PM Daily Market Commentary - 1/21/2016

By davefairtex on Fri, Jan 22, 2016 - 3:27am

Gold closed little changed on the day, up +0.40 to 1101.40 on heavy volume, while silver fell -0.06 to 14.10 on moderately heavy volume.  Gold seemed to be the anti-equity today; it plunged when equities rallied, and rallied when equities sold off.  A massive dollar spike and its subsequent failure also helped to ensure prices were volatile.

The large moves in the e-mini futures together with the dollar movement caused gold some trouble, but gold was able to find support on its 9 EMA line and once equities and the dollar rally faded in the afternoon, buyers at COMEX appeared and pushed price right back up again.  On the chart, gold looks to have some support at that rising 9 EMA.  How much of this bid is due to a failure of SPX to rally?  That's a key question for me.  I didn't much like the way gold sold off when equities looked better earlier in the day, but if I ignore the correlations, the chart does look pretty reasonable.

Silver's big down move came following the massive dollar spike higher at 08:30 Eastern.  Silver spent a while deep in the red, but then rallied in the afternoon more or less coincident with the fall in equities at that time.  While gold seems a bit easier to figure out, silver remains more of a puzzle - I would have expected silver to rally alongside oil, and it just didn't.  If we look at the daily chart, we can see that silver is holding (just barely) above its 50 MA, and it appears to be more or less moving sideways.

Miners are looking a bit better today; they sold off along with gold in the morning, recovered somewhat on their own, and then lifted alongside gold.  It appears that whatever force has driven the miners relentlessly lower in recent weeks is at least taking a break right now - light volume and price action suggests no selling pressure, which is nice to see.  GDX climbed +0.47% on light volume, while GDXJ was up just +0.11% on very light volume. 

Platinum made a new low but was little changed, down -0.15%, while palladium rallied +2.10% and popped above its 9 EMA for the first time in three weeks.  Copper rallied also, rising +0.61%, closing right at the 9 EMA.  Computer remains long copper.  I guess I should have bought.

After moving sleepily for the past few weeks, the buck had a very volatile day today, screaming higher at 08:33 Eastern following an ECB meeting where Chairman Draghi suggested that the current negative rate regime could be "revisited" in March rather than waiting longer.  Presumably, the regime would become even more negative.  (Beatings will continue until morale improves?)  The spike pushed the buck almost to 100, but then as the day wore on, the ECB magic had faded, and by the close, the buck was actually in the red, closing down -0.03 at 99.13.  The big failed rally resulted in a bearish-looking inverted hammer candle, which is a reversal bar.  While the buck remains in an uptrend, after today's price action the chart looks weaker to me - it would not take much to print a swing high in the buck.

To me this failed dollar rally is a tantalizing hint of reduced confidence in central banking policy.  It is a sign that the medicine being prescribed by Dr Draghi is no longer seen by the markets to be automatically leading to a cure.  What would a failure of confidence look like?  If and when Dr. Draghi's new prescription to fix things is met with immediate selling.  My guess is, that's when gold gets a real safe haven bid.  But we aren't there yet.

[I watched the snippet of the ECB press conference at Mish's site; I have to say, on a completely emotional level I do not like Mr Draghi at all.  I listened to what he says (and the way he said it) and my skin crawls.  I have no idea why, its not data driven or logical, and I went in feeling completely neutral, but I came out feeling like I needed a shower.  For whatever that's worth.]

SPX was all over the map today, but ultimately my headline would read, "SPX fails to rally alongside oil" - although oil printed a very clear swing low today, and oil equities had a great day with XLE climbing +3.11% (and shale driller CLR was up a massive +16%), SPX simply refused to do the same.  SPX closed up only +9.66, after being up as much as 30 points earlier in the day, and it dropped at least 8 points into the close.  SPX printed a "spinning top" candle, which is a sign of indicision.  A trader I respect said: "when price cannot use oversold conditions to at least bounce, it is better to stay in cash."  That captures my sentiments too.  This could change tomorrow, but as of right now, the equity buyers just aren't showing up.  VIX fell -0.90 to 26.69.

JNK rallied today, up +0.46%, but also failed to print a swing low.  Its less-junky "high yield" cousin, HYG, did manage to print a swing low.  Call that risk on, but only partially so.

TLT supported the risk on thesis by dropping -0.68% and printing a very clear swing high.  While TLT remains in an uptrend - it is far above its 9 EMA - the swing high suggests that the big bond rally may have run its course at least for now.  This is somewhat supportive of higher equity prices; that bond money has to go somewhere, and perhaps some of it could end up in SPX.

CRB rose a big +1.81%, printing a clear swing low and just possibly signaling a reversal in the commodity downtrend.  Its just a one-day move at this point, but it could be the start of something larger.  CRB isn't so far below its 9 EMA, but the 50 MA is quite a distance away - CRB will require a lot of work to seriously change trend.  Still, journey of 1000 miles begins with one step.

WTIC oil staged a big rally today, climbing +1.52 [+5.37%] to 29.85, printing a swing low at long last.  The move is clearer when viewed through Brent, or oil ETF "USL" - that contango and yesterday's contract roll really can interfere with how we view oil price charts.  (FWIW, when training my computer model on oil, I had to jump through a lot of hoops to adjust prices for the changing contango - the "daily chart" model had a tough time learning the shorter-term oil moves until I had done that).

The oil rally happened immediately after the Petroleum Status Report was released at 11:00 Eastern; the report showed a (bearish-looking) build of 4 million barrels - this caused prices to drop initially, but it only took a few minutes before they reversed, and that led to oil's big rally.  My headline would read: "Market Rallies in spite of inventory build - likely signaling a low at least for now."  Computer model agrees: it is now long oil.

Gold's chart still looks decent, silver is chopping sideways but is clinging to a spot just above its 50, commodities hint at the start of a bounce led by oil, but equities as of yet refuse to rally.  Friday will reveal more about sentiment - taking equities home for the weekend is even more risk than simply holding them overnight.  The picture has yet to resolve itself and the standard correlations I'm used to seeing remain weak: for instance, silver didn't pop even though oil and commodities did well.  At least the miner selling appears to have abated, so there is that.

I guess in the PM space, I'm watching for that confidence to show further signs of decay.  While we all may be (justifiably) suspicious of "supportive" price movement immediately following an announcement, how prices end the day is perhaps even more important - as shown by what happened in the buck today.  If the initial pop decays by end of day enough times, then traders will start realize that the pop is temporary.  Once they realize this, they'll all jump on the pop as a way to make some quick cash.  Not long after that, the initial pop will be met with instant selling...

And that's what I'm waiting for.  I believe it will happen.  But we're not there yet.

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[Sorry for no charts today...still having problems uploading them...]


davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5736
SPX: convincing swing low

Looks like we have a convincing swing low in equities.

I know some of you imagine this could be just the Fed playing games, but - too many things are aligning to form the risk on picture here for that to be the most likely explanation.

  • big oil rally; XLE up +4%, WTIC up $2 [6.8%]
  • JNK up +1.19%, convincing swing low in junk debt
  • TLT down -0.43% - continuation off yesterday's swing high
  • USD +0.52; big move, money flowing into the US; looks like they believe Draghi after all
  • SSEC  (Shanghai) +1.25%; no drag from China
  • SPX was heavily oversold; lots of shorts, poor sentiment, high VIX - good (contrary) conditions for a bounce

This is the move I was expecting yesterday, but (my guess) yesterday the market just didn't believe enough in the oil rally.  Second day of oil rally was what it took.

I also want to gently suggest that the (large degree of negative) sentiment here at PP was also a good indicator of an reasonably large potential for a near-term bounce.  Once you start feeling too secure about the market's direction, and all of your friends start to agree with you, that's when you have to be extra careful.

Last point.  Longer term trend remains down.  Rallies will be sold - including this one, eventually.  No telling how long this rally wil last, but if you are short, it may feel like it lasts an unpleasantly long amount of time...and if you are looking to get short, you might want to wait for a swing high signal, plus some corroborative negative signals from JNK, the long bond, maybe China, and/or oil before jumping in.

Penny551's picture
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Buying after a "Swing Low"

So if I you were a shorter-term trader, using the "Swing Low" confirmation, would you go long SPX and/or Oil tomorrow after such a large spike today, or wait for a little pullback?  I've been looking at Feb UCO (2xOil) calls, and it would go completely against my instincts to buy that option now that it has been up 100% each of the last 2 days...  

Thx again.  I've been learning a lot by checking your posts daily.

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5736
trade timing

I don't think I'd buy oil today.  Yesterday was the swing low, today is a bit lower percentage.  Buying XLE or USL for a short term trade needed doing yesterday, not today.  Swing low isn't a guarantee of a happy outcome, but it is higher percentage than "buying because price is really low."

One idea - look at natgas.  After its swing low, it had a pause right after it crossed the 9 EMA, and then rocketed higher.  So that could work for oil - buying a similar dip, if one appears.

Today, its hard to know about SPX.  Look back at Oct 2015.  There were pullbacks, but it mostly just went up.  There might be a retrace on Monday morning - but then again, it might also just be bid up in the futures overnight with no chance for you to get onboard.

If you are experimenting, just try a small position of SPY and see how it works out.  (If you just watch, you won't pay attention as closely, and so you won't learn anything).

At a meta level, I think the SPX rally is probably a bit more fragile this time around.  A lot of things could still go wrong.  We made a lower low.  That's a danger sign.  Shanghai could sell off, or the oil rally could peter out.  Sitting in cash and/or keeping positions small "for educational purposes only" is a fine idea too.  Its probably a higher percentage move to short the rally than to buy the dip at this point.

Arthur Robey's picture
Arthur Robey
Status: Diamond Member (Offline)
Joined: Feb 4 2010
Posts: 3936
Off to the Races

Silver spikes, according to ZH. 22nd Jan.

Woo hoo!


It looks like noise to me.  (And what is that "March" watermark?)

My favorite chart, Kitco 10 year begs to differ. (Of cause I trust Kitco. But it is not clear to me if they are reporting paper silver or the stuff I use as as a sex aid.)

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