PM Daily Market Commentary - 1/7/2016

davefairtex
By davefairtex on Fri, Jan 8, 2016 - 4:27am

Gold continued shooting higher, rising +15.40 to 1108.70 on very heavy volume; this time silver joined in, climbing +0.31 to 14.31 on heavy volume.  There were lots of cross-currents today; a dramatic move lower in the buck, a potential low for oil, a brisk drop in equities, and falling commodity prices made for a complicated picture.

Today was the fourth straight up day for gold - the launch point happening on the first trading day of the new year.  Its tough to know why COMEX buyers decided to show up in such force; Shanghai's big drop, a beaten-down asset class, sector rotation from equities to PM, physical scarcity at COMEX - it could be any of these stories, or all of them, or another one I don't know about.  All I can really see are effects at COMEX, and they remain bullish.

Currently gold is rallying on increasing volume; that is, each up day has successively higher volume than the last day.  This is a bullish pattern.  Money flow into (COMEX) gold is increasing with each rally day.  Gold is getting somewhat overbought, but my computer model is still long.  The computer model likes to see signs of selling before it bails out; no selling is visible at this point.

Silver finally broke out today; it felt like the possible reversal bar in oil might have been a contributing factor to silver's big rally.  We see silver rising on increasing volume similar to gold, although before today it was much less enthusiastic.  Silver needs a close above 14.64 to break out.  I feel a bit more sanguine about PM after today's move in silver, although a close for silver above the 50 MA would be nice too, and as long as I'm ordering happy events, I might as well ask for a close above 14.64 to cement the (short term) trend change.

GDX shot higher, climbing +4.64% on heavy volume, while GDXJ rose only +2.33% on moderate volume.  The GDX breakout today was relatively strong, on good volume, and GDX managed to keep most of its gains into the close.  These are all positive signs that suggest PM prices could continue moving higher for this cycle.  Miners usually lead PM - when you see the miners start to get tired, its a warning sign.  Today: clearly bullish.

Platinum was flat hovering just below its 50 MA, while palladium continued falling, losing -2.39% and making a new six-year low.  Palladium looks quite ill.  The relative weakness in platinum & palladium continue to provide a bit of worry about the strength of the PM rally overall, but I think silver and the miners are more important indicators.  When some things don't point in the same direction, it weakens the case for a longer term rally.

The buck was sold all day long, dropping -1.03 to 98.27, smashing through its 9 EMA and its 50 MA and printing a dramatic swing high to boot.  It looks to me like foreigners are fleeing US assets; how much of the equity market drop is foreign selling?  Based on the big drop in the buck on the same day we see a big drop in US equities, I'd say a fair amount.  After today's price action, the buck is just a hair away from moving into a downtrend, since it ended the day right on its uptrend line.

SPX tanked hard today, dropping -47.17 to 1943.09 after the Shanghai market went limit down again (7%) in China.  For SPX, the previous low will act as a rough support level, but that is still 72 points away.  We have the Nonfarm Payrolls report tomorrow at 08:30 Eastern - an hour before market open.  Literally anything could happen, including a 72 point drop if the NFP report is bad enough.  SPX could also put in a low here if the report is unexpectedly positive.  Momentum is very clearly down right now though, so my money is on a further decline.  My computer agrees, it is short US equities.

JNK fell -0.53%, echoing risk off signals from SPX.  It now appears to be heading for a re-test of the lows.

Long bond ETF TLT did manage to rally, up +0.18%, but that move is quite weak given the large drop in US equities.  I expected more.  This tells me that money is fleeing US assets - stocks as well as bonds.  Normally bonds should have been up perhaps 2% on a day like today.  Likely foreigners sold TLT along with SPX.

CRB continued dropping today, falling -0.54% and making a new low.  Given the dollar's plummet, this was a very weak day for commodities.  Perhaps this explains the relative weakness in platinum and palladium.

WTIC sold off hard during the Asia trading session, dropping as low as 32.10 intraday.  It later bounced back, eventually closing down "only" -0.80 to 33.26, printing an almost-bullish hammer candle which could potentially mark the low for oil.  I used a couple of weasel words there - the $1 rebound was decent, but price faded into the close and that looked somewhat disagreeable, and so I'm not 100% convinced the low is in.  My computer isn't convinced either - it is still short oil.

I tend to be a bit too eager about oil; I wish I had a supertanker that I could fill up and store the oil away for later.  $33 oil is so far below cost of the marginal barrel its not even funny.  Would you rather have above-ground oil for $33/bbl, or oil-in-the-ground which costs $60 to both find-and-produce up in the Bakken?

Today felt more like a sector rotation move (from risk equities into PM) than just a safe haven move; silver and miners typically don't rally during flights to safety.  Still, I look over at palladium and commodities and I am wary.  A long and strong PM rally will most likely only happen when confidence snaps, or when we get a turn in the commodity space.  And silver is still lagging behind.

As a point of reference, for gold to cause the weekly SAR (trend indicator) to flip to "up", it needs a close above 1117.   We closed today at 1108.70.

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3 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5423
Nonfarm Payrolls: +296k

So the NFP report was unexpectedly strong this morning, which momentarily sent the e-mini (SPX) futures into a brief spike higher, up 25 points.  The spike did not last long, it got sold, and now the market is down 8 points, a 33 point swing.

What does this mean?

I see two interpretations.

1) Market is headed lower - good news just got sold, because we're in a downtrend and that's the sort of thing that happens in downtrends.  Market sells off on good news = strong downtrend indicator.

2) Market may be factoring in an increased chance of a further Fed rate increase as a result of this report.  The stronger the economy, the more likely the Fed is to raise rates again.

I can't say which version is "correct" - I can say the market appears to be headed lower.

As always, the close will be key.

Silver is doing poorly, while gold is holding up relatively well.  Oil continues to suck, down 55 cents to 32.71.

pinecarr's picture
pinecarr
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2246
In other words...

Time to buy more silver!! :)

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
All I see is the red line,

All I see is the red line, the blue line and the green converging. I take this to mean that the hidden hand is content that it has discovered the correct price for silver. 

Yes, I am invested in Silver, but that should be a cause for concern. I'm saying that I bet the wrong way. This nag is not bolting anywhere. 

But I hold it foremost in my mind that the true cost of a 3 bedroom house is 15 kg of silver. It will probably be even less in the future as houses are built from industrial waste. Shipping containers.

 

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