transfer knew full well that those shoulders would not be able to sustain that debt, so the debt the Greeks took over would then have to be mutualized - the debt would then have to be paid by the Germans, the Dutch, even the Portuguese - even the Slovaks, who are poorer than the Greeks.  So the results of this inane handling of the crisis is that proud European nations have turned against one another.

Man, I wish this guy every bit of success.  Look into his eyes, and see if you think he's going to cave.  My assessment: he is not a career politician so he has zero "career risk", his moment of destiny has arrived, he has a clear vision, he knows what needs to be done - I don't think he'll be satisfied "unless and until" he does everything he can to put his country back on the road to a sustainable situation.

Will the Germans dare to let that happen in the context of the Eurozone?  The Italians might get the wrong idea...

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1517
Gold buy signal?

http://moneyweek.com/gold-price-macd-buy-signal/?

This doesn't really affect me because I have my position in gold/silver and merely add to it on a regular basis out of my savings.  However, it seems intriguing and I'm wondering what Dave and the other analysts think about the basic methodology and this particular "signal."

This signal only comes once every few years

MACD (pronounced ‘Mac-Dee’) is a technical signal used to measure momentum and to determine whether something is overbought or oversold. Trend-followers like to use it as a timing indicator – when to buy or sell – too.

It tends to work better in a trending market – in a ranging market I’ve found it to be less successful. I’m not going to explain how or why it works – if I start talking about ‘moving average convergence divergence’ many of you will just switch off. Instead, I’m just going to show you the buy and sell signals.

In the upper half of the chart below, we see the gold price since 2005. I have marked the points at which we got ‘sell’ signals with a red arrow, and ‘buy’ signals with a green arrow.

Gold price and MACD chart

In the bottom half of the chart, we have the MACD. I have marked the ‘buy’ signals with a green circle and the ‘sell’ signals with a red circle.

Ignore the blue bars around the zero line. I only want you to look at the red and blue lines.

When the blue line crosses up through the red line, that is your ‘buy’ signal. We saw this in late 2005, mid-2007, mid-2009 and just now – where I have drawn the green circles.

When the blue line crosses down through the red line, that is your ‘sell’ signal. We had ‘sell’ signals in 2007, 2008 and in early 2012.

(The red and blue lines, by the way, are moving averages. The red line is also known as the ‘signal’ line).

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
On Channels and Elliott

Michael Shedlock has stated on his blog, in the past, "Sometimes things do look suitable for Elliott wave analysis, but you can't shoehorn it in." 

I suspect that Elliott analysis is basically right, under the conditions of mob psychology.  But mob psychology doesn't always rule.  Rather, the mob psychology is an aspect of bubble behavior.  Most times, a given commodity isn't in a bubble, so Elliott Wave analysis may not always be appropriate. 

When it isn't mob psychology directing things, then I suspect that market limitations act on things.  Thus, my mult-layered channels are usually going to be appropriate. 

Unless there's a bubble (or a popping bubble).

That said, bubble behavior will become dominant sometimes, and we may be approaching such times in three quarters of a year to a couple years from now.

Or maybe I'm wrong.

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5070
monthly MACD signal

Tom-

What are you trying to say, ignore all my writing and just wait for the long term trend to change?  It can't possibly be that simple!

The holy grail of trading is detecting that trend change with a high probability of being right.  MACD is one attempt to do that.

MACD is a trend indicator, with an eye towards detecting changes in trend.  Its actually a pretty good one - what it really does is detect changes in the slope of downtrends and uptrends.  As a downtrend changes from a steep downtrend to a more shallow downtrend (or - best case, a reversal in trend), that will cause the MACD to trigger, and the blue line will cross the red line and show "buy" or "sell".  When trends change slope, history shows that the market has a decent probability of changing trend in the near future.

Key word is probability.  It doesn't always work.  But as you can see, it works pretty often.

Limitations of MACD are that it sometimes triggers early, and sometimes triggers late.  After the steep drop in 2008, monthly MACD would have got you back in pretty late, which might not have been so much fun.  Likewise, in 1990-1993, MACD triggered in 1990, and then gave off a flurry of false signals for 3 years running before the market went from shallow downtrend to uptrend.  There was also a somewhat unpleasant period in 1999-2001.

Overall though, the monthly MACD would have kept you out of a lot of trouble over the years.  Bottom line is, I like it.  It helps to provide discipline and patience, both of which I need!

For the infrequent gold buyer, who prefers his signals once every 3-4 years and is primarily looking to buy rather than trade, I think its great.  You could do a whole lot worse.  But it is best to use it after a big clear trending move just like we've seen since 2011.  If the market has been chopping sideways for 5+ years, MACD isn't really going to provide that clear signal we all want.

Ultimately, monthly MACD gives you an unbiased look at "current momentum" which is good for discipline - if you had glanced at it every week starting from 2012, it would remind you every week that the market had changed tone.  Rather than "buy the dips" traders from 2012 on were "selling the rallies" which in general leads to lower prices over time.

Now, MACD is suggesting we should be watching for a change in the trend to "up".  That hasn't happened yet, but monthly MACD says it has a decent probability of being in the offing.

Here's an example of monthly MACD for the HUI (gold stocks index) since 2000.  Good news: it kept you out of the 66% miner decline that started in 2011.  Bad news: it got you back into miners in mid-2014, which exposed you to that nasty 25% decline going into the end of 2014 - we've largely recovered from that, but it was an unpleasant experience to go through.  Great example of MACD getting us in too early.  It was tricked by the sideways move in the miners during mid-2013 through mid-2014.

Ultimately, if you ask me, "should I just buy and sell the changes in MACD, or should I pay money to a newsletter writer and buy every time he says a COMEX default is coming soon because registered gold is low (or whatever reason-du-jour happens to be to buy gold)...give me MACD any day.  It actually works.  What's more, you can judge for yourself how well it works by looking at past performance.

What newsletter writer provides you with that kind of clear, unwavering self-criticism?

 

robie robinson's picture
robie robinson
Status: Diamond Member (Offline)
Joined: Aug 25 2009
Posts: 1148
Dear Dave,

"What newsletter writer provides you with that kind of clear, unwavering self-criticism?" You do, Davefairtex.

thank you

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5070
bakken production update: new production peak 1.227 mbpd

Director's Cut (as of Feb 13) from the ND Dept of Mineral Resources reveals the following:

  • Production: 1.227 mbpd, +39k bpd, new record.
  • New wells: 173 (up 125)
  • Implied IP per new well: 611 bpd
  • Bakken avg oil price: $40.74/bbl (down $20)
  • Wells awaiting completion: 750 (down 25)
  • Implied aggregate production/well: 101.2 bpd
  • Rig count: 160 (down 21)
  • Required completions/mo for flat growth in Bakken: 112

https://www.dmr.nd.gov/oilgas/directorscut/directorscut-2015-02-13.pdf

My summary: companies completed a lot more wells in December than in November, which drove production higher.  My prediction for a Dec peak didn't happen.  Looks like companies are motivated to spend money to complete at least some of those wells, even with oil at $40/bbl.

Price for Bakken oil is ridiculously low right now - in December it was $41 but in January it shows an average of $31.  Nobody makes money at $31 oil.  (Bakken oil price is lower than WTIC, because of transport costs).

 

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