PM Daily Market Commentary - 2/17/2016

By davefairtex on Thu, Feb 18, 2016 - 1:29am

Gold rebounded today, up +8.10 to 1209.00 on moderate volume, while silver climbed just +0.05 to 15.31 on heavy volume.  After selling off on Monday and Tuesday, gold caught a modest bid and managed to recover somewhat.  Silver followed but wasn't quite as strong.

Gold found support at its first support level on Tuesday, when buyers appeared on a drop to 1191.  Now gold appears to be slowly moving higher off that 1191 low.  The recovery in oil prices, and the move higher in SPX are attracting money flows away from gold.  Nevertheless, if gold is able to at least chop sideways at these price levels, it will continue to work off that "overbought" condition in preparation for another move higher.

I take it as a positive sign that although SPX rallied quite strongly today, gold was also able to move higher.  This tells me that a strong bid remains underneath gold.  If the SPX rally was a signal that "all is well", then gold should have sold off.  It didn't.

I'm going to use my trading app for gold's chart today, since it separates Monday's price action from Tuesday's.  Turns out this is important, as when Stockcharts merged the two days, I missed seeing the low that was made yesterday (and the doji print that resulted).

This is a chart of the GC april 16 futures contract, so the volumes don't show anything before late January due to the contract roll that happened around then.  But notice the doji candle two days ago off the 1191 low - as well as yesterday's positive day.  The consolidation looks pretty good on this chart.  Gold on this chart looks to have a relatively steady bid at 1200, but we need a close above 1220 to start the ball rolling to the upside once again.  A close below 1191 would be bearish and signal a drop down to a lower support level.

Silver is continuing to show support just above its 200 MA, which is a good sign.  Like gold, the longer it stays above that 200 MA, the more likely we move higher.  Consolidating above a moving average like this is a sign of strength, since the moving average is acting as support.  It is a sign that other traders see this as a good buy point.

Miners surprised me by rallying strongly today, with GDX up +3.54% on moderately heavy volume, while GDXJ climbed +4.35% on moderately heavy volume too.  Yesterday's sell-off was quite dramatic, but the bounce back today showed that traders viewed the dip as an opportunity to buy rather than a signal to bail out further.  You can see that GDX remains above its relatively steep uptrend line, which is a positive sign.

The volume on yesterday's sell-off remains a bit disturbing, but if GDX can remain above that uptrend line, all will be well.

Platinum rose +1.29%, and palladium rose +1.15%.  Copper staged a reasonably strong rally, up +1.20% pushing price back above its 50 MA.  Copper's 50 MA has been flat for several weeks; this is a big improvement over the recent past, where copper's 50 has declined.  This move above the 50 could be a sign of strength to come.  A rally in copper would be quite positive for commodities overall.

The buck was little changed today, falling -0.07 to 96.80.  The dollar has run into resistance at the 200 MA; if it stops rising, this should help gold, and hurt the flow of overseas funds into equities.  The buck remains in a medium term downtrend - it peaked in early December, 2015.

SPX staged another strong rally today, up +31.24 [+1.65%] to 1926.82.  Equities have move strongly above the 9 EMA, and now appear headed for the 50.  Today it was all about energy, with XLE up a big +3.28%.  "Oil in the ground" is a popular thing to buy these days; the market appears to believe that the current low oil prices will not last.  In contrast, BKX (bank stock index) rose only +0.66%, and may have run into resistance at the 9 EMA.  VIX dropped -1.80 to 22.31.

JNK rallied +0.75% today, a strong move which brings JNK just under the 9 EMA.  If all goes according to recent historical pattern, the JNK rally should stop right around here.  JNK has had big troubles with resistance at or around the 9 EMA.

TLT fell again today, dropping -0.61% but finding support at its 9 EMA.  The falling bond prices signal risk on.

CRB staged a strong rally today, up +2.31%, also managing to close above its 9 EMA.  CRB could be forming a double bottom pattern here; if so, that would be quite bullish for commodities.  CRB still needs to rally another 5% before it can confirm the double bottom, so we still have a ways to go.

WTIC ignored yesterday's failed rally and moved strongly higher today, up +2.31 [+7.93%] to 31.43.  This brings price back above the 9 EMA.  Its hard to know what is really moving price right now but for me, when the chart jumps this much its hard to ignore.  A trend has yet to assert itself, but all it would take would be a political decision by the Saudis to cut back production and oil would rally instantly.  That's why news is such a strong driver of price right now - because in oil today, supply fundamentals = policy choices.

As for why oil jumped higher in Asia today, the answer is: contract roll.  Contango is about $2.30, which means that when the trading moves from March 2016 (CLH6) to April 2016 (CLJ6), the "current oil price" immediately jumps by $2.30.  However it doesn't mean that anyone made a killing on the move.  In fact, if you're the owner of an ETF that contains front-month futures contracts, your NAV dropped by the size of the contango.  Contract roll happens every month with oil and natgas.

To me, it appears that gold is waiting for the current SPX rally to burn itself out.  That probably depends on oil to some degree, but on how bank stocks perform also.  I'm getting the sense that some chunk of the European banking problems have little to do with oil, and a lot more to do with bad debts that have yet to be acknowledged.

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Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Having the balls....

Well Dave?  I am glad I had the balls to buy more PHYS and miners the other day.  I added more SA today.  To what do you attribute today's move?     

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740

Yeah?  I bought yesterday.  I forget what time.  It was 1207 and change.   I saw the strong support at 1200 and determined that while it was high risk, we might get to see a cup & handle breakout.

With a GC contract, I can trade 23.5 hours a day.  I prefer to buy dips, not the breakouts.  Buying breakouts usually leads to trouble with gold.

As I said yesterday, there's a strong bid under the market.  Longs are really eager to buy.



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