PM Daily Market Commentary - 10/1/2015

davefairtex
By davefairtex on Fri, Oct 2, 2015 - 1:22am

Gold fell -1.80 to 1112.70 on light volume, while silver rose +0.01 to 14.49 on moderately light volume.  Gold attempted a feeble rally going into the US market open which failed a few hours later; silver tried rallying at the same time too, and it too failed.

The dollar sank immediately after the Jobless Claims report at 08:30; this probably drove the mild rallies in gold and silver.  The dollar mostly recovered, however.

Really not much happened in gold today.  It avoided making a new low, but other than the brief rally between 08:30 and 10:30, not much happened.

Silver was a bit more volatile, but ended unchanged on the day.

It looks to me that the market is in a bit of a holding pattern in advance of the Nonfarm Payrolls report which is due out tomorrow at 08:30.

Mining shares ran into yet more trouble today; they rallied briefly at the open, but then sold off for the rest of the day.  GDX fell -2.40% on moderate volume, while GDXJ dropped -2.14% on light volume.  You can see in the chart that the miners have encountered selling each time they closed on the 50 MA over the last few months.  One of these days they will hold above the 50, but until then, its probably best to avoid them.

Miners are at a decision point.  They will either break above that 50 MA, or they will plunge below the 13 support level...and the odds favor a plunge.  Descending triangles usually end badly.

The USD fell -0.15 to 96.33, but it remains over its 50 MA and it still looks like it wants to rally.  Like the miners, the USD is at a decision point.  My guess is, it will make up its mind following Nonfarm Payrolls. 

SPX encountered some selling after the open today; there were a couple of bearish manufacturing reports released, along with a positive construction spending report.  By the afternoon the market shook it off and SPX rallied more or less into the close, causing SPX to close up +3.79 to 1923.82.  VIX fell -1.95 to 22.55.

JNK sold off today, losing all its gains from yesterday and a bit more, closing down -0.29%.  JNK is looking quite feeble right now; bad news ahead for the shale drillers, and many of those junk debtholders will end up with either big haircuts, or as reluctant equity holders in a dying shale drilling company.

Bond ETF TLT rose again today, climbing +0.43%, a good move considering that SPX moved higher too.  Bonds look to be lifting off, shaking off the weakness they have had for the past six weeks.  Perhaps crossing that 200 MA was the signal to buy.

The CRB (commodity index) tried rallying today but failed, dropping -0.65% and continuing their slow move downhill.

WTIC rallied strongly in the morning, and was up almost $2 at one point; the rally failed, and WTIC closed down -0.32 to 45.02.  While oil remains above its 50 MA, the failed rally looks unpleasant to my eye.  Volume on the day was quite high.

HAA has 100 oz gold bars right now in NYC at 1135.98/oz [+2.20% over spot], and 1000 oz silver bars in NYC at 15.03/oz [+3.74% over spot].   Eagles in NYC are quoted at 20.22 [+38.92% over spot].  Premiums on the big bars fell slightly, as did premiums on Silver Eagles.

Today the market felt like it was in a holding pattern waiting for the outcome of the Nonfarm Payrolls report due out tomorrow at 08:30.  This report, as I have said before, tends to really move the markets.  I suggest you ignore the fraudulent headline unemployment number - I do, and so does the Fed.  Instead, look under the covers; there are a large number of interesting data points such as changes in full time employment, part time employment, which sectors had gains and which had losses, and especially people working "part time for economic reasons."  When that goes up - or even flatten out - its not a good sign.  Relative to working age population, PTE for economic reasons has fallen steadily since 2010; it is absolutely not back to pre-2008 levels, but neither is it signaling problems ahead.  When it starts to plateau, that's a danger sign.  Sometimes this is a leading indicator, sometimes its a lagging indicator.

Employment is the key indicator for the health of the economy.  Increasing payrolls = money injected directly into the economy.  New workers are just as good as new debt creation or government spending at stimulating activity.  Payrolls isn't a leading indicator, its a coincident indicator.  Let me show you: chart below is the "change in payrolls month-to-month" vs SPX.  When it goes negative, that's a bad sign - money is being sucked out of the economy - and SPX generally falls.  But see how SPX reversed in May 2009 when the job losses started to decrease?  Last month payrolls grew by +217k.  If PAYEMS stays at +200k per month, I don't think SPX is going to collapse.  Payrolls is one of the inputs into my computer model - I actually use several of the more detailed timeseries rather than the main series itself, since they correlate better with SPX.

So that's why Nonfarm Payrolls is important.  Let's see what the BLS gives us tomorrow.  At some point, PAYEMS and/or its components will turn down - and that's when it will be time to look out below.

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10 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
Nonfarm Payrolls: +142k

A very bearish nonfarm payrolls report caused the buck to drop a full point, and gold to rally from a low of 1103 to 1136.60.  SPX is off -28 points.  Bonds are up huge, TLT +1.66%.  Previous months were revised lower too, so the overall payroll picture has dimmed.  It will be interesting to see what my computer sees once it gets the new update after market close.

Earnings were unchanged, work week was unchanged, civilian participation actually shrank, and manufacturing payrolls shrank too - which bodes ill for industrial production.

The tea leaves say, "no rate hike", and if this is the start of a general payroll contraction - we could see significantly lower equity prices...

 

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
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Posts: 5979
The job cuts told the tale?

I guess I am not terribly surprised by the weakness, especially given the trend in job cuts as reported by Challenger-Gray

Mark Cochrane's picture
Mark Cochrane
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Posts: 1227
Macroeconomists - new age astrologers?

As near as I can tell, there is nothing to this 'art' of macroeconomics other than story telling, hindcasting, and self-fulfilling prophecies based on internal opinion polls. It seems akin, though less predictable, to guessing which way most of the fish will move after stones of random weights are dropped into a pond, as reported by a host of drunken fishermen observing wave heights and directions on the shore..

This is considered information:

2015 Fade

Traders see a 30 percent likelihood that the Fed raises rates by its December meeting, down from almost 60 percent a month ago, according to futures data compiled by Bloomberg. The probability for January is 37 percent, and 51 percent for March. The calculation is based on the assumption that the effective fed funds rate will average 0.375 percent after liftoff.

Who are the 'traders'? They (Bloomberg and all financial media) will report this same exact story every day from now until the next Fed meeting while only changing the numbers derived from the latest sample of traders' gut feelings. The world is run based on a betting pool made up of samples of people simply guessing what the Fed will do, while the Fed will apparently look at what the guessers are guessing to guide their decisions. How could that go wrong? There is no knowledge here, only sentiment. We've gone from betting on when QE might end (pause) to betting when 'tightening' might occur simply because gamblers need to gamble.

Similarly, every week I see a poll (a poll!) of what 120-odd economists think will be the GDP and inflation of Brazil for 2015 and 2016 (it could be any other country though). Every week it changes to being worse than the week before because these 'economists' all read the same headlines that are influenced by last week's guesses that they made. You don't actually need to know anything to do this, you just need to be in the club. When someone's unlikely guess actually turns out to be prescient then they will be trumpeted as a guru no matter how many times they were wrong before or after.

It gets worse though, since governments know which key numbers spark the interest of the macro-economists, they have an incentive to lie about them so as to shape the opinions of those whose opinions will shape the opinions of the masses who will bet their money accordingly. Of course the economists know that they are being lied to so they guess by how much....

I am appalled by this process more than I am repelled by the way that we fabricate money out of thin air through debt. The entire world economy is running based on nothing more than modern astrology. Though that is probably unfair to astrologers who actually make real observations of the stars. You can give the same information to a hundred economists and they will each tell you a different story about your financial life and future prospects. If you gave them the same 'data' a week later they'd probably give you different predictions. We haven't progressed as societies, we've simply renamed the court astrologers.

No wonder there is no tie in the modern economy between what we do and the underlying situation for energy, resources and the environment. Real data from real things would expose the system for what it is, namely self-delusional fraud.

Mark

davefairtex's picture
davefairtex
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Posts: 5694
astrologers

Mark-

I'm with you.  No information there.  They just follow the recent trend.

When I studied economics as an undergrad, I was completely turned off.  I think some part of me knew that stuff was just made up crap.  Now that I have real data to work with, and I'm free to discover what things actually matter, I find it fascinating...too fascinating, truth be known...

I do pay more attention to the futures markets since there is money involved (and thus presumably more thought put into the price) - not as some oracle of truth, but as a measuring stick to tell me what the aggregate popular sentiment happens to be.

cmartenson's picture
cmartenson
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Joined: Jun 7 2007
Posts: 5979
Hey, look at those ""investors""

Hey, look at those ""investors"" just buying every moment of that weak open, I guess "bargains" and BTD and all that.

Alternatively, these are no long markets but are something different that has nothing to do with fundamentals any more and is just a momentum driven, guessing game.

They've got me trained...when I see the futures pop like this, I would never trade against whomever it is that buys like this...they have deep pockets and seemingly a very strong bias towards 'up.'

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
suggestion

Chris-

They've got me trained...when I see the futures pop like this, I would never trade against whomever it is that buys like this...they have deep pockets and seemingly a very strong bias towards 'up.'

Why don't you?  Take the money you make from going with the flow, and .. I dunno, buy a new chicken coop or something.  :-)

Seriously.  Your trading log would be your proof that you were right about this.  There is nothing like putting up real money to separate the nice-sounding theories from reality.  Having myself just had a disagreeable experience trying to catch a falling knife, I know this all too well.  Thank God for stops.

 

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
Bad is bad...errr...no bad is good!

Bad jobs report and the markets tank

Markets fall on disappointing September US jobs figures

The US economy added just 142,000 jobs in September, lowering the chance of an interest rate rise this year.

The figure was far lower than the 205,000 increase forecast by economists.

The number of jobs created in July and August were revised down by a combined 59,000.

Wall Street opened sharply lower, with the Dow Jones and S&P 500 indexes both down about 1.3%.

No wonder with analyses like

Tom Porcelli, chief US economist at RBC Capital Markets, described Friday's non-farm payrolls report as "absolutely weak".

"Every aspect of the September jobs report was disappointing," said Michelle Girard, an economist at RBS Securities. She also believed that the Fed "will be forced to stay on hold over the remainder of the year".

All that and 350,000 people left the labor force.

So instead of going up by 205,000, 122,000 jobs didn't get created and 350,000 people quit looking. That is a net NEGATIVE 272,000 on an expectation of positive 205,000 (which should have drawn more people into the market - so worse yet). There is a description for economists being this sort wrong it is called being 'completely frickin clueless'.

But through the wonders of market levitation and Pavlovian traders who have been trained to see down as the new up and up as up too, we get the following headline on BBC right under the one above, within 2 hours.

Wall Street rebounds after jobs disappointment

Will wonders never cease? The markets are now up for the day! Absolute disaster of a jobs report that is down on every score and even requiring downward revision of the last two months reports to smear the bad news out a bit is actually a good thing on reflection. Party on.

Michael_Rudmin's picture
Michael_Rudmin
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Joined: Jun 25 2014
Posts: 934
Have you considered Elliott?

Macroecon DOES seem like it's very questionably a science. Yet some seems like it has a better foundation than others.

For myself, I try to follow Elliott forecasts; it seems to do fairly well. For example, when I bought Pd a year ago, I expected that gold was going to go through a horizontal correction, followed by another drop to the 900-1100 range. While it was undergoing a horizontal correction, I expected Pd to undergo an ABC drop, and then take off upwards again. When it hit its new peak, I expected gold to be at its low.

So far, so good. But I'm down on Pd right now, because when I intended to sell, I was prevented, and missed the opportunity, and so am just holding.

We'll see if I'm right. Based on how far Pd corrected (an almost total correction) I expect to rise up to about 12-1300, and then undergo another horizontal wedge correction with plenty of opportunity for a buy/sell cycle. As the magnitude of the oscillations drops to be unprofitable, I think it will become a good time to hold on to Pd again for another rise of 4-500.

My only question is if it will be more profitable to be in silver by that time, because although silver is in general headed down, I'm expecting an ABC correction upwards at that time.

HughK's picture
HughK
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Joined: Mar 6 2012
Posts: 764
Don't knock astrology
davefairtex wrote:

I'm with you.  No information there.  They just follow the recent trend.

When I studied economics as an undergrad, I was completely turned off.  I think some part of me knew that stuff was just made up crap.  Now that I have real data to work with, and I'm free to discover what things actually matter, I find it fascinating...too fascinating, truth be known...

Easy there, guys. You want me to survive the weekend, don't you?

I was asked to start teaching economics this school year, and while it was my undergraduate major, I have always taught other things. In my program, the students have to take an externally graded test after finishing the two year course.  The course content and exam is Neoclassical Synthesis (+ a little Monetarism) straight up.

So, I went from teaching an international politics course designed for the students at our school, with a two month limits-to-growth curriculum built in, drawing on the Crash Course at a few different points, to an externally imposed curriculum of mainstream economic theory that does not adequately account for the economic effects of money, debt, energy, irrational behavior and instability with a high-stakes exam at the end, meaning that I deviate from the syllabus at the risk of my professional record and the students' peril, in terms of exam results, anyway, which is something that they care about a lot.

So, my efforts to make my courses more relevant and applied to the big shifts we face have seen a setback, and most of my colleagues and bosses are congratulating me on my promotion.  Ah, the short-term rewards of being a specialized worker bee.

Needless to say no credit is given in this orthodox econ. syllabus to the economics of the Austrians, Neo-Keynesians, or ecological/thermodynamic/biophysical economists.

And traders? Er, sorry, Dave, but if we were to let the likes of you into the ivory tower, it would be actors and courtesans next. (Actually, one of your chart has already made it onto the whiteboard, during our short real-world economics discussions at the beginning and end of class.)

Nonetheless, Keen, Tverberg, and most certainly Martenson have found their way off of the Forbidden Shelf once or twice already. Alaklett, Tainter, Roubini, James Hamilton, Reinhart & Rogoff, Mauldin (who is still insightful in many ways, in spite of his energy cornucopianism), and Falk may have their day in the sun as well. We'll learn the required stuff so that they can ace the test and still find some time to learn about economics that does a bit better in terms of describing the world as it actually is.

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 934
Please also run Pd once every couple weeks.

Dave, please also run Palladium once every couple weeks. As I had said before, its behavior right now seems very interesting right now.

To be more specific, if my interpretation of Elliott analysis holds right now, I think we're looking at a sharp sustained rise up to 40 % over its previous drop from 900->600, or in the middne thousand range (1050). That's if the actual bottom, 500, was overshoot induced by manipulators.

My apologies if there is some confusion between this post and last post two above, there is definitely a range in this, and it's hard for me to judge. One judgement is the conservative judgement, the other is the more liberal judgement. I don't find Elliott to be so useful at picking endpoints, just at picking large trendse

In any case, I'll probably get out about that time, to wait for the peak and the first correction, because I expect a pennant pattern after that.

I

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