PM Daily Market Commentary - 8/27/2015

davefairtex
By davefairtex on Thu, Aug 27, 2015 - 11:49pm

Gold rose +0.20 to 1125.00 on moderately heavy volume, while silver rocketed up +0.39 to 14.47 on heavy volume.  Silver especially was lifted by the overall rally in the commodity complex today; copper and especially oil had stellar days and marked clear and convincing reversals.

While gold did not appear to benefit as much from the overall up-day in commodities, it did manage to crawl back into the green after being down for most of the day.  The dollar was strong, which seldom is helpful for gold, so if you take that into account, gold did all right.  Nothing spectacular, but all right.

Silver was greatly lifted by the rally in both oil and copper.  It took a little while, but after copper broke above its 9 EMA, you could just see the buyers appear in silver, first causing it to break out, and then pushing the prices higher right up to the resistance zone (formerly a support zone) of 14.50 where the rally stopped.  Silver is not out of the woods yet, but I expect it to keep rising as long as its cousins continue to move higher.  The gold/silver ratio dropped substantially today, down -2.11 to 77.77 - still elevated but no longer at historic levels.

Miners found buyers today, and rose strongly right alongside the equity market.  There was an alarming-looking sell off at about 230-3pm where the miners lost most of their daily gains in a short span of time, but with 30 minutes to go buyers appeared again and the miners rocketed right back up and rallied into the close, ending the day quite near the day's high.  GDX managed to print a swing low, and closed up +5.75% on heavy volume.

Junior miner ETF GDXJ rebounded even more strongly than the seniors, closing up +6.50% on very heavy volume.  The juniors also printed a swing low on the day.

The USD continued to climb today, rising +0.52 [+0.55%] to 95.65, managing to close above its 9 EMA.  The buck is clearly recovering from last week's grand sell-off, but it has yet to erase the pattern of lower highs and lower lows, and even after three days of strong rally it remains in a downtrend.  The rising dollar did not seem to affect the commodity market rally today.

SPX rallied strongly again today, rising +47.15 [+2.43%] to 1987.66, managing to close just above its 9 EMA.  As with the miners, SPX sold off hard towards end of day, but in the last hour, buyers appeared to push prices right back up again.  Often very important things happen in the markets during the first hour, and during the last 30 minutes - it is a well-known market effect.  At some level you can just watch the first hour, the last hour, and sleep through the rest of the day.  That's why I always say, "it will depend on how we close" since those last 30 minutes is when traders have to figure out if they want to take whatever-it-is they currently hold home for the evening.  Holding overnight = risk, and so those last 30 minutes are a barometer for how much risk the market wants to take.  VIX fell again today, dropping -4.22 to 26.10.  If you bought puts at VIX=43 expecting the market to collapse, you are not a happy camper.

Equities have retraced half their losses.  Is the equity market all better now?  No.  SPX is a heartbeat away from a death cross (50 MA crossing 200 MA), and the longer term uptrend has definitely been snapped in a very dramatic way, and so the current trend is now down.  Rallies should be sold - once they show signs of petering out.  But perhaps now it makes more sense as to why I said it was a "low percentage" move to go short in the middle of one of these drops; the snap-back rallies can be almost as strong as the drops, and its just no fun to see the value of your puts evaporate because you bought them just one day late.

Bond ETF TLT was flat today, rising just +0.06% but printing a gravestone doji, which signals a failed rally.  Bonds were bid briefly when the SPX sold off towards end of day, but lost those gains after SPX rallied.  Bonds don't look great right now.

The CRB (commodity index) had one of its best days in a very long time, rising +3.97%, printing a swing low, and closing above its 9 EMA all in one day.  I'd like to see a few days of follow-through before I'll proclaim a reversal for the commodity complex, but it is a very good start.

WTIC (oil) had a dramatic rally today, rising +3.90 [+10.03%], printing a swing low, and closing above its 9 EMA for the first time in two months.  No doubt a great deal of the move today was short covering, but the reversal was clear, convincing, and should not be ignored.  What comes next?  Oil might just keep blasting higher, or it might sell off for a few days, but my guess is that this will probably mark the low in oil for a while.

Its fascinating to me that it seemed to take a massive sell-off in the equity markets worldwide to get the commodity complex and especially oil to bottom out.  Was it a capitulation thing?  Its hard to say.  Honestly I have no idea why oil decided to rally today - perhaps insiders found out that the Saudis are going to recommend a cut at the next OPEC meeting, as Chris suggested.  Or maybe the price was just too low.  I certainly don't know, Bloomberg really doesn't know (go read the stories, you'll see what I mean), and most of the time, the great unwashed will only find out months later.  If you wait for the story to line up before you trade, there won't be a trade to make.  But if you watch the prices, capital flows don't lie - buyers were there in the oil futures markets pushing prices steadily higher all day long and buying the dips.  You can say "gosh, this doesn't make sense, maybe it's just manipulation!" - or you can notice the entire complex lifting as money pours in (and shorts cover), and you can go with the odds and buy.

If today does mark an intermediate term low for the commodity markets, gold and silver should benefit significantly.  If the dollar will stay in its downtrend, that will help as well.  While silver hasn't marked a swing low yet, I have a lot more hope for it and the miners than I did yesterday.  I've been waiting for this oil rally for a while now: the talk of deflation is entirely too mainstream, predictions of oil in the 20s make the headlines, its the perfect condition for a low like this - one that confounds the vast majority of the people in the market - "wait, but you just said it was deflation as far as the eye can see..."

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1 Comment

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 772
Actually, I think I'd like my PMs to stay below where I bought..

Actually, I think I'd like my PMs to stay below where I bought. Ideally, at about 98%.

Rather than realize a capital gains, and the resulting paperwork and taxes, it would be better if the price of land just crashed to where I could make the trade (since I think land a better purchase, but can't afford it right now.)

Oh well... we seldom get what we want.

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