PM Daily Market Commentary - 6/29/2015

davefairtex
By davefairtex on Tue, Jun 30, 2015 - 4:22am

Gold rose +5.90 to 1179.60 on moderately heavy volume, and silver rose +0.01 to 15.76 on heavy volume.  Both metals gapped up higher at the open in Asia driven higher by the Greek default news, but were then sold all day long.

Based on gold's strong rally January immediately prior to Syriza's election victory, one would have expected gold to rally sharply given an actual default in the making, but that's not happening.  My thought: possible official intervention, alongside a historically weak summer period for gold.  That said, the dollar fell today as well - I would have expected the buck to rocket higher in a safe haven move, but it didn't.

Gold confirmed its low from Friday.

Silver was basically flat on the day, looking somewhat weaker than gold.  Silver unfortunately did not confirm its potential swing low from Friday with today's close.  This drove the gold/silver ratio higher to 74.98, at the top end of the recent gold/silver ratio trading range.

Mining shares fell, with GDX off -1.05% on moderately light volume, and GDXJ down -1.61% on moderately light volume also.  Miners were one of the better performing sectors today, relatively speaking.  I've often seen miners get thrown out the window when the larger equity market sells off, and this might be happening now with the mining shares.  It appears that a re-test of the March lows is likely to happen in the near future.

The dollar gapped higher at market open in Asia, only to sell off all day long, finally closing down -0.70 [-0.73%] to 94.95.  This completely counter-intuitive move totally surprised me, and flies in the face of a whole flock of other "risk off" moves.  I wonder if this is a product of short term intervention, perhaps by the ECB, to support the Euro at this time.  The dollar had a very large trading range on the day.

SPX (US equities) sold off very hard, dropping -43.85 [-2.09%] and breaking through previous lows in dramatic fashion.  The equity market has chosen its direction, and it is down.  There was an attempt to move the market higher in the futures markets, but the effort failed, as sellers overwhelmed the attempt to rally.  The new low set today has moved SPX into a downtrend, with a clear pattern of lower lows and lower highs.  The VIX jumped +4.83 to 18.85.  Risk off.

Bond ETF TLT rose +2.65%, with the selloff in equities finally bringing a bid to the long bond.  This is clear safe-haven behavior, money flowing out of stocks into bonds.  JNK on the other hand sold off hard, dropping -0.73% and making a new low.  Risk off.

The CRB (commodity index) were hit for -0.58% loss, which when piled on top of the buck's -0.73% drop shows a reasonably bad day for commodities.  Risk off.

WTIC (west texas crude) fell as well, dropping -1.38 to 58.27, dropping below the 50 MA for the first time in 12 weeks.  WTIC remains within its trading range, but the drop below the 50 is worrying.  Brent is right at the lower end of its trading range; a drop below 62 and we could see a whole lot of selling in Brent.  Risk off.

My sense is, gold should have rallied more dramatically, but it still managed to put in a swing low.  The rest of the markets are all signaling "risk off", with the exception of the dollar, which fell.  The equity market is entering a dangerous phase - that lower high is a serious danger sign.  Bonds are rallying.  Most likely, the uncertainty will continue through the week, and that likely will cause more selling pressure.

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9 Comments

Trun87114's picture
Trun87114
Status: Bronze Member (Offline)
Joined: Apr 28 2013
Posts: 80
Silver

Quite a ride we are having in silver over the past 48 hrs.  I'm a buyer at these levels but the volatility is pretty scary.  Seems to me like the tug of war is setting things up for a big move one way or the other.  I hope to read Dave's and JimH's take on this soon. 

mr. pei's picture
mr. pei
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Joined: Oct 27 2010
Posts: 5
when to short?

On 2/28/14, Chris Martenson wrote about shorting. With lower low now, is it time for some to start thinking about it?

On shorting the market...

Regardless of which index is the target, my preferred approach is to average in very carefully and using hard stops.  I will only be using 1x unleveraged positions at the beginning.  

The 2x and 3x leveraged positions are only for trading in and out of and are not buy and hold vehicles.  They do very poorly over time and never return gains in proportion to their actual leverage (but with all of the risk).

Ok, suppose I want to eventually have 10% of my total wealth arrayed against the market short.  I will typically start with 10% of that and place it against the market on a day where I think we've gotten to the top and the market has risen strongly on weak volume.

My stop might be somewhere between a 5% and 8% loss, meaning the market has moved up by 5% to 8% while I am short.

Once we have a confirm of the top, such as a lower high or a lower low being made, I will then leg in another 10%.  Or maybe 20% if I am feeling lucky.  Again with tight stops.

Once the trend is clearly in my favor, then I will make bolder bets with larger percentage amounts until I am all in.  Perhaps even with leveraged positions, including selling S&P emini futures out of my futures account.  

Then I will have my profit targets lined up and when they are hit I will be taking my bets off the table.

You have to decide, are you seeking a 10% gain, 15% or more?  Whatever it is, be sure to take money off the table when gains are there.  Sometimes I will assure myself a profit no matter what by having made gains that cannot be entirely lost by my remaining open positions and these I will let ride more aggressively if the move is working particularly well in my favor. 

Throughout all of this I will be maintaining very active market vigilance because bottoms are made in a matter of hours, or even minutes sometimes.  One form of vigilance, besides being glued to my trading screen(s), is to continually move stops down to follow my gains and let them 'be hit' if that's what happens.  

Trading, especially in the futures, is now a 24/7 activity and, truthfully, sometimes I have to sleep....

With all of that said, shorting is risky business.  By going long you have the opportunity to lose every cent you commit.  By going short there is no limit to how much you can lose (except for puts, where you losses are limited to the money you paid to acquire the put), because there's no theoretical limit to how high a position can go.

Next, when the long side finally tires out it nearly always makes a big, long, choppy, lazy top that gives you several weeks if not months to figure out that it's time to take money off the table.  With equity shorts the bottoms are always V-shaped and you have to act quick to preserve your gains.  Again, I've seen many bottoms that were only minutes in the making.....So shorting is not for everyone...

Time2help's picture
Time2help
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Posts: 2832
Re: When to short

           Proceed with caution

Time2help's picture
Time2help
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Posts: 2832
So the way this goes...

...is that every call, stop, short, put, Skynet A.I. HFT, Ctrl-P, market rigging, manipulation, fabrication and legal/illegal/unlawful/immoral/ammoral course of action will be taken to keep the bond/stock/housing markets propped up.

Until this fails.

At which point the whole stinking pile of you-know-what collapses.  And SHTF ensues.  

Or "ISIS" may nuke Atlanta. 

Whichever comes first.

(P.S. - I have no friggin' clue)

pinecarr's picture
pinecarr
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Joined: Apr 13 2008
Posts: 2244
In other words...

T2H said:

So the way this goes...

...is that every call, stop, short, put, Skynet A.I. HFT, Ctrl-P, market rigging, manipulation, fabrication and legal/illegal/unlawful/immoral/ammoral course of action will be taken to keep the bond/stock/housing markets propped up.

I.e.: "Pay no attention to that man behind the curtain!"

theordore's picture
theordore
Status: Bronze Member (Offline)
Joined: Aug 29 2013
Posts: 48
Is gold ever going to 'wake up'?
   To me, it "speaks volumes" that gold has gone to sleep following its surge on Sunday, and that no major flight into the safety of the USA dollar has yet emerged.  Some time soon after 2PM yesterday (29th) the equity market went into what I feel was fear mode (though a mild one), and that followed gaps down all over the place in the morning. 
      I say this from following several sector indicators, as I was amazed to see what looked like market makers dropping bids sharply across all kinds of stocks unrelated to the Greece problem.   
     In the midst of all that, gold, silver and the USA dollar 'went off to lunch'!  And today, except for the morning period, it looked like just another lazy summer day in the markets.
     Yet, no one knows what can of worms will be opened up in Europe next week. That is, we have serious uncertainty here.  Yet, gold has 'gone to sleep' below 1200!
     All this calls for some very heavy and focused thinking on the following question: under what scenario can we reasonably expect to see any sustained fireworks in gold and silver?  Given what I see this week, my answer is that we must really and fully be in a TSHTF situation.  If that is a good guess, then it's bad news; because TSHTF will happen only after our Leaders have done every thing in their power to delay that happening, so we could be many years away from TSHTF!
     I know, yesterday afternoon's panic across multiple equity classes tells you that a contagion of fear may not be controllable by anybody if it really gets going.  So TSHTF could come tomorrow morning also, or, as i said, a long time after God has "called me".  Take your pick!
PS -  when I say "bad news" I mean that for those hoping to see the gold and silver holdings greatly re-valued.  
davefairtex's picture
davefairtex
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Joined: Sep 3 2008
Posts: 5418
shorting

mr.pei-

When a market starts to move into a downtrend, the question becomes "when is a good entry point to short."

Those who have watched gold over the past four years have received a steady set of lessons in when to short, namely, you sell at the peaks of each rally that fails to break above some sort of resistance level.  A failure to make a new high is a prime moment to enter short.

It is generally much more dangerous to short "breakdowns" - that is, a break of support.

So, bottom line, the highest percentage SPX short entry point is not right now.  The best time is to be patient and wait for the inevitable rally, and if that rally fails to make new highs (marking that level with a "swing high"), that's when you buy puts/enter short.

 

mr. pei's picture
mr. pei
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Joined: Oct 27 2010
Posts: 5
thank you

Ok, thank you all!  Humor, good points, good information, thank you.

theordore's picture
theordore
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Joined: Aug 29 2013
Posts: 48
How fast bottom formations are made

Hello Mr. Pei!

     Re. your remark "I will be maintaining very active market vigilance because bottoms are made in a matter of hours, or even minutes sometimes", are you referring to the futures markets in particular?

     Your comment fascinates me because I've been thinking about bottom formations in the stock market, developing the theory that in our high-speed New Market bottoms can form at speeds not imagined by those who wrote the classical books on technical analysis.  
     Looking at some of the well-known oscillators that supposedly give help in detecting trend change, for example, I now feel that they rely too much on trade data for several days ago.  
   I'm now thinking that in this New Market a trend change can come in and establish itself within a day or so, and therefore we need a new set of indicators. Am I on the wrong track here?

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