PM Daily Market Commentary - 1/14/2016

By davefairtex on Fri, Jan 15, 2016 - 4:01am

Gold fell -15.00 to 1078.30 on heavy volume while silver dropped -0.33 to 13.82 on heavy volume also.  Gold just tracked lower for most of the trading day, while silver fell off a small cliff around 07:40 Eastern and just never recovered.

Gold plunged through its 50 MA intraday, but managed to rally back to close above it right near end of day.  The drop in gold did not seem to be tied in with the rest of the commodity complex, nor with the buck.  Roughly speaking, it seemed to fall as the equity futures (and equity market) rose.  Perhaps it was following silver lower.  Looks like my computer model was right about gold - it remains short.

Silver lost most of its gains from yesterday's strong rally.  From a daily chart perspective, silver appears to be the plaything of big money.  Yesterday it rose, hosing the shorts, while today it fell, hosing the longs.  The big moves don't seem to be aligned consistently with any other item.  As a result, silver is a really tough trade right now and both longs and shorts have been rinsed for the past seven weeks.

Still, if we ignore the spikes in both directions and just focus on the overall trend represented by the 9 EMA, the trend remains down, although the slope of that trend is definitely flattening out.

The miners continue to be heavily sold; today GDX dropped -3.53% on moderately heavy volume, while GDXJ fell -3.36% on moderate volume.  The miner ETFs are fast approaching their lows, and based on this past week, I do not expect the lows to hold.   Two of the more "popular" miners have already violated their previous lows:  Goldcorp made a new low dating back to 2004, and Silver Wheaton's new low tracks back to "only" 2010.  Both the junior and senior miners look ugly, they seem to be leading PM lower, and that's bearish.

Platinum fell -1.58%, palladium rose +1.47%, and copper rallied +1.23%.  A rally in copper would be a distinctly positive sign for commodities overall, but copper has a lot of work ahead of it before it can change trend, even in the short term.  I added copper to my computer model; computer model is short copper.

The buck rose +0.16 to 99.14; dollar uptrend remains intact, but the moves in the buck continue to be minor.

SPX staged a strong rally today, climbing +31.56 to 1921.84, after first hitting 1880 intraday, which was the very top of its support range.  The rally in SPX was correlated with a strong move higher in oil equities, which jumped +4.3% on the day.  Oil equities were quite oversold in my three favorite timeframes, and so a strong rally is to be expected when oil showed signs of life - which it did.  However if oil doesn't continue to rise, I suspect SPX will suffer too.  VIX dropped -1.27 to 23.95.

JNK made a new low intraday, but then rallied back to close up +0.24% and print a bullish-looking hammer candle on the day.  We're a day away from confirming the reversal bar, but a confirmation tomorrow would help the "bounce" case for equities.  Probably this depends on oil.

Long bond ETF TLT lost -0.94%, the losses coming due to the strength in equities.  TLT remains bullish, but probably won't be for long if the equity market really starts to rally.

CRB rose +0.45% today, the second day of modest gains.   Still, commodities remain in a downtrend.

WTIC climbed +0.65 to 31.21, coming back nicely after yesterday's failed rally.   The rally in crude today probably sparked the equity market rally, and it definitely caused the rally in energy equities.  Even so, crude has yet to print a swing low, it remains below all 3 moving averages, and my computer model remains short.

As I write this, oil is now selling off in Asia afternoon trading... the Feb 2016 CL contract has moved down into 29 territory.  Because of the impending contract roll and the contango of about a buck, we'll get a contango-driven (fake) $1 pop in oil tomorrow so you may not see "29" quoted as the price for WTIC, but in fact oil is selling off right now, is down more than $1.50, and the e-mini (SPX) futures are selling off as a result.  Right now, oil and SPX seem fairly well correlated.

Interestingly enough, if I don't correct oil prices for contango, my computer model doesn't do a very good job predicting crude.  Once I correct for the contract roll, the predictions are much better.  Its really important to understand contango and its effects on your position if you have any interest in trading oil - even if you are just buying and selling the USO (or USL) ETF.  Someone's gotta pay the storage cost of $0.50-$1.00 per month, and if you don't know who is paying...its probably you!

PM appears to be heading lower, led by the sell-off in the mining shares.  Computer model is short all elements of PM.  Equities have bounced off 1880, but a further collapse in oil might pull them lower still.

If you are mourning the missing charts - I wasn't able to upload them for some reason.  I'll try back again later after I reboot.

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