PM Daily Market Commentary - 2/23/2016

davefairtex
By davefairtex on Wed, Feb 24, 2016 - 4:34am

Gold gained +17.10 to 1226.00 on moderately heavy volume, and silver rallied +0.11 to 15.30 on heavy volume.  Gold rallied in Asia, chopped sideways in London, and then pushed higher in the US as oil sold off.

Gold recovered all of yesterday's relatively large down move, and closed right up against its upper downtrend line.  Gold is clearly forming a pennant pattern on the daily chart, which is generally a continuation pattern.  Continuation means, "the current trend will continue", which in this case, it suggests higher prices ahead. (Sorry Tom).  Gold generally does well right now when it sees oil and/or the e-minis drop.

Silver managed to recover some of yesterday's losses, but it underperformed gold once again: the gold/silver ratio now stands at 80.13!  Even so, silver did manage to squeak back above its 9 EMA, and so it is clinging to a bullish position.  Still - I'll feel a bit better about silver if it can break the downtrend line.  All it really has to do is move sideways.  Let's hope it can do that.

Miners rallied once more, with GDX up +2.10% on moderately heavy volume, while GDXJ rose just +1.15% on moderately heavy volume also.  GDX made a new high for this cycle, printing a doji candle on the day.  Still, miners are not particularly overbought on the daily timeframe so there is room to move higher.  Overall there is no change in profile; GDX remains above all 3 moving averages, and continue to be well bid.  Volume is dropping a bit; perhaps the buyers are getting sated to some degree.

Platinum rose +1.76%, palladium climbed +0.83%, and copper fell -0.76%.  Copper breakout has yet to happen.

The buck climbed +0.10 to 97.49; it traded in a relatively narrow trading range, and there was not much change today.   The Yen continued higher, up +0.71% - a relatively large move and a new closing high for the Yen this cycle.  Perhaps this helped gold - sometimes it seems to do this.

SPX sold off today, dropping -24.23 to 1921.27 and printing a swing high.  On the chart SPX appeared to run into resistance at the confluence of the 50 MA and the previous high of 1947.20.  Falling oil prices did not help SPX at all, with XLE losing a big -3.42% on the day.  Bank stocks fell -2.89%.  VIX rose +1.60 to 20.98.  As has been the case for a while, SPX is being driven fairly strongly by oil: correlation 0.90.

JNK held on surprisingly well today losing only -0.12%.  I would have expected a larger move down for JNK given the drop in oil.  Its something to watch and it hints at risk on, contrary to the move in SPX.

TLT rose +0.46%, benefitting from the flow of money out of equities.

CRB dropped -1.35% - its just moving sideways along the bottom right now.  It remains in a downtrend, and right now it seems to be tracing out a descending triangle pattern - which usually leads to a breakdown.

WTIC crude (CLJ16) fell -1.98 [-5.94%] to 31.37 today, hit hard by the on-again off-again comments from Saudi Arabia as to whether or not they will actually freeze oil production.  Price is now back below the 9 EMA once again.   This is what an old trader friend of mine used to call a "news-driven market."  This means that press releases trumped any sort of trend analysis.

I read a good article at CNBC (!) from a guest commentator about the whole oil situation: http://www.cnbc.com/2016/02/23/how-saudis-can-cut-oil-production-commentary.html.

If oil keeps dropping after today's big move, SPX will drop and gold will probably break higher out of its pennant formation.  Right now there is a lot of chop, so its hard to say.  Miners still look good, silver still looks weak, and gold still seems to like it when SPX and oil drop.

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5 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5459
dropping oil & SPX -> gold breakout +28 to 1250

The recent receipe of weak equities and falling oil prices led to a breakout for gold today.  When a market is this strong, the correct response is to "buy the breakout" rather than wait for the dip.  Its high risk, but since the correlations are pretty well in place now, if you see oil drop and you see equities drop, buying gold is the easy trade, at least for now anyways.

TLT is also a clue.  If you see it rallying, gold will probably be fairly well bid also.

Gold managed to work off its "overbought" condition over the past week of back-and-forth price moves.  Now if the oil & equity markets will cooperate by continuing to fall, gold has room to move a fair amount higher - maybe even to Armstrong's 1309 number.

It appears to me that western interest in gold is back with a vengeance.  Gold needs both west AND east to be buying for gold to move into an uptrend.

 

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
Rhyme or reason?

Dave,

Just wondering if there is any rhyme or reason to the take down in gold happening as I type? Perhaps it will all resolve the upside by the market close but given your commentary I am just curious what has suddenly gone the other way today...temporarily?

Michael_Rudmin's picture
Michael_Rudmin
Status: Platinum Member (Offline)
Joined: Jun 25 2014
Posts: 851
could we be seeing the close of the pennant?

We're right at the end of the pennant. it seems very possible to me that the breakout/smackdown was all part of the final pennant

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
Joined: Sep 3 2008
Posts: 5459
oil giveth

And oil taketh away.  Sharp recoveries in oil and SPX led to failed rallies in gold, silver, and the long bond.

Both oil and gold are tough trades right now.

I may have bought the breakout, but once gold started to fade in response to the oil & SPX rally, I bailed out.  There are way too many commercials who will enthusiastically pile in short for me to stick around and wait to see what happens next.

If you watch this stuff in real time, the correlations are pretty obvious.  I see the long bond start to fall, SPX start to rally, and oil spike higher, and then gold tips over.  I sell.  I can always buy again tomorrow, if things improve.  Or not, if they don't.

I was really surprised by oil's big rally following that petroleum status report.  But what can you do?

Mark Cochrane's picture
Mark Cochrane
Status: Diamond Member (Offline)
Joined: May 24 2011
Posts: 1227
Up is down -- again?

For what it's worth, here is Zerohedge's take on today's miraculous market...

Worst US Economy Since Government Shutdown Sparks Panic-Buying In Stocks

Well, we've seen some ridiculous moves in markets before but today's cross asset-class malarkey takes the proverbial biscuit...

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