PM Daily Market Commentary - 3/18/2015

davefairtex
By davefairtex on Thu, Mar 19, 2015 - 1:11am

Gold blasted higher, closing up +18.30 to 1166.40 on heavy volume, while silver climbed +0.36 to 15.89 on moderate volume.  PM traded mostly sideways up until the FOMC announcement at 1400 EDT, whereupon gold and silver both screamed higher and the dollar fell off a cliff on the news that the Fed was removing the word "patient" from their forward guidance, but at the same time signaling they were in no hurry to raise rates.

On today's move, gold managed to mark a swing low, and also managed to climb above its 9 EMA.  I'd be more excited about gold's +1.59% rise, except that it was dwarfed by the dollar's drop of almost -2.00 (about -2.00%).  Additionally, gold did not manage to hold onto all of the day's move up, selling off somewhat after the NY equity market close.  Still, a swing low is a good thing.  Better than a poke in the eye, as they say.

Miners had an unabashedly terrific day, with GDX climbing +5.08% on very heavy volume, while the junior miners GDXJ were up a huge +7.36% on merely heavy volume.  Both miner ETFs broke above their recent trading ranges, and have also climbed above their respective 9 EMAs.  It was a very nice day for the miners, who closed right at the highs of the day.

The USD was basically crushed, with the the beatings starting immediately after the FOMC announcement at 1400.  While stockcharts has the dollar down only -1.17, I'm not sure what closing time they used.  The losses on my trading app were somewhere around -2.10, depending on when the close was marked.  After the US equity market closed at 1600, USDX futures continued to sell off, dropping a total of more than 5 points, hitting 94.76 at their lowest mark at about 1606 EST.  A large number of dollar longs in the futures market were washed out, and then prices recovered back up to 98 - still a massive loss on the day.

So why did the dollar plummet even though that word "patient" was removed, as expected?  My guess: the market expected a more hawkish stance from the Fed - the market expectation was, "once 'patient' was removed, rates will rise within the next two meetings" but that's not what the announcement said.  On the one hand the Fed removed "patient" but on the other, they seemed to indicate that the economy no longer had "solid" growth and suggested the rate rise would be data dependent.  Talk about having your cake and eating it too!  I wonder how long they spent word-smithing the announcement.

Traders tried reading the tea leaves for the MSM.  An example below from a money manager in Asia:

http://www.bloomberg.com/news/articles/2015-03-19/asia-stocks-rise-as-fe...

“This is a very important development as it means that the Fed believes that the recent buoyancy in the U.S. labor market has not yet reached a level that warrants a rate hike,” said Matthew Sherwood, head of investment markets research in Sydney at Perpetual Ltd., which manages about $21 billion. “The statement, I think, severely reduced the odds of a June rate hike expected by the market.”

He's guessing, but it makes about as much sense as anything.  USD was overbought, and was extremely sensitive to any sort of disappointment.  One wonders what the market would have done had Yellen simply removed "patient".  It might have sold off then too.

Here is a look at the currency table: red across the board for the USD.  Every single currency had a 9 EMA crossing.  Is this the start of a long-awaited dollar correction?  When things get this extended, the snap-backs can be quite violent.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Chinese Yuan USD.CNY -0.35% 0.63% falling rising falling rising ma50 on 2015-03-18 2015-03-18
Indian Rupee USD.INR -0.64% 2.02% falling falling rising falling ema9 on 2015-03-17 2015-03-18
Japanese Yen USD.JPY -0.91% 18.53% falling rising rising falling ema9 on 2015-03-18 2015-03-18
Pound Sterling USD.GBP -1.31% 11.02% falling rising rising falling ema9 on 2015-03-18 2015-03-18
Canadian Dollar USD.CAD -1.64% 13.03% falling rising rising rising ema9 on 2015-03-18 2015-03-18
Australian Dollar USD.AUD -1.83% 17.52% falling rising rising falling ema9 on 2015-03-18 2015-03-18
Euro USD.EUR -2.16% 28.67% falling rising rising rising ema9 on 2015-03-18 2015-03-18
Russian Ruble USD.RUB -2.16% 28.67% falling rising rising rising ema9 on 2015-03-18 2015-03-18
Swiss Franc USD.CHF -2.34% 12.54% falling rising rising rising ema9 on 2015-03-18 2015-03-18

US equities (SPX) also screamed higher from the moment of the FOMC announcement, closing up +25.22 to 2099.50.  VIX dropped -1.69 to 13.97.  "No punch bowl removal just yet."  SPX did sell off about 10 points at end of day, which for me tarnished the move higher somewhat.  Is it possible that the Fed's sense of gradually weakening economic prospects in the US might eventually have an impact on the equity market?  Say it ain't so!  Seriously, I'm actually a bit concerned.  With a weakening dollar suggesting no more inflow of money from overseas, and with a gradually weakening US economy, that's a recipe for a US equity market correction.  VIX suggests insurance is relatively cheap right now.

The sector list helps reinforce the somewhat bearish impression of today's move.  Mainly the SPX rally looks driven by commodities (gold & energy, spiking on the move lower in the buck) as well as interest rate sensitive issues.  When consumer discretionary and financials lag this badly, its not a bullish sign.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 5.08% -28.26% rising falling falling rising ema9 on 2015-03-18 2015-03-18
Energy XLE 2.91% -9.58% rising rising falling rising ema9 on 2015-03-18 2015-03-18
Utilities XLU 2.69% 14.23% rising falling rising falling ema9 on 2015-03-16 2015-03-18
REIT RWR 2.10% 25.65% rising rising rising falling ema9 on 2015-03-12 2015-03-18
Materials XLB 1.52% 7.14% falling rising rising rising ma50 on 2015-03-18 2015-03-18
Technology XLK 1.36% 18.68% rising rising rising rising ema9 on 2015-03-18 2015-03-18
Homebuilders XHB 1.30% 8.28% rising rising rising rising ema9 on 2015-03-18 2015-03-18
Healthcare XLV 1.30% 26.13% rising rising rising rising ema9 on 2015-03-12 2015-03-18
Industrials XLI 1.18% 12.05% rising rising rising rising ema9 on 2015-03-16 2015-03-18
Telecom XTL 1.15% 6.03% rising rising rising rising ema9 on 2015-03-16 2015-03-18
Cons Discretionary XLY 0.89% 16.17% rising rising rising rising ema9 on 2015-03-16 2015-03-18
Cons Staples XLP 0.68% 16.73% rising rising rising falling ema9 on 2015-03-18 2015-03-18
Financials XLF 0.57% 13.46% rising rising rising falling ema9 on 2015-03-12 2015-03-18

Long bond ETF TLT also moved higher after the FOMC announcement, driving up +1.93%, a big day for the long bond.  TLT is now back above its 50 MA, and that puts it back in bullish territory in the medium term.  Martin Armstrong sees a US equity market correction driving money into the US long bond within the next several months.

http://armstrongeconomics.com/2015/03/18/dow-to-be-or-not-to-be-correction-time/

...A scare in stocks now will send capital into the bond market to make that final bubble high with a concentration of capital. Stocks are by no means overvalued. Retail participation is at historic lows. So there is no bubble and indeed we do not see a phase transition type of top that marks such major highs. What we do need is to scare the capital to send it running into the bond market to make it complete that high in bonds (low in rates).

The CRB (commodity index) rose +1.45%, marking a swing low and perhaps signaling the end (for a time) to the commodity downtrend.

WTIC had a volatile day, first dropping to 42.03 and then rallying strongly, finally closing up +2.26 [+5.33%] to 44.69.  The big move in oil came in spite of a bearish build in oil inventories of 9 million barrels.  But even with the inventory build, there was a very strong bid underneath oil all day long at around 42.  It looked like that was the "line in the sand" for some large player.  The intraday chart showed this clearly.  Then once the FOMC announcement hit and the buck started to fall, oil jumped higher along with the rest of the commodity index.  There were lots of oil shorts, and they were all wrong-footed by the big currency move caused by the FOMC announcement.

These days, it seems to be all about currencies.  Today the dollar sold off hard, and virtually everything that had an international price rallied as a result.  Presumably if the dollar correction continues, we'll see a continuing rally in the rest of the commodity index, and that includes PM.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

1 Comment

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Start of the re-booting process was confirmed yesterday

    Thanks a lot Dave.  Re. "On the one hand the Fed removed "patient" but on the other, they seemed to indicate that the economy no longer had "solid" growth and suggested the rate rise would be data dependent."  An additional comment I've seen is that further decisive strengthening of the dollar following a more hawkish Fed stance would soon become very bad news for the production side of the economy.  

     If the USA central bank is the only (or main) one tightening while most of the others are either easing or resting on their oars means big trouble for the USA economy in due course, and if deflationary forces do not abate noticeably over the next few months, don't bet the farm on October, or any month, being the tightening date.  The smart chatter  yesterday afternoon was that October now has the highest probability  as the tightening date -- 60%.  Bid deal! (This is a purely subjective/qualitative probability estimate, which indicates we should have weak confidence in it.)
   All that takes us to some more wide-ranging thoughts. When future historians try to date when the much talked-about system rebooting became clearly evident, yesterday will be a strong candidate for being selected as the day, I predict.  If seriously pressing on the rate-raising lever may have to be delayed indefinitely, we are in a situation where  "eased monetary conditions" are in the future of the world as far as we can see ahead.  The end-point approaches when the widely distributed large-scale money printing cannot be stopped without triggering dire consequences and mountains of un-repayable debt are to be found almost everywhere.  Keep in mind that much of the "money" we have is created outside of central banks.

  However, all this could go on for decades before TSHTF on hyper-inflation. And in the mean time, competitors of Confidence in the blessed currencies will have to be "managed".

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments