PM End of Week Market Commentary - 12/18/2015

davefairtex
By davefairtex on Sat, Dec 19, 2015 - 4:23am

On Friday morning, gold and silver both rallied, with silver finally staging a large spike higher at 09:45 that regained much of the losses suffered on Thursday.  Gold ended up +15.50 to 1065.60, and silver was up +0.39 to 14.08.  Both gold and silver moved back above their respective 9 EMA lines.  Miners rose too, with GDX up +2.21%, but the miner rally had a bit of a failed rally odor to it, with GDX selling off a bit at end of day, printing an inverted hammer candle.

On the week, gold fell -8.10 [-0.75%], silver rose +0.19 [+1.37%], GDX was hit for -5.18%, and GDXJ lost -1.58%.  Platinum rose +2.13%, while palladium climbed +2.60%.  This week was all about the FOMC meeting, which ended Wednesday with the Fed raising interest rates from 0.00-0.25 to the range 0.25-0.50.

FOMC did not bring about an instant rebound in gold as I had hoped it might; it did however bring out a whole lot of volatility, with gold first rising on Wednesday, then falling hard Thursday, and then rallying sharply on Friday.  Overall, gold is slightly better at the close on Friday than it was on Tuesday before the meeting; gold is up about $5 over that time, and it did manage to squeak back above its 9 EMA - at least according to stockcharts anyway.

To be honest, the big drop on Thursday surprised me - but so did the rally on Friday.  I saw no particular trigger for either of them.

I see two chart formations for gold right now: a bearish descending triangle which could lead to a break below 1045, or a double bottom at (about) 1045 that could lead to a rally.  If gold can close above the upper downtrend line (say about 1078) that weakens the case for the descending triangle, and a close above 1090 selects "bullish double bottom" pattern.  Otherwise, we probably go lower.

Silver is often more volatile than gold, and it sure didn't disappoint this week.  Silver staged an impressive rally Wednesday after FOMC, an even more impressive drop Thursday which printed a "bearish engulfing" pattern, and then an almost-as-impressive rally on Friday to close out the week.  If we look at the cup-half-full side of things, silver is up about +0.32 vs where it closed Tuesday night before FOMC, and its swing low from Wednesday is still in play.  Silver is also well above its 9 EMA.  Still, I'd be a lot happier if Friday's rally was able to overtop Thursday's high; until that happens, the bearish engulfing from Thursday still holds.

Miners

Miners turned bearish this week; the big sell-off Monday that drove GDX sharply through its 9 EMA set the tone for the week, and the miners never really did recover.   Friday's rally was not particularly impressive; although gold and silver managed to regain their 9 EMA lines, GDX did not.  In fact, the 9 EMA now seems to be acting as resistance.  Down-day volume is now stronger than up-day volume, which is another bearish sign.    On Friday, the mining shares did not react as positively to the strong rally in PM as I would have hoped.  GDX:$GOLD ratio is now falling.  It all adds up to one thing: bears are back in control of the miners, at least for now.

The USD

The dollar rose +1.18 to 98.73, with the FOMC finally pulling the trigger on the long-awaited rate rise.  However, when you contrast this week's move higher with the move down in the buck after the ECB meeting two weeks ago, you can see that the dollar's move higher post-FOMC was a whole lot less enthusiastic than the pounding it took after the Draghi Disappointment.  My sense is the dollar is probably moving lower over the medium term, unless some exogenous event occurs.

I'm also curious to see just how large the Fed's "reverse repo" operation is that actually enables this rate increase.  We will be able to tell this by looking at the Fed balance sheet.  You can follow along at home by looking at the chart here, which updates weekly: https://research.stlouisfed.org/fred2/series/RREPT

US Equities/SPX

SPX started the week strong, printing a clear hammer candle reversal bar on Monday, followed by two strong up-days.  However the fun ended Thursday when the selling started, and Friday saw even more liquidation, with SPX ending the week down -6.82 [-0.34%] to 2005.55.  Still, Friday was options expiration, so that might have pushed prices around more than normal.  Volume was certainly very high.  VIX ended up dropping -3.69 to 20.70, I'm guessing because the FOMC uncertainty is over.

You can see that the US market did not do well this week relative to its peers.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Developed Asia VPL 1.17% -0.69% falling falling falling rising ema9 on 2015-12-17 2015-12-18
Eurozone EZU 0.37% -6.16% falling falling falling falling ema9 on 2015-12-17 2015-12-18
Emerging Asia GMF 0.04% -11.38% falling falling falling falling ema9 on 2015-12-07 2015-12-18
Europe IEV -0.10% -8.15% falling falling falling falling ema9 on 2015-12-17 2015-12-18
United States VTI -0.39% -2.39% falling falling falling rising ema9 on 2015-12-17 2015-12-18
Latin America ILF -0.46% -30.33% falling falling falling falling ema9 on 2015-12-17 2015-12-18

As I said last week, the failure of SPX to make new highs means that most likely, we eventually will re-test the lows at 1871.  SPX is once again below all 3 moving averages.  This dovetails nicely with the FOMC rate rise, which historically has signaled an end to the party for equities.

Gold in Other Currencies

Gold was mostly lower this week, but with gold dropping in XDR by only -1.97, that suggests that gold's move lower in USD was mostly a currency effect.  Gold's fall in INR, BRL, and RUB suggest those currencies are improving somewhat.  However big-picture, you can see that gold is in a one-year downtrend in all currencies other than RUB and BRL.


 

Rates & Commodities

Bonds (TLT) sold off in anticipation of the FOMC meeting, but rallied modestly afterwards, a mirror image to the performance in equities.  In spite of the rally, TLT closed the week down -0.43%.  Bonds are still acting as a safe haven, and they will probably rally if the equity market continues to sell off, but I suspect they are feeling the pressure from the rate increase.  Bonds do poorly in a rising rate environment.

JNK also fell, ending the week down -0.30%.  In contrast to the mildly bullish TLT chart, the chart of JNK looks horribly bearish.  Traders are pretty clearly selling the rallies in JNK, with the 9 EMA acting as resistance/a short-selling entry point.

The CRB (commodity index) fell again this week, dropping -1.54% making yet another new low.  However, it did print a doji candle on the weekly chart, which suggests a faint hope that, just perhaps, the commodity-beatings will cease for a time.  CRB also printed a swing low on its daily chart.  Of course CRB has done this before many times in the long move lower, so take this swing low with a grain of salt.  Its just something to watch.

WTIC rose this week, up +0.47 [+1.33%] to 35.83.  That said, about $1 of that gain was contango from a futures contract roll that happened this week (next-month oil is $1 more expensive than current-month oil in the futures markets), so it sounds more impressive than it really was.  Brent crude dropped -1.47 [-3.86%] to 36.60, so the spread between Brent and WTIC has narrowed considerably.  I think Brent is probably more representative of what happened this week for oil, namely, that the velocity of the oil decline has slowed, but not stopped.  It would really help PM if oil found a low.

Physical Supply Indicators

* Shanghai premiums for the Au9999 contract were +6.11 vs COMEX, up +2.39 on the week.

* The GLD ETF tonnage on hand rose a massive +14.28 tons, with 648.91 tons remaining

* Gold remained in backwardation at COMEX, with the spread in the first two contracts at -1.20.

* ETF Premium/Discount to NAV; gold closing of 1065.50 and silver 14.08.

 PHYS 8.74 -0.74% to NAV [up]
 PSLV 5.42 +0.04% to NAV [down]
 CEF 10.19 -10.34% to NAV [up]
 GTU 38.00 -2.07% to NAV [down]

ETF premiums were mixed, but did not move much.

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no particular premiums for gold or silver this weekend.

* HAA big bar premiums are higher for gold [2.14% for 100 oz bars in NYC], lower for silver [4.08% for 1000 oz bars in NYC].  Silver Eagle premiums fell [23.01% in NYC].

Futures Positioning

Gold commercials covered -4.3k shorts, and went long +1.4k contracts, a relatively small change.  Managed Money bailed out of -8.9k longs, and increase shorts by +0.9k.   Managed Money remains net short gold, and the Commercials remain very close to a net long position - either of which signal that a low in gold could happen at any time.

Silver commercials covered -5.1k shorts, and increased longs by +2.2k contracts.  Managed Money dropped -1.8k longs, and increased shorts by +4.8k.  Silver is still not quite where gold is in terms of a bullish COT reading.  Managed Money's net position isn't quite low enough, and while the Commercials have closed a large number of shorts, they have shown no interest in going long.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

You can see that the miners fared much worse this week compared to metal prices, although the juniors managed to stay above that 9 EMA somehow.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum COMEX.Platinum 2.03% -28.09% rising falling falling falling ema9 on 2015-12-18 2015-12-18
Silver COMEX.Silver 1.59% -11.61% rising falling falling falling ema9 on 2015-12-18 2015-12-18
Gold COMEX.Gold -0.99% -10.76% falling falling falling falling ema9 on 2015-12-17 2015-12-18
Junior Miners GDXJ -1.58% -21.58% rising falling falling falling ema9 on 2015-12-18 2015-12-18
Silver Miners SIL -4.42% -33.97% falling falling falling falling ema9 on 2015-12-17 2015-12-18
Senior Miners GDX -5.15% -26.81% falling falling falling falling ema9 on 2015-12-17 2015-12-18

Gold Manipulation Report

There were no 0.5% "after-hours" spikes in PM during the past week.

Summary

FOMC caused a great deal of volatility this week leaving silver higher, and gold and the miners lower when it was all said and done.  Its certainly not the outcome I expected; I guessed that gold and the miners would rally leaving silver a bit behind - mainly because of the COT report.  The market had other plans, however.

The gold/silver ratio dropped -1.62 to 75.68, which is a good improvement but the ratio remains bearish. GDX:$GOLD ratio fell, and is looking bearish.  GDXJ:GDX rose sharply, and is starting to look bullish again.  Senior miners don't look great right now.

COT report continues to signal a low for PM, favoring gold over silver.  According to the COT, the commercials have no interest in seeing further gold price drops, and while there might be a bit more downside left for silver, it could go either way.

Gold and silver big-bar physical shortage indicators are unchanged; in the west, ETF premiums were mixed, GLD tonnage rose sharply, and gold remains in backwardation at COMEX.  Big bar premiums for gold at HAA were little changed, while silver coin premiums rose slightly.  In Shanghai, premiums rose to $6 vs COMEX.

Long moves like this deflationary commodity downturn eventually end, and they usually end while the bad news is still coming every day - so news cannot be the guide, we have to watch prices.

Prices, unfortunately, are telling us we aren't there yet.  In the current mind-set, where confidence in central banking remains in place, it is possible for gold to rally regardless of what happens to commodities, but it has a tougher time doing so.  Until the central-banking-confidence story changes, the overall situation remains the same; weaker dollar and stronger commodities will support PM, while a stronger dollar and weaker commodities act as headwinds.   FOMC did clear away a big amount of uncertainty this week, but the falling commodity price environment remains.

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7 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Bear Wedge vs Double Bottom

I'm relatively new to trading, but it seems to me that it's a great time to go long when the following 3 conditions are met: oversold, near key support (~1045), w/ favorable a favorable CoT.  W/ all three of those in place, I tend to agree w/ the "double bottom" scenario.  The reverse applies for going short.

Of course, I'm a great contrarian indicator, so taking the opposite side of my trades can prove to be quite profitable! :)

Thx again Dave.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5693
buy the breakout

Penny551-

So the old adage of waiting for the market to prove out your thesis comes to mind here.  That is, wait for the buyers to push prices above the downtrend line before jumping in.  If you want to take more risk, buy the moment price crosses the downtrend line.  Less risk, wait for that to happen by end of day.

Even less risk: wait until price closes above 1090.

 

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Silver as a Conductor.

This hyperactive young fellow says that demand from China for silver is down and that silver is much more a commodity than a monetary metal. 

It was a difficult to understand if he was touting a buy or not. But I do believe that he was advising a long view.
Which is fine by me. I plan to be around a long time.

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Bk Recommena=dation

Thx Dave.

Can you recommend a good book or 2 on Technical Analysis?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5693
TA

The stockcharts.com site has a great series of articles on it...its free...maybe start here:

http://stockcharts.com/school/doku.php?id=chart_school:overview:technical_analysis_1

Its more art than science; because of that, if you can eliminate your own greed & fear emotional overlay, it tends to work a lot better.

 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Thx Dave.  That'll be one of

Thx Dave.  That'll be one of my projects this week; to get through all 16 parts.

I've been "dollar-cost-averaging" into the metals since 2009, but have only recently started trading the metals as they approach overbought/oversold extremes and am fairly new to shorter term trading.  Basically, I buy cheap, out of the $ Call Options at oversold extremes w/ bullish CoTs and Puts at overbought extremes w/ bearish CoTs.     

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5693
natgas rally

Signs of life in parts of the commodity complex today - natgas is staging a huge rally (+0.13, up 7.30%) which brings it back to 1.89 and will easily mark a swing low if it closes here, along with gold (+12) silver (+0.14) and even copper is up a penny.  So to speak.

Not that you guys all care about natgas, but this might well be an important low.  Its dreadfully oversold, in all three timeframes I follow.  And it might encourage crude to rally too.  At least that's my hope anyway.

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