PM Daily Market Commentary - 10/14/2015

By davefairtex on Thu, Oct 15, 2015 - 12:51am

Gold rose a big +15.40 to 1183.90 on heavy volume, while silver climbed +0.22 to 16.12 on heavy volume as well.  PM started to rally seriously at 08:30 Eastern immediately following the Retail Sales & PPI reports released at that time.  The buck started dropping at that same moment.  From there, PM never looked back. Gold faded a bit into the close, but it was still a great day.

Gold's rally today took it clean through the 1170 resistance level, and up through the 200 MA.  The strong volume suggests to me there was plenty of short covering happening, and that helped to fuel the rally.  Any time there is a move above a major, recent previous high, short covering will happen, which causes a nice "pop" once that old high is broken.

Now then, after this latest breakout, you may feel as though you are missing out on the Great Gold Rally of 2015.  Is now a good time to buy?  Gold - and literally everything else in the universe - moves in cycles.   In an uptrend, there are longer waves up, and shorter waves down.  Usually, your own emotions can provide a clue as to where were in the cycle.  Generally speaking, the stronger your feeling of missing out, the closer we are to the top of the cycle, and the worse the time it is to buy.  That's just how trading and the human emotional system interacts.

How do you feel right now?  Do you feel like you are missing out?  Try this: buy a small amount so you don't miss out, and then see what happens.  Write down the intensity of your feelings, print out the price chart, circle your buy price so you can check back later and see how your "missing out" buy did.  (If you don't buy anything, you have no emotional involvement, so it won't feel the same, and you won't learn anything.  This exercise is a class - in understanding your emotions and how price interacts with them.)

The reverse emotional experience happens when price drops.  We all feel disappointed that price is dropping - gold will never move higher, we are angry that the stupid Fed is hammering gold AGAIN - and as emotion increases, that's a clue that a buy time may be near.  Everyone feels these emotions, not just you, and not just for gold.  Its just that goldbugs tend to focus their "cycle emotion" at the Fed.  But that's why the cycles happen: emotion.  Naturally, the time to buy is often when you feel the most upset.

Buying the cycle lows makes sense - its the "buy low" part of "buy low/sell high."  However, trend is a critical assumption here: only buy cycle lows in an uptrend, otherwise it is portfolio suicide.  And the trend isn't a guarantee of success, especially now when the trend is young - it just increases the odds.

The chart studies are there to provide an emotion-free look at where things really are.  If RSI is high, that means we're nearing the top of the cycle.  If RSI is low, that says we're nearing the bottom.  Presumably, you want to buy low, and sell high - so buying when the RSI is low is preferable.

Gold's recent rally has established a strong-looking medium-term uptrend; that said, we are still in a longer term downtrend.  We might be in the process of changing that long term downtrend - or we might not, its too soon to tell.  Buying now is a gamble on the longer term trend change.

So, if you want to take that long term trend change bet, you should wait for gold to drop back down and mark a cycle low, and then buy.  Buy dips in an uptrend, that's the right way.  It requires patience, and going dead against your emotions.  Emotions, in this game, are only a good guide if you use them as negative indicators.  You cannot follow them or else you will end up buying high (missing out!), and selling low (feeling stupid) - like literally everyone else in retail.

Step 1: figure out the trend.

Step 2: if uptrend, then wait for the short term cycle low, and then buy.

If you start asking me, "Dave, is this the cycle low, and is the uptrend still intact", I will know you have arrived.  :-)

Silver moved right to the top of its range, and flirted momentarily with a breakout but couldn't quite deliver.  Silver does not have a large number of shorts that need to cover; that could be the difference between gold and silver at this point.  Silver's inability to follow gold higher today makes me a bit nervous.  In a normal PM bull market, silver would have blown through this price level and it would have been up 3-5% today alone, racing higher faster than gold.  The fact it didn't is a bit of a warning sign to me.  Maybe its just a step behind; we will have to see.  It is definitely on the edge of a breakout.

Miners shook off whatever fatigue they might have been feeling and blasted higher today, with GDX up +6.49% on heavy volume.  Junior miners finally woke up too, rising +7.50% on heavy volume as well.  If we look down at the senior miner chart, we see that up-day volume was the key indicator.  That alarming-looking bearish engulfing candle from two days ago had relatively smaller volume than the surrounding bullish candles.  That was the "tell" that the bull move was probably still alive.  That, and the fact GDX remained solidly above its 9 EMA even on the days where there was weakness.  Next time we will know better.

Platinum rose -9.40 [+0.95%], palladium shot up +19.00 [+2.78%], and copper was up +1.66%.  Palladium is back above its 9 EMA; it too was having trouble with its 200 MA.

The USD was hit extremely hard today, falling -0.83 [-0.88%] to 93.96.  The selling started immediately following the release of the Retail Sales & PPI reports at 08:30 Eastern; the buck attempted to rebound, the rally failed, and then the selling started in earnest and it didn't really stop until market close.  The large move lower in the buck definitely helped PM move higher.  Bad news is still bad news, at least for USD.

SPX fell today also, dropping -9.45 to 1994.24.  The e-mini futures dropped after the reports at 08:30, rallied, and then dropped once again after a weak-looking Business Inventories report at 10:00.  SPX did however manage to find support on its 9 EMA and managed to close above the 9.  Oddly, my computer model found today's price action appealing, and switched back to long for SPX.  I'm very curious to see how this works out.  I certainly didn't feel the love today in SPX.  VIX rose +0.36 to 18.03.

JNK was flat today.  No signal.

Bond ETF TLT jumped higher, up +0.88% and moved cleanly through its 200 MA.  Bonds are signaling risk off right now; for them, bad news is definitely good news.  Whatever pressure bonds were under before seems to be gone now.

The CRB rose +0.18%, edging higher and remaining just above its 9 EMA.  CRB is still in "uptrend territory", at least in the near term, but it doesn't look as though its in any hurry to move rapidly higher anytime soon.

WTIC continued lower, falling -0.28 [-0.60%] to 46.29.  Oil's drop is starting to slow, but it has not marked any sort of low just yet.  Computer model is still short oil.

HAA has 100 oz gold bars right now in NYC at 1210.45/oz [+2.13% over spot], and 1000 oz silver bars in NYC at 16.73/oz [+3.50% over spot].  Eagles in NYC are quoted at 20.11 [+25.21% over spot].  Premiums on the big bars fell somewhat, while premiums on Silver Eagles are down once again.  Although silver rose today, the price on Eagles actually fell.

Miners have woken up, gold has broken out and is now above its 200 MA, as is silver.  Silver continues to struggle relatively speaking, and commodities are struggling too.  Their struggles are probably related.  We have another economic report tomorrow: the CPI (deflation!), a Fed manufacturing survey, and the Petroleum Status report.  Industrial Production arrives Friday.

The buck's move lower is accelerating; it is now selling off hard on bad news.  That's good for PM, but at some point - probably soon - the buck will hit bottom for its cycle, and that might in turn signal the top for gold in its current cycle too.  A couple of more days, perhaps?  Friday maybe?  Its just a guess.

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