PM Daily Market Commentary - 2/18/2016

davefairtex
By davefairtex on Fri, Feb 19, 2016 - 2:02am

Gold continued higher today off the 1200 support, rising +22.30 to 1231.30 on moderately heavy volume; silver rose just +0.11 to 15.42 on heavy volume.  Bank stocks were weak today; many of them printed swing highs off their recent rallies.  Oil fell, equities retreated, and money flowed strongly into treasury bonds - it appeared that "safe haven" was the name of the game today.

Gold did not take very long to consolidate above 1200 before moving higher.  Gold started its rally today right after the US market open; at that time, equities jumped off a small cliff and never really recovered, but the drop in equities wasn't major.  Perhaps the drop in bank stocks today may have been the signal for gold; bank stocks spent most of the day slowly selling off.  Its hard to know for sure.  Gold needs a close above 1263 in order to keep the shorts at bay.  If the equity market sells off here, that could definitely happen - at least based on recent correlation.

While silver did manage to rally alongside gold, it is definitely having trouble keeping up.  Silver lost much of its gains right near end of day, off 17 cents from the high.  Silver could be giving us a warning sign; it is forming what looks to be a head & shoulders pattern; if it cannot rally at least up to 16, the risk is increasing that it will sell off in the near future.  This concern is reinforced by the COT report from last week, which shows that the commercials have a large and increasing short position that suggests a near term cycle top.

Miners followed through off yesterday's rally by staging a very impressive move, making a new high by a few cents.   GDX rose +6.06% on heavy volume, while GDXJ did incredibly well, breaking convincingly above its prior high and climbing +7.45% on very heavy volume.  Traders have been buying the dip in the miners ever since the low was marked back on January 19th.  Corrections have been 1-2 day affairs.  It looks like traders simply can't pile in fast enough.  So far, distribution days have been just occasional, outnumbered by the buyers.

Platinum rose +0.18%, while palladium fell -2.09%.  Copper was mostly unchanged, down -0.10%.

The buck rose +0.16 to 96.96, moving just above the 200 MA.  The buck seems uncertain if it wants to rally; this would be a reasonable place for the shorts to appear.  If they do manage to push the buck lower, that will likely hurt equities and help gold.

SPX made a new high in the futures market, but sold off in advance of the open, ending the day off -8.99 [-0.47%] to 1917.83.  Bank stocks did poorly, with many individual issues as well as the overall BKX [-1.61%] printing swing highs on the day.  Bank sector has been leading the market lower in recent weeks.  VIX fell -0.67 to 21.64.

JNK rose +0.09%, possibly marking the top for junk for this particular cycle.  Likely it will depend on what happens with oil.

TLT rallied strongly, marking a low, and rising +1.23% - a sign of risk off.  Treasury bonds are rallying right alongside gold these days.  TLT is back above its 9 EMA once again.

CRB fell -0.40%; CRB remains above its 9 EMA, and is struggling to move higher.

WTIC had its contract roll today at stockcharts; this sent the "continuous futures contract" up +1.30 to 32.73 because of contango.  However Feb 2016 crude (^CLH16) fell -0.77 to 30.66, after first making a new high to 31.98.  Oil needs to break the pattern of lower highs and lower lows; it needs a close above 35 to make this happen, otherwise rallies will continue to be sold.  Today's drop came immediately following the Petroleum Status Report just before 11:00 Eastern, which showed yet another build in oil inventories, this time +2.1 million barrels. 

Gold is now reacting higher whenever there is weakness in the equity market, and equities may have printed a high today.  Today's bond rally lends support to this thesis.  Miners continue to be enthusiastic, while silver looks weak. 

However, we have a large number of mining companies that are probably quite interested in hedging at 1240 gold.  This provides upside resistance to a continued move higher for gold.  And, there is always oil; if it makes a low, equities will probably continue higher, and that might hurt gold, at least to some degree.

As of right now, my computer is short both gold and silver, and long oil and SPX - although the long calls were weakened by today's price action.  That assumes prices more or less closes out the week where we are today.    My computer has been wrong before, but it underscores my own sentiment: this is a high risk time right now for PM.

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
shale driller Sandridge misses interest payment

So here's the dynamic playing out the way Chris described in...I think it was the podcast with Charles.  Shale drillers drawing down their entire credit lines, and then promptly defaulting.

Well, not formally defaulting, just declining to make the interest payment on its debt, thereby "using the 30 day grace period in connection with our ongoing discussions with stakeholders."

The question is, as always, who gets to eat the losses, and what will the recovery be?  Sandridge's bankers will definitely be one of loss-eaters; how much will they get back?  Unlike the housing debacle, companies going BK are an immediate hit to the bottom line - there is no extend and pretend possible via "putting off foreclosure."

Bullish for oil, not so bullish for the US banking system.

http://www.bloomberg.com/news/articles/2016-02-18/shale-faces-march-madness-as-1-2-billion-in-interest-comes-due

The industry is facing $9.8 billion in interest payments through the end of this year, according to data compiled by Bloomberg.

SandRidge, which drew down its full $500 million credit line on Jan. 22 and hired legal and financial advisers, has another payment of about $28 million due March 15, the data show. Chaparral Energy Inc., which likewise tapped its entire credit line and hired advisers this month, owes $17 million next month. A representative for Chaparral did not return a phone call and e-mail seeking comment.

SandRidge "has sufficient liquidity to make these interest payments, but has elected to use the 30-day grace period in connection with its ongoing discussions with stakeholders," the company said in a statement released Wednesday.

"If you can’t make it through the year at current strip prices, then why pay the coupon?" said Subash Chandra, a managing director with Guggenheim Securities in New York. "If you can’t make it out of this year, and asset sales aren’t going anywhere and no one wants your equity, then there just aren’t that many avenues to fix the problem."

pollux's picture
pollux
Status: Member (Offline)
Joined: Mar 31 2009
Posts: 9
Gold prices in Sweden..

... are starting to look good. Now, I feel much less like a longterm thinker that is terribly wrong and a sucker in the short and medium term. The current price level is close to the average price I've paid over the years. :)

My investment in PM-miners still have a long way to go to recover. I made the (stupid) move 2-3 years ago to buy more in a falling market. And it kept on falling and falling.

But I think and hope it was a great learning for the future. We will see how costly it will be in the end.

Dave: Thanks for your great analysis! It helps me a lot in keeping sane and somewhat more emotionally and spiritually detached to the whole PM area.

 

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