PM Daily Market Commentary - 9/3/2015

davefairtex
By davefairtex on Fri, Sep 4, 2015 - 12:00am

Concept of the Day: Failed Rally.

Gold fell -8.70 to 1124.50 on moderate volume while silver rose +0.03 to 14.60 on moderate volume as well.  Gold looked relatively weak all day and closed near its low, while silver had a grand spike higher to 14.95 but the rally failed within an hour and almost all of the gains evaporated by the close.

The buck was very strong today.  That didn't help.

This is the second day of selling after that inverted hammer candle on Tuesday; gold looks to be forming a descending triangle pattern, which more often than not results in a breakdown.  Support at 1115 has to hold, and its also helpful if gold can close above that downtrend line.  Right now, there does not appear to be any western buy-side support for gold.  Again, the strong dollar isn't helping.

Silver's failed rally today alongside the whole collection of this week's tiny moves higher just feels bearish to me.  Every item goes through its minor bull and bear cycles, and in this mini "bull cycle" the best silver can do is inch higher day by day.  Contrast with copper, or oil, and you'll see what I mean.  My guess is, once the inevitable mini bear cycle arrives for silver & commodities, silver probably makes new lows.  Silver has been grossly underperforming the commodity index for the past few weeks, and that's not a great sign.

Miners might be giving us a clue as to silver's future; GDX fell -1.83% on moderate volume, while GDXJ dropped -2.09% on moderately light volume.  Both miner ETFs printed gravestone dojis, which are the perfect depiction of a failed rally.  In a gravestone doji, price rises from its opening level, only to fall back to that initial level by end of day, and that's what happened to GDX, GDXJ, and SIL.  Traders did not want to take the miners home, and three gravestone dojis were the result.

The USD jumped higher today at 08:30 - there were three economic reports released at that time, and your guess is as good as mine as to which one of them caused the spike.  USD ended up +0.58 to 96.42, executing what looked like a minor cup & handle breakout on the daily chart.  The dollar ended up making a new high for this cycle.  In two days, the buck has gone from likely continuing downtrend to a much stronger bullish reversal.  Perhaps the market believes the Fed rate cut is back on the table.  I'm not really sure why or how, but the strength in the buck today was undeniable.  This is bad for gold; gold in euros has largely tracked sideways for the past seven weeks - it even looks slightly bullish.  A continued rally in the buck will almost surely send gold-in-dollars lower still.

However, the dollar strength was not enough to push SPX higher; SPX did rally, but like many other things today, the rally failed and SPX managed to close up just +2.27 to 1951.13 after being up as much as 26 points earlier in the day.  VIX fell -0.48 to 25.61.  The failed rally for SPX at this point in the chart looks quite bearish to me; my sense is that prices should probably fall for a few days after today's performance and we might just end up re-testing the lows from last Monday.  It appears to me that the foreign selling of US equities has moved domestic; its not just the Europeans and Japanese bailing out any longer.

There is one caveat, however.  Nonfarm Payrolls come out Friday at 08:30 Eastern, and that particular report can really move markets if it is unexpectedly strong, or weak.

Bond ETF TLT rose +0.49%, making a new low today but seemingly finding some support on its 50 MA.   Will bonds be able to rally if SPX decides to sell off hard?  In isolation, bonds look like a decent buy here, but they have not looked particularly strong to me in recent weeks relative to other things.

The CRB (commodity index) rose +0.88%, the recent uptrend still intact.  CRB is no longer making massive short-covering moves higher, but it is still rising which is a positive sign for commodities overall.  Copper is adding to this picture by breaking higher today, rising +2.08% and continuing its steady rally off the swing low it made eight days ago.  This could be a dead cat bounce/countertrend rally after a long decline, or it could be an indication that China isn't quite as dead as everyone imagines it to be.

WTIC (oil) rallied strongly early in the day, but as with many other things today, that rally mostly failed.  Oil did manage to close up +0.64 to 46.69, but that's a relatively disappointing outcome considering it was up almost 2.30 earlier in the day.  Oil appears to be supported on the low side by its 9 EMA, and capped on the high side by the 50 MA.  It will have to choose a direction relatively soon.  Still, this all beats oil at $38, which is where we were just two weeks ago.

Gold looks weak - dollar is strengthening.  These two are closely linked.  Silver isn't really following its commodity cousins higher, which is worrisome.  Miners don't have a bid.  The overall picture is looking progressively darker for PM at this moment.  We really need those buyers to start showing up soon.  And not just in Shanghai.

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