PM Daily Market Commentary - 10/26/2015

By davefairtex on Tue, Oct 27, 2015 - 2:52am

Gold fell -1.10 to 1162.90 on light volume; silver rose +0.03 to 15.84 on light volume also.  Metals traded in a narrow range today; on Wednesday, we have an FOMC meeting statement appearing at 14:00.  My sense is, perhaps things are simply trading sideways in anticipation of the event.

Gold has dropped 7 of 8 days, but each day's drop has been quite minor.  As corrections go, this isn't much.  This could be a "bull flag", which is a continuation pattern - meaning they usually end with a break to the upside.  This is the correction you want to see if you're long PM.

Silver is consolidating right at the 200 MA.  This is another pattern that could well lead to a break higher; right now neither bulls nor bears have the upper hand, but the longer this goes on, the more bullish it feels.  Silver's "overbought" condition needed to be worked off.  That can happen either with a correction, or with a move sideways.  We're seeing the move sideways, which is a more bullish outcome.

Miners had a bad day, with GDX off -3.09% on moderate volume, and GDXJ dropped -2.53% on moderately light volume.  Miners are also consolidating, but after today they look a bit more bearish than before.

The buck dropped -0.29 to 96.96, its first major drop in the past 8 trading days.  I'm guessing the longs are ringing the cash register after a 3% move in a relatively brief period of time - reducing risk ahead of the FOMC meeting statement.  As always, prices will probably move sharply immediately after 14:00 Eastern.

SPX fell -3.97 to 2071.18, taking a rest after a couple of good days following the ECB money printing announcement last Thursday.  The SPX is now back above its 200 MA - each resistance level has fallen, and we are now almost back to where the market broke down back in August.  VIX rose +0.83 to 15.29.

If the market cannot make new highs, it is still vulnerable to a strong sell-off, but we really need to see signs of weakness before jumping in short.  And so far - no signs of weakness; the 9 EMA has been our clue as to trend.  Right now, short term trend remains up.

JNK fell -0.04%; JNK also remains above its 9 EMA, but the rally in JNK is tepid at best.  Although JNK has slowly moved higher over the past few weeks, I'm not getting a risk on signal from JNK - it's more of a dead cat bounce.  What looked like a cup & handle breakout has barely managed to move higher; this tells me the selling pressure is pretty strong.  Likely weak energy prices have not helped.

Bond ETF rose +0.67%, with bonds continuing its sideways consolidation around, and slightly above the 200 MA.  If you pull back to the weekly chart, you can see bonds are creeping slowly higher - not exactly the expected move given the recent strong move higher in equities.  I'd say that's bullish for bonds.

The CRB fell -0.74%, continuing to sell off as it has over the past three weeks.  Commodities look weak, and appear to be headed to retest the lows of Aug 24th.

WTIC oil dropped -1.00 [-2.24%] to 43.73, closing below the 44 level for the first time since the Aug 24 oil rally.  A close below support indicates a fair amount of selling is likely to come, as longs who "bought the dip" over the past 8 weeks bail out.   More likely than not, oil moves down to retest the lows at 38.  In the asia trading session, oil has already broken down further - with a low at 43.33.  No buyers yet for oil.

Natural gas (US) deserves a special mention today - it has been steadily moving lower now for a few months, and the selling has finally accelerated into open panic by the longs, as it dropped -8.90% just today.  We are nearing capitulation-level RSI values in the daily timeframe, and the weekly and monthly RSI levels are also below 30.  This translates into "boy, this sure has been a bearish last few years, and now its really getting hammered" - as natgas sold from its high in 2014 of 6.50 down to its current price of around $2.  Capitulation, for the daily RSI-7, is around 5-8.  This suggests to me we might have one or two more days of this before it bounces.  Perhaps natgas will find support at its old low of 1.90.

This really hurts the shale drillers, since many of them produce shale natgas in addition to oil.  I'm sure nobody is profitable at $1.90, and if you own a shale natgas driller's junk bond, you aren't so happy right now either.HAA has 100 oz gold bars right now in NYC at 1190.25/oz [+2.20% over spot], and 1000 oz silver bars in NYC at 16.45/oz [+3.71% over spot].  Eagles in NYC are quoted at 19.41 [+22.34% over spot].  Big bar premiums are mostly unchanged, as are Eagle premiums.

Gold and silver appear to be in holding patterns awaiting a catalyst - perhaps that will come from the FOMC announcement due out Wednesday.  So far, things still look good.  Commodities overall are weakening, which makes the sideways action in PM that much more bullish-looking.  It feels like things will move sideways for another day and a half, until Wednesday at 14:00 when FOMC releases their meeting statement.

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1 Comment

KugsCheese's picture
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Amazon TTM P/E at 875

What will the catalyst be???

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