PM Daily Market Commentary - 1/19/2016

davefairtex
By davefairtex on Wed, Jan 20, 2016 - 5:29am

Gold fell -1.30 to 1087.30 on heavy volume while silver rose +0.11 to 14.02 on heavy volume also.  Gold tracked mostly sideways, while silver staged a big rally in asia (hitting 14.18) but was not able to hold those gains into the close.

Gold was mostly unchanged on the day, tracking sideways within a relatively tight range.  Gold remains just above its 9 EMA and well above its 50 MA.  Computer model is still short gold.

Silver's rally in Asia took it momentarily above its 50 MA, but it was unable to hold above the 50 through end of day.  Still it did manage to end up closing above its 9 EMA, which is modestly good news.  While silver's 50 MA (representing the medium term trend) is still plunging, the 9 EMA (the short term trend) has flattened out and is more or less moving sideways.  Computer model is long silver - although I'm personally worried about one of those 40-cent daily sell-offs that the big guys have enjoyed executing over the last month or two.

The miners were crushed today, with GDX dropping -4.70% on heavy volume, and GDXJ fell -4.79% also on heavy volume.  SIL, the silver miner ETF, fell -5.46% on moderately heavy volume also.  The miner ETFs closed at or near their dead lows of the day.  GDX broke below its September 2015 low just today.  All three ETFs are at all-time lows, and the HUI (an alternate gold miner index) made a low that dates back to 2002.

Right now, price and volume are telling us that there are a lot more sellers than there are buyers; as long as that situation continues, miners will continue to plummet.  As I've said for a while, its my belief that some big player is liquidating their miner position.  Maybe its a hedge fund facing redemptions, maybe its another leveraged player facing a margin call - or perhaps a sovereign wealth fund instructed by its government to raise cash.  Whatever the reason, the beatings of the mining shares will continue until everything that needs to be sold is gone.  At that point, there will be some pretty good buys out there, but who knows when that point will happen.  Computer model is short the miners.

Platinum fell -0.42% making a new low, Palladium rose +1.61%, and copper rose +1.00%.  Today's rally in copper got the attention of my computer model which has now decided to go long copper.  I'm not going long copper - the model isn't perfect at projecting copper moves - but I thought it was interesting to mention.

The dollar rose +0.17 to 99.19; buck continues to climb slowly higher, above all 3 moving averages, its uptrend intact.  It does not appear to be in any great hurry, but it is slowly grinding higher towards that prior high of 99.75.  The buck doesn't seem to be playing much of a role in price movements these days; right now it all seems to be about oil.

SPX had a relatively large trading range today but ended almost flat, closing up +1.00 to 1881.33.  While oil and SPX seem to be relatively closely linked these days, today's flat SPX close came even though oil broke to new lows.  VIX fell -0.97 to 26.05.

Although today's close was neutral-to-positive, SPX continues to struggle to find its footing.  After market close today SPX e-minis sold off steadily in early Asia trading, making a new low in the futures markets and apparently heading for the prior low dating back to Aug 24th.   Currently the e-minis are down -34 points to around 1838.  For those betting on the frequently-mentioned "manipulation ramp", the opposite occurred.  If you bought the close and were hoping for that "happy manipulation outcome" - you are now down $3400 for each e-mini contract you bought.

From what I can tell from the data, relying on "manipulation" works great during an uptrend, but it fails during downtrends.  Of course, you can always just buy-and-hold during the uptrends.  That works too.

Computer model is unsure of market direction; it went long DJIA today, is leaning long SPX, but it remains short the small cap Russell 2k.  A near-term low may be coming closer, but it is not here just yet.

JNK fell -0.49%, making a new closing low and continuing to signal risk off.

TLT fell -0.31%, losing a bit of ground after making a new intraday high for bonds.   Bonds are relatively overbought and might be close to putting in a high.  Likely that depends on equities, but bond weakness is supportive of a near term low for stocks.

CRB dropped -0.28%, making yet another new closing low.  No end to the commodity downturn just yet.

WTIC oil tried to rally, touching 31.25 at one point during the day, but ended down -1.25 at 29.43.  To make matters worse, this depressingly low price for crude was the March contract; February oil which is due to expire shortly closed at 28.28.  My hopes for a swing low in oil just didn't happen, and the new low means that swing low is off the table for now.  Volume on oil's sell-off was immense; it looks like a bunch of new longs bailed out en masse.  This is why we wait for the confirmation to occur.  We can have our hopes and dreams as to what could happen, but if the buyers can't hold price up through the close, it means the market just isn't ready to rally just yet.

I can't say enough bad things about the miners right now - especially the silver miners, who are down 22% since the start of the year, while silver is up almost 2%.  That's not because I don't like mining shares, its because the price action is awful right now.  So when will the plunge stop?  Either the sellers will run out of shares to unload, or the big buyers will start to appear as price gets too low to resist.  If the buyers appear and the sellers continue to unload, the market will not snap back instantly.  Instead, the chart will show a small daily trading range with high volume.  That's a good buy signal, since it means the balance between sellers and buyers are relatively even.  It doesn't happen all that often - when it does, I really pay attention.  But until we get a signal of some sort from the big money buyers, it doesn't matter how low price goes, its best to just be patient and wait.

Once oil finally bottoms out, I'm somewhat concerned that will end up with a sell-off in gold, which seems to have a bid at least partially because of safe haven buying.  We'll have to see how this plays out; this isn't a "normal" market right now, so its more difficult than usual to have a sense as to where things will end up.

10 Comments

sand_puppy's picture
sand_puppy
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BIS Official: Central Banks Cooperate to Influence Gold Price

BIS official: Central banks cooperate to influence gold price

From the GATA website

The lecture was given in 2005 and is released after 10 years.  It is by the same guy who made very dire predictions (is he a secret PP member??) about the impact of un-repayable debt on the future of the monetary system yesterday.   World faces wave of epic debt defaults.

-------------

Fourth Annual BIS Conference
Past and Future of Central Bank Cooperation
Basel, Switzerland, June 27-29, 2005

Past and Future of Central Bank Cooperation / Opening Remarks

By William R. White
Economic Adviser
and Head of Monetary and Economic Department
Bank for International Settlements, Basel, Switzerland

"The intermediate objectives of central bank cooperation are more varied.

"First, better joint decisions, in the relatively rare circumstances where such coordinated action is called for.

"Second, a clear understanding of the policy issues as they affect central banks. Hopefully this would reflect common beliefs, but even a clear understanding of differences of views can sometimes be useful.

"Third, the development of robust and effective networks of contacts.

"Fourth, the efficient international dissemination of both ideas and information that can improve national policy making.

"And last, the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."

Time2help's picture
Time2help
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Re: Central banks cooperate to influence gold price

I'm shocked SP. Shocked!

Whocouldaknowed.

Cornelius999's picture
Cornelius999
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Posts: 373
You've well and truly nailed

You've well and truly nailed it Sand_puppy.  I guess that means we get to sue the BIS for massive loss of earnings. No?

Jim H's picture
Jim H
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Gold price manipulation

"And last, the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."

Special emphasis on efforts that are, well... "joint".  This almost sounds like a conspiracy.. but I know from DaveF that this could not be so, since the Gold price is just a result of flows and investments and stuff.  And there is not so much leverage or anything... Dave says so. 

Or, you could read this;

http://tocqueville.com/insights/paper-gold-utopia-alchemists

Synthetic Gold: Mechanics and Plumbing
 

The volume of paper gold trading dwarfs flows of physical metal. According to the London Bullion Market Association (LBMA), the daily volume of notional metric tons (transfers) traded is 3248. This compares to world daily production of 7.5 t plus recycling supply of 3t for a world daily total of physical supply of 10.5 t. Based on LBMA statistics, the ratio of paper to physical gold traded is therefore 309:1. Even allowing for the fact that some paper trading, as on COMEX, is for normal commercial hedging purposes, the extraordinary discrepancy suggests to us that, as on COMEX, pure speculation, day trading, front running, and other forms of gaming exist on a very large scale.....

 

   

davefairtex's picture
davefairtex
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flows and stocks, intent vs ability

JimH-

The volume of paper gold trading dwarfs flows of physical metal.

Seriously, nobody cares about trading volume.   Stocks are what matter.  Gold ton-stocks.  Not gold-ton flows.  Once again, your favorite goldbug commentator is conflating stocks and flows.

When you assess the amount of gold stock in GLD, do you look at the daily trading volume (flow) of GLD and gasp in horror?  No, because that would just be silly.  So why do you persist in doing the same thing with COMEX paper gold flow?  Daily trading volume != paper gold created.  Flow != stock.

If you and I swap a billion tons of paper gold in one day, how many tons of paper gold are created?  That would be zero tons.

Now then, if the open interest at COMEX rises, that's interesting.  Paper gold is being created.  But if the OI stays the same and the algos swap gold contracts back and forth, this means nothing.  Zero tons of paper gold are created.

So let's focus on what matters.  If OI rises and price falls, you have a case.  Otherwise, you and your goldbug commentators are just confused.

"And last, the provision of international credits and joint efforts to influence asset prices (especially gold and foreign exchange) in circumstances where this might be thought useful."

Well duh.  Of course - they want to manipulate everything.

But just because they want something, doesn't mean they can do it.  This is, what, dated 2005?  And that gold rally lasted until 2011?  And they've been manipulating gold since the 1980s?

Of course the big guys want to manipulate everything, all the time.  Rates, stock markets, bonds, currencies - you name it, they want to control it.  But just because they want to control something doesn't mean they can.

For instance, Fed clearly wants the stock market to rise.  But how is that stock market manipulation working?  Those pre-market "ramps" - how have they done recently?  During downtrends, they don't work so well.  One might even say, "manipulation has totally failed."  Or, "its not possible to manipulate the trend without buying the entire market."  China tried, and gave up.  It was just too expensive.

I'd love to fly to the moon on gossamer wings.  And I'm writing this down here, giving you proof positive of my desire and intent.  Are you suggesting because I have both the intent and the desire, that I must therefore be on the moon at this very moment?

I'm sure they want to manipulate gold along with everything else.  I just don't think they can - in the same way they haven't been able to stop the SPX from falling 200 points in 10 days.  And in the same way that while I'd love to fly to the moon, I nevertheless remain earth-bound.

Markhemp's picture
Markhemp
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Posts: 14
So Funny Dave

So funny the way you keep pissing on Jim's fire, made my day.... and i own gold!!

no offence.

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 364
Yen vs GBP vs Gold

As Dave often stresses, 'how is gold doing in other currencies?'

The pound is starting to jitter...

GBP vs Gold for January 2016

And yes, that is a 10% rise this year

And now for Yen January 2016

 

Looking fairly stable in comparison. Perhaps we can work out why...

Weak pound documented in this BBC article - Why is the Pound Falling so Sharply

Some snippets worth noting;

Quote:

Weak economic data is casting doubt on the future performance of the UK economy, with inflation persistently well below the Bank of England's 2% target and earnings growth slowing down from a six-year high.

 

UK exporters should, in theory, derive a boost from a weak pound, since their goods become cheaper in euro or dollar terms.

However, the UK doesn't produce as many tangible exports as it used to: the country's service sector has recovered to the levels seen before the financial crisis, but manufacturing has not.

and another BBC article - Pound drops after UK industrial output falls in November

more snippets;

Quote:

At one point the pound traded at $1.4408, down a cent and a half, before recovering a little to trade at $1.4415.

Industrial output fell 0.7% in November from October - the sharpest fall since early 2013 according to figures from the Office for National Statistics.

Unusually mild weather reduced electricity and gas consumption.

Damn that pesky weather, always getting in the way of our prosperity.

But here's the real worry from the same article;

Quote:

Analysts warn the figures suggest manufacturing growth remains fragile, leaving Britain's recovery relying on the service sector and consumer spending.

So, we're a nation reliant on broke consumers to spend our way out of recession? Looks like the market has a degree of cynicism about the whole affair. Well, on the bright side, I'm starting to feel a little less stupid than I did a month ago...

davefairtex's picture
davefairtex
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Posts: 5066
rebound for SPX

Market clawed its way back to green after lunch...faded into the close, but the recovery was still relatively strong.  The e-minis printed a hammer candle, as did oil, and the nasdaq 100 printed a doji.  JNK also printed a doji, and TLT printed an inverted hammer.

These are all reversal bars, requiring confirmation tomorrow.

Gold looks to be forming a bullish cup & handle pattern, silver looks to be setting up for a breakout (assuming we don't get a 40 cent pounding overnight), copper is also appearing to form a low.  If oil inventories turn out to be positive tomorrow, we could see a strong move higher tomorrow in a whole lot of things.

The market is oversold, and buyers showed up today - and/or the shorts decided they wanted to ring the cash register.  Logical pattern would be for the big guys to push the futures up overnight to gap the market higher in the morning to make the stuff they bought today more valuable (and to cause the shorts to run for cover - adding fuel to the rally).  But what matters is how we close tomorrow - as always.  I believe for SPX to get liftoff, oil will need to recover, so the futures are just for show.  I think oil is what matters.

 

Mark Cochrane's picture
Mark Cochrane
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Just how does that work?

Dave,

Who are these 'big guys' who get to play with the futures prices over night? Does it have any relation to 'real' prices or it is just a scam to run prices up using minimal dollars and "gap the market higher in the morning to make the stuff they bought today more valuable". I cannot even conceive of why this is legal to have a secondary market that controls the primary market open. Are these futures markets open to everyone? If not, I cannot see why anyone would leave anything in the market overnight. All I can picture is a casino with loaded dice, marked cards and a special button for fixing the roulette wheel....

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5066
futures markets

Mark-

Anyone with money (including you and I) can buy or sell e-mini futures pretty much any time of day or night.  This is actually quite convenient - let's say something pretty bad happened somewhere in the world, and you had a big long position in US equities.  You could immediately go short the e-minis, so when the actual market opened 8 hours later, you would be hedged.  Money you lost in your equity position would be offset by the gains you made in the e-minis.

Trade volume is much lighter during the off hours, so it costs you less to push prices around, but as we have seen, the ability to move price overnight often doesn't actually lead to anything useful come morning.  If traders really want out, they use the gap-up open as a selling opportunity, and anyone who bought overnight ends up losing money.

See, its not as though you can buy the futures overnight for free.  And if you buy overnight, and then you sell prior to the open, price drops back down as soon as you start selling.  So you really have to hold through the open.  It is a gamble, like everything else.  The trick is, if you can get everyone else to start buying too (as in your buying unleashes a short-covering rally), then your gamble works, and you can sell after the open when the flood of short covering happens.  If not, your overnight buy ends up being a medium-sized money loser.

Big guys do this with the large spikes up and down in the gold & silver markets too.  If they can cause a short covering rally (or a long liquidation) then the trick ends up making money.  This has been true in the markets forever: if you can run the stops, you make money.  If you guess wrong, you lose.

The real problem is the complete information they have - because they monitor their customer's orders, they know how many stops there are, and where they are placed, and so its not guessing anymore, its just mechanics.  Its called "trading against your customer's order flow" which certainly should be illegal, and regardless its immoral, but imagining they don't do this...given everything else they have been shown to have done...

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