PM Daily Market Commentary - 3/17/2015

davefairtex
By davefairtex on Wed, Mar 18, 2015 - 12:40am

Gold dropped -5.70 to 1148.10 on heavy volume, while silver fell -0.10 to 15.53 on moderately light volume.  Gold traded sideways until an hour before the NY open when it sold off sharply, making a new low of 1141.60.  An hour later it rallied even more strongly, rising to 1159.30 but then sold off again.  As a result, both longs and shorts were run in the day prior to the FOMC policy annoucement scheduled for 1400 EDT tomorrow.

Patient.  Here are my three scenarios for what happens after 1400 tomorrow:

  1. They remove the word patient.  Dollar rallies strongly, holds onto its gains.  Dollar rally continues for several days.  Gold sells off, driving through 1130, making new lows for gold and the miners.
  2. They remove the word patient, but it turns out to be a "sell the news" event.  Dollar perhaps initially rallies, but then reverses and sells off.  Gold might temporary breach 1130, only to reverse strongly and start moving higher.
  3. They do not remove the word patient.  Market is surprised.  Dollar sells off, gold likely rallies.

We are only $18 away from the previous low at $1130.  That's not very far.  Dropping through that level would run the stops of a large number of longs, so it is a tempting target for the banksters.  Its clear there aren't many buyers right now - will they wait until the meeting to launch or will they attack prior?

To me the problem remains the dollar.  If it continues rising, we go through 1130.

Miners sold off today, with GDX dropping -0.99% on moderate volume, while GDXJ fell -2.17% on moderate volume.  Miners opened low, rallied along with gold at 10 am, and then sold off for the rest of the day, pretty much following along with gold.  Miners avoided making new lows, but they do not look particularly strong going into the FOMC announcement tomorrow.

The USD fell modestly, dropping -0.09 to 99.95.  The Euro appears to be trying to make a low here around 105 and change.  If patience doesn't get removed, I'm guessing the Euro rallies strongly and the buck sells off.  This may happen anyway, given how overstretched both currencies are right now.

US equities (SPX) sold off somewhat, dropping -6.91 to 2074.28.  I'm not sure where the equity market is going right now.  Do we sell off if patience is removed?  Quite possibly.  "Punch bowl removal is imminent."  I think traders are in a wait-and-see mode with equities too.  VIX rose, but only +0.05 to 15.66.  Downside insurance isn't all that popular.  Perhaps it should be.

Long bond ETF TLT continued higher, rallying +0.83% and moving back up towards its 50 MA.  Slow flight back to safety ahead of the FOMC perhaps.

The CRB (commodity index) fell again, dropping -0.53% and making yet another new closing low.  We are only 4.5% away from the 2009 commodity low set in the depths of the crash.

WTIC dropped -1.36 [-3.11%] to 42.43, another new closing low for oil.  Brent-WTIC spread continues to expand, now at 10.82.  We have the weekly Petroleum Status Report tomorrow at 1030 EDT, which might end up setting direction for the next week.  WTIC prices were last seen here in March 2009.  If WTIC drops into the 30s, that goes back to February 2009.

If patience gets removed, and the dollar reacts higher, that won't be good for gold, oil, or the rest of the commodity group.

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6 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
squeezing Greece

Although an agreement was signed, no money has emerged from Brussels to enable the Greek state to continue making its payments.

Now the chairman of the Eurogroup, Dutch Finance Minister Jeroen Dijsselbloem suggests it may be time for Greece to enact capital controls.  This rather incidendiary statement which could easily be seen as deliberately trying to start a bank run - from the head of the Eurogroup no less - really made the Greeks upset:

http://www.ekathimerini.com/4dcgi/_w_articles_wsite1_1_17/03/2015_548315

"It’s been explored what should happen if a country gets into deep trouble – that doesn’t immediately have to be an exit scenario,” Bloomberg quoted the head of the eurozone’s finance ministers telling his country’s BNR Nieuwsradio. On Cyprus, he said, “we had to take radical measures, banks were closed for a while and capital flows within and out of the country were tied to all kinds of conditions, but you can think of all kinds of scenarios.”

There is all sorts of flexibility that the ECB and the Eurozone has in this matter, and they are using none of it.  Now they are engaging in other means of adding pressure to the situation.

My sense: the governments of the Eurozone really want the Syriza government to fail.

Judging only by the actions taken so far, it seems that no money will be forthcoming unless the new Greek government acts in exactly the same way as the prior Greek government - as enforcers for the Troika, enacting a plan that was specifically designed NOT to achieve its ostensible ends, but was rather put in place in order to visibly torture Greece so that they served as an example for other more important nations who might otherwise consider behaving badly.

At the same time, this clever plan rescued the German and French banks.

Next step: a soft default by Greece - it will stop paying some of its bills.

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Thanks Dave

  Your reflections in this note are very helpful to me.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
petroleum status: strong bid for oil @ 42

This morning at 1030 EDT the Petroleum Status report showed a build of 9.6 million barrels.  This should have been negative for oil, and it did momentarily drove the market lower, but it did not drop below 42.  This whole day starting at 0500 EDT there has been a very strong bid for oil at 42 - 42.10.  You can almost draw a line under that region, the support is so clear.  This is quite unusual in my experience.  My interpretation: someone big is buying every futures contract offered at between 42 and 42.10.

Gold also is showing signs of life, as is silver.  Even the miners are waking up, a little.

Oil services (those pesky oil drillers) are marking swing lows right and left.

It will be interesting to see how the market reacts to the FOMC policy announcement at 1400.  I'm not sure what the buying in advance of FOMC announcement means, but its probably not bearish.

There.  In the time this has taken me to write, oil has broken higher.  That's what the failure to drive below support does sometimes.  Shorts get nervous and decide to cover.  And there are a lot of shorts out there right now.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
Fed removes "patient"

Immediate reaction: gold +17 silver +0.32 S&P +18 miners +4%.

Dollar down -1.12.

Massive moves.  Got COMEX gold futures?

I put that last one in there for you, Jim.  :-)

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2385
Indeed...

The leverage players are looking for highly liquid anti-dollars today.  Paper Gold fits the bill... for now at least.  

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5416
so glad you're here

Jim, I'm so glad you are here.  Life would be a lot more boring if you weren't around to beat on the hornets nest with a stick every now and then.  :-)

 

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