PM Daily Market Commentary - 8/20/2015

davefairtex
By davefairtex on Thu, Aug 20, 2015 - 9:15pm

Gold continued moving higher, following through on yesterday's breakout by rising +18.80 to 1152.60 on very heavy volume.  Silver climbed +0.27 to 15.55 also on very heavy volume.  Gold started its rise in Asia but the real move came an hour before US market open when gold popped above 1142, a resistance level stemming from the March 17th low. Once 1142 was broken, gold just kept rising right into the close, a really good performance.

Technically speaking, gold continues to look very strong - it is rallying on increasing volume which is always quite bullish, it stopped only briefly intraday at two possible resistance points, and it keeps closing right at its high for the day.  Gold's rally wasn't aligned with any particular report, or currency movement - at least not that I could see anyway.

Silver moved right alongside gold intraday, but unlike gold its rally was capped by the old high of 15.59.  Its nice to see silver above its 50 and closing at the high for the day, but the lack of a breakout tells me that silver is  substantially weaker than gold.  That sell-off two days ago also seemed to take some of the starch out of the longs.  Perhaps silver is being dragged down by the rest of the commodity group, or whatever safe haven/monetary impulse that is pushing gold higher isn't felt as strongly by silver.

GDX had another good day, rising +4.08% on heavy volume.  It gapped up at the open, above its old high, but was only able to rise a little bit above its open price.  GDX's rally seemed capped by the 50 MA.   It felt like traders were perhaps ringing the cash register on their gains - miners have rallied 18% off their lows.  From a chart viewpoint it was a good day, but not a great one.  Senior miners are doing better than silver, but not quite as well as gold.

GDXJ had a decent day, but it underperformed the seniors, rising only +3.47% on moderately heavy volume.  It too gapped above its previous high and its 50 MA also, which has it doing a bit better than the senior miners.  However the signs of selling in the seniors was stronger in the juniors, who ended up printing a doji on the day.  I get the sense at this point it is gold doing the heavy lifting, not the miners.

The USD fell again today, dropping -0.37 to 96.00, making a new low and continuing its 3-week trend of relative weakness.  Most of the losses were because of the Euro, which gained +1.18 [+1.06%] to 112.39, a big move - intraday, the Euro looked quite strong, breaking out three different times. Rising Euro generally helps gold, but I don't think gold's move was just a currency thing.  There is more going on here than that.  But the strong Euro certainly doesn't hurt.

SPX finally picked a direction today - SPX was sold all day long, starting in the futures markets in Asia and just not stopping until shortly after the market closed in NY.  Why the selloff?  My guess is contagion from the rest of the world - equity markets were sold hard in Asia and Europe.  SPX closed down -43.88 [-2.11%] to 2035.73.  My sense was, traders just wanted out.

Name Chart Change 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Latin America ILF -0.24% -39.00% falling falling falling falling ema9 on 2015-08-11 2015-08-20
Europe IEV -2.16% -7.50% falling falling falling falling ma200 on 2015-08-12 2015-08-20
United States VTI -2.17% 3.76% falling falling rising falling ma200 on 2015-08-20 2015-08-20
Emerging Asia GMF -2.24% -14.31% falling falling falling falling ema9 on 2015-08-11 2015-08-20
Eurozone EZU -2.61% -6.36% falling falling falling falling ma200 on 2015-08-17 2015-08-20
Developed Asia VPL -2.84% -7.95% falling falling falling falling ema9 on 2015-08-11 2015-08-20

Technically, SPX is now below all three moving averages, and set a new low just today.  New lows are a big deal, and alongside the lower high set back in July, its the universal sign of a trend change.

Pulling back to the weekly chart, we can see that SPX has broken below its 7-month trading range right at the end of the trading day.  That's another bad sign.  The VIX went absolutely nuts, rising +3.89 to 19.14.

This move could get ugly in a hurry if support doesn't materialize.  Longs who imagine an all-powerful Fed-managed plunge protection team controls everything and "won't let the market fall" better be using stops, just in case they're wrong.  I see two outcomes: a short 1-2 day plunge followed by a rebound, or massive continued selling leading to a flash crash.  I put the odds are on outcome #1, but outcome #2 should not be discounted.  Going short here, however, is not a high percentage entry point.  Wait for the inevitable rebound to peter out before jumping in there - that's my advice anyway.

Bond ETF TLT had another great day, up +1.01% breaking to new highs.  Any thought of a correction was extinguished by the big drop in SPX.

The CRB (commodity index) rallied on the day, climbing a respectable +0.47%.  No low has been marked yet, and CRB remains below the 9 EMA.

WTIC (oil) is largely unchanged on the day, up +0.04 to 40.98, printing a doji candle on relatively high volume.  While WTIC made a new low, the doji candle indicates a possibility for a reversal, which will need to be confirmed tomorrow by a close above 41.81.  After being burned, I'm waiting for a close above the 9 EMA, at 42.45...

Gold is looking great.  It is getting to be a bit overbought, and at some point the selling will start and we'll see another correction.  In general, markets do not move from the trough to the peak without enduring corrections; it isn't a banker conspiracy to suppress gold's rightful place in the sun, that's just how markets work.  Someone always wants to ring the cash register after a large enough gain, and so things move up in waves - 3 steps forward, 2 back, and so on.  How gold handles the inevitable correction is important; weak, low volume selling is a good sign.  If you look at the chart, you can see that is what happened late last week and early this week.  Those corrections are buying opportunities for those who haven't boarded the train yet - its a higher percentage move to buy during a correction than after the big spike we just saw yesterday and today.

Now if we can get the rest of the commodity index on board, silver might just start outperforming gold, and likely the miners would benefit from that as well.

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4 Comments

AaronMcKeon's picture
AaronMcKeon
Status: Bronze Member (Offline)
Joined: Apr 29 2014
Posts: 76
S&P Still Dropping

Hi Dave,

Your commentary on equities amidst these daily reports is much appreciated, especially as we start seeing these dips. I've been feeling strongly about the possibility of correction or collapse during the August-October timeframe and it's helpful to hear your objective view.

I see two outcomes: a short 1-2 day plunge followed by a rebound, or massive continued selling leading to a flash crash.  I put the odds are on outcome #1, but outcome #2 should not be discounted.  Going short here, however, is not a high percentage entry point.  Wait for the inevitable rebound to peter out before jumping in there - that's my advice anyway.

It will be interesting to see which of these two scenarios plays out.  I guess we'll have a better idea on Monday.  For now I'm resisting the urge to add on the shorts.

Atreat's picture
Atreat
Status: Bronze Member (Offline)
Joined: Dec 4 2011
Posts: 33
Thx Dave

Same for me Dave I always read and appreciate your posts. 

nigel's picture
nigel
Status: Silver Member (Offline)
Joined: Apr 15 2009
Posts: 148
Me too

I also appreciate the posts.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5693
thanks guys

Appreciate your support.  Its personally annoying for me, because even though I saw the pattern form, I didn't jump in mainly because of fatigue.  I think I make a fantastic contrary indicator sometimes!  If I were a robot without emotions, I think I'd do a whole lot better!  Congrats to anyone who actually bought puts at VIX=12, they were a great deal.

But I know better than to jump in now, with the VIX at 28 (OMG!) and most likely just a few days left to this particular phase.  A day, maybe two, with a whole lot of fear (deliberately) kicked up over the weekend "financial entertainment TV" circuit that gets retail to panic out right near the lows.  As a result, I suspect Monday will be down initially, but what happens after the first "retail hour" is anyone's guess.  I could imagine a "down 50" first hour on Monday that gets everyone to panic out, only to hit bottom and completely retrace back to zero by end of day.  People will imagine that's "plunge protection team" action when instead I believe it is just the big banks playing their usual games of screaming "fire" in the crowded theater, and then scooping up the stuff everyone leaves behind.

These are the whipsaw price action risks you face if you jump in short now.  Its always interesting to see how it plays out.

We could see things collapse here into a flash crash, that's always possible - and I think we have one, maybe more than one in our future - but I don't think its the likely outcome this time around.

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