PM Daily Market Commentary - 2/8/2016

davefairtex
By davefairtex on Tue, Feb 9, 2016 - 1:54am

Gold rose +15.50 to 1189.60 on extremely heavy volume, while silver climbed +0.30 to 15.32 on very heavy volume.  Gold is now moving in opposition to equities; as SPX sold off today, gold climbed higher.  A failed rally in the buck didn't hurt either.

Gold is just going nuts right now.  Today it broke above the previous high of 1191.70 set back in October.  This snaps the pattern of lower highs and lower lows that defines a downtrend.  Its not too soon to say that "gold is back" - baby!  For the next resistance point, we have to pull back to the weekly chart: 1232.

How much higher can gold go on this leg?  I didn't think it would get this high all in one go, but here we are.  When volume grows higher with each passing day, that's bullish for as long as it continues.

Gold did give us a bit of a cautionary note at the close today; rather than closing near the highs as has been its pattern in recent days, gold encountered a bit of selling at end of day, fading about $10 in the last hour of trading.  If I were the commercials, popping gold above that previous high would serve to shake loose the last of the stubborn shorts.  At this point, its probably time to look for the reversal, depending on what the other indicators are telling us.  The extremely overbought RSI-7 is another clue that we are probably quite near a short-term high.

Silver did well today, breaking above its 200 MA, keeping most of its gains through the close.  You can see clearly that silver's chart has not kept up with gold; silver still remains far below its previous high, but at least it has now managed to pull above that 200 and the daily gains are starting to look more respectable.

The miners are also giving us a cautionary note.  At the open today, GDX gapped higher on gold's rally.  GDX followed gold higher, but it too sold off at end of day, printing a gravestone doji on the day.  This candle print sometimes marks a top - especially when you add in the extremely high daily volume.  A swing high print tomorrow would be a simple matter; all GDX needs to do is close just a bit lower and we are there.

On the day, GDX climbed +2.46% on extremely heavy volume, while GDXJ rose +4.22% on moderately heavy volume.  It feels to me like a fair number of traders bailed out today.

Platinum rose +1.47%, palladium climbed +2.08%, and copper rose +0.19%.  The other metals' charts are lagging way behind gold at this point.  Platinum, for instance, is a very long way from clearing its Oct 2015 highs.  It feels a bit that gold has outrun the rest of the complex.

The buck dropped -0.31 to close at 96.74, back below its 200 MA giving off more than a hint of a failed rally today.  The drop in the buck seems to have helped gold at least to some degree, and it has yet to reverse momentum; a continued move lower in the buck should help PM.

SPX had a bad day today, dropping -26.61 to 1853.44 - and this is after a last-hour rebound that pulled prices back up about 25 points.  Looking at the sectors, we see financials, consumer discretionary, and healthcare making new lows on the day; financials typically lead, and they are leading us lower.  We could see a bounce here, but the end of day rally didn't look all that strong.  VIX rose +2.62 to 26.00.

JNK was hit for -1.21%, and appears to be about to make yet another new low.  Strong risk off signal from JNK.

TLT had a huge move on the day, rising +2.15% and making a new high.  Money is flowing from stocks to bonds.  The yield on the 20 year is now at 2.17%, down almost 50 basis points from where it started the year.  That's a big move - strong risk off signal too.  For owners of TLT, they are up around 8% since the start of the year.  Contrast with owners of SPX, which are down 10% over the same time period.

CRB fell -0.85% - it is still above its lows, but continuing to look weak.

WTIC fell once more, dropping -0.84 [-2.84%] to 30.12.  Oil dipped below round number 30 twice today, but managed to find some buyers to pull it back above the 30 level by end of day.  Even so, oil remains weak.  API inventory report comes out tomorrow at 16:30 - it usually causes some fireworks at end of day.

Things have moved to extremes - both in bonds, and in gold.  Vertical moves in gold usually don't typically taper off and move sideways, they reverse back down, sometimes as fast as they rose, as traders ring the cash register after the short squeeze and wait for price to find its natural level.  Miners are also hinting that the current gold move may be coming to a close.  The pop above the previous high has most likely eliminated the last of the shorts.  I see near-term risk right now in gold to be high.

That said - gold is also (currently) moving inversely to equities.  If SPX continues to sell off and the negative correlation continues, we might just see a continued flow of money into gold.

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