PM Daily Market Commentary - 3/23/2015

davefairtex
By davefairtex on Tue, Mar 24, 2015 - 2:30am

Gold rose +7.10 to 1188.80 on moderately heavy volume, while silver climbed +0.25 to 16.98 on moderate volume.  PM traded lower in Asia trading as the dollar rallied, but started to climb once the dollar started to weaken around 5am EDT.   Silver performed especially well.

Silver is now clearly above its 50 MA and has retraced more than half of its losses in the recent PM downturn.  It has also broken above a prior high, which says that silver's downtrend (since January 26th) is now over.  It looks bullish - or worst case, not bearish anymore.  And glancing at the weekly chart, it may be in the process of forming a higher low.  A close above 18.50 would be quite bullish for silver.

Miners continued higher, with GDX rising +2.17% on moderately light volume, while GDXJ rose +2.86% on moderate volume.  Mining shares continue their recovery from the recent sell-off, but unlike silver, miners have not managed to move above any prior highs, or even the 50 MA.  Compared with silver, they still have a ways to go.  In this way they are similar to gold, which continues to rally somewhat anemically and right now appears stuck at resistance at 1190.

So, the reason for gold's rally?  The dollar of course.  After trying to rally in Asia and failing, the dollar sold off hard, dropping -0.87 and closing at 97.30.  The Euro, for its part, rose +1.32 [+1.23%] to 109.46 moving strongly higher.  I believe the Euro rally/dollar drop won't last too much longer; technically speaking, the Euro has room to rally until it hits 112, at which point it will run into some serious resistance.  I draw lines on a chart, but the lines represent people and emotions - people who bought the Euro at 112 hoping for a bounce, are now in the red, and are looking to sell "once they get back to even".  That's resistance.

SPX fell today, in line with the uncanny recent pattern: strong up day, weaker down day.  Today equities dropped -3.68 to 2104.42 on the weaker down day.  SPX printed a bearish hammer candle indicating a rally and a failure, which is the first half of a reversal pattern.  A close tomorrow below today's low will confirm the high.  However if the uncanny pattern holds, tomorrow will be a big up day, likely leading to new all time highs for SPX.  I have no idea which way it will go, short term.

Longer term, I'm becoming more bearish on SPX.  I have run some studies that suggest increasing pressure from macro data that may lead to a correction.  Here is what I see: NYSE Margin loans are down 2% y/y, INDPRO is moving sideways, RSXFS down 3 months in a row, NAPM still above 50 but down y/y, housing starts dropping and down y/y.  Nonfarm Payrolls are still strong and climbing, but it tends to lag.  The other indicators tend to lead, and many of them are flat or dropping.

Lots of people talk about how the market must do this or that.  I try not to do that so much.  But this is a bit of a big deal.  Each time in the past, this pattern of flat-to-dropping leading indicators in macro data have led to corrections in SPX.  I don't think this time will be any different.

Long bond ETF TLT dropped slightly, closing down -0.16%.

The CRB (commodity index) rose +0.77%, buoyed by the weak dollar.  Commodity prices sure like it when the dollar drops.

WTIC had a volatile day, but closed up +1.04 to 47.49.  There is a big struggle going on between the bears, who want to convince you that storage is practically full and that everywhere we turn, more oil will be produced (its Iran these days - another million bpd is sure to appear if that nuclear deal is reached), and the longs who want to get the government to allow exports, or perhaps start buying oil for the SPR, or the ever-dropping rig counts, etc.  Its a war out there for your attention, and your money!  "Please believe my story, trade alongside me and help my book", they are saying.

In such a situation, its awfully hard to figure out the truth.

The dropping dollar continues to aid PM and the commodities, although gold isn't responding all that well.  Silver on the other hand is doing very well.  My sense is, the Fed may not be raising rates anytime soon.  Weakening US economic data may well take a rate rise right off the table.  Then we get to see which currency is uglier - Grexit, or a US recession.

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5062
Greece & Germany: Signaling

So I read an article today about the meeting between the two PMs - Merkel of Germany, and Tsipras of Greece.  Greek PM was invited to Berlin to meet with Merkel.  Greece is fast running out of money, and I've read many suggestions that they will be unable to pay pensions and government salaries in the upcoming weeks - i.e. they will engage in a "soft default" by printing IOUs instead of handing out Euros.  (Possibly: those IOUs could be used as an alternate currency?  If they could be accepted as payment for taxes, certainly.)

http://www.theguardian.com/business/2015/mar/23/tsipras-raises-nazi-war-reparations-claim-at-berlin-press-conference-with-merkel

Anyhow, situation for Greece is slowly approaching critical levels.  That is why I didn't expect to read about the following things that Tsipras brought up in the shared press conference:

  • he repeated a demand for war reparations for Nazi atrocities during WW2: "its not a material issue, its a moral issue"
  • he stated that the Greek crisis was not of his making
  • he made no mention of new specific policies, other than fighting corruption
  • and regarding corruption: he singled out a German company - Siemens - that was alleged to be engaged in corrupt business practices in Greece.

Regardless of the specifics of the charges, saying all these things, with Merkel standing right next to him, was an astonishing signal to be sending at this point in the dialog.  It was a massive F*-you from one of the smallest countries in the Zone to the largest and most powerful, in the capital of that large country, with its leader looking on.

My guess is, the meeting didn't go well.  Tsipras may have had two speeches: a happy one if things went well, and this one if things went poorly.

Merkel seems intent on forcing Greece to simply execute on the original agreement that bailed out German banks on the backs of the Greek people.  "Sorry Greeks, you have to keep on soldiering.  The patsies we put in place agreed to it years ago, so you have no choice but to toe the line now."

For a time it appeared that the Greek government had capitulated in order to buy time, but today's events suggest that current Greek strategy is to engage in a near term Greek default - within the Euro.  My current guess: at some point in the near future, they will simply stop paying their creditors.  They have already set the stage for this.

They will explain why, they might call it a "temporary moratorium on payments", bring up Nazi occupation, the 1.9 billion Euros that the ECB is holding back ("we could have paid you with that"), the support for Greek banks that the ECB took away, and the fake "bailout" that rescued German banks.  I suspect they will offer to keep paying once the Euro institutions start treating them like an ally and stop trying to coerce them into continuing the austerity programs that simply aren't working anyway.

On the side, they are also marketing their ports to Russia and China.  "You want things privatized?  Fine, we'll sell our ports to Russia.  Or China, if you prefer."

Lots of hardball going on.  Greek people want to stay in the Eurozone, but the Greek government seems headed down a path of default within the Euro - a sort of "kick us out, if you dare."

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2379
Good commentary Dave...

And then the (Greek debt) Derivatives go BOOM! 

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