PM Daily Market Commentary - 3/31/2015

By davefairtex on Wed, Apr 1, 2015 - 2:58am

Gold fell -2.60 to 1183.20 on moderate volume, while silver dropped -0.07 to 16.63 also on moderate volume.  PM mostly traded sideways - making new lows in Asia trading, then rallying, failing, and closing near to where it started.  There was a fair amount of volatility during the day.

Still, given the dollar's rise, gold's performance was actually ok.  Gold in euros continues to do well.  I know it is cold comfort if you have dollars, but I say this just to make the point that much of gold's trouble is a currency effect.  Gold remains in a nice uptrend, seen from the Euro perspective.

Miners sold off yet again, with GDX down -1.25% on moderately light volume, and GDXJ falling only -0.53% also on moderately light volume.  This marks the sixth straight day of miner declines - six days of dropping GDX:$GOLD ratio, which is a sign that the correction will likely continue.  If we just focus on gold, the situation doesn't look so bad, but the miners tend to lead, and they are definitely leading lower.  There is no massive sell-off, just steady selling.

The problem, of course is the USD, which rose +0.38 to 98.66.  Euro is back down to 107.37, falling -0.80% on the day.  Dollar looks to be moving moving steadily back to retest its prior highs near 100.  If that happens, mining shares probably make new cycle lows.

Right now, the miners are suffering the most when the dollar rises.  Below, you can see how closely GDX is tracking the rising or falling dollar.  To show this, I use the "correlation" feature of stockcharts seen in the lower sub-chart attached to the GDX chart below.  A CORR(GDX,$USD,20) - correlation value > 0.50 says "rising dollar = rising GDX".  Correlation < -0.50 says "rising dollar = falling GDX."  Currently, the correlation is -0.77, which is relatively strong.  Such a strong correlation suggests that rising dollar = falling GDX, and indeed, that's what we are seing.

SPX had a spot of bother today, falling -18.35 to 2067.89.  The equity market opened down, tried to rally, failed, and then closed at the low.  While yesterday's rally wasn't completely wiped out, the equity market is not looking particularly strong.  Gone are the rallies off the lows where weeks would go by with nary a loss.  Right now, its all about "one day up, and one day down."  SPX closed back below its 50 MA and its 9 EMA once again.  To give us direction, we really need to see a break below the previous low (at 2035) or a break above the previous high (2117).  In the meantime, we wait for the market to show its hand.  Still, I am not bullish.  To me, the tone of the market has changed.  What's more, equities no longer rally along with the buck.  That's not a good sign either.

Bonds rallied - TLT rose +0.21%.  Bonds have been bouncing around the 50 MA for a while now.  A pattern is hard to see on the daily chart, but on the weekly it looks as though bonds are consolidating above the weekly 9 EMA, which looks bullish to me.

The CRB (commodity index) dropped yet again, losing -1.12%.  This is the third straight down day for the CRB.  I blame the rising dollar.  Current CRB/USD correlation: -0.84.  That's extremely strong.

WTIC fell, dropping -1.23 [-2.52%], retreating below 9 EMA and 50 MA.  From the weekly perspective, oil has yet to close above its falling 9 EMA.  The oscillators show a dramatic reduction in downside momentum, but oil has yet to start really tracking sideways - which is the first step towards a recovery.  I think oil will bounce, but its hard to say.  When the actual production declines start to register at the EIA, perhaps price will rise.  If it doesn't - then oil will probably sell off.

Dollar dollar dollar.  That's all I talk about these days.  It seems to drive everything.  Still, if you are paid in dollars, its not all bad news.  However if you have debts in dollars and you are paid in some other currency, that's not such a happy thing.

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