PM Daily Market Commentary - 2/25/2016

davefairtex
By davefairtex on Fri, Feb 26, 2016 - 12:05am

Gold rose +4.30 to 1233.70 on heavy volume, while silver fell -0.10 to 15.14 on very heavy volume.  Gold did not follow through off yesterday's failed rally; it  shrugged off almost a $1 rally in oil and a 22 point rally in equities to close higher.  Silver, as has been its recent pattern, was not so fortunate.

Gold is slowly slogging higher; I'll call it a slow-motion breakout from the pennant formation.  I was concerned after yesterday's failed rally, but it appears that there is continued buying interest for gold in the west.  Thats my only explanation for the price action.

The 9 EMA has acted as solid support all through this two-month rally.

The heavy volume suggests there is a whole lot of selling (naked shorting!) happening at these price levels; perhaps its producer hedging, maybe its commercials going short too.  Regardless, the buyers are stronger right now and that's why prices continue to creep higher in spite of the recent headwinds from oil and equities.

Unlike gold, silver did follow through after yesterday's failed rally.  Silver is slowly creeping lower, having dropped below its 9 EMA yesterday.  It now looks to be testing the support of the 200 MA in the near term.  The COT report shows the commercials are loading up short and historically this had led to lower prices in the near term.  Silver continues to underperform gold; gold/silver ratio is now 81.49 - a level not seen since the 2008 crash.  If its any consolation, silver has managed to outperform both WTIC and the CRB.  Just not gold.

Miners climbed once again, with GDX up +1.47% on moderate volume, while GDXJ was up +2.06% on moderately heavy volume.  The miners continue their relentless climb, with both miner ETFs making a new closing high today.  There really is no bad news on the miner front - renewed western interest in gold goes double for the mining shares.  As long as they stay above that 9 EMA, miners look set to continue climbing.

Platinum fell -1.20%, palladium dropped -0.54%, while copper lost -1.86%; big move lower in copper may have been driven by a 6% fall in the Shanghai market yesterday.

The buck fell -0.23 to 97.28; dollar/yen printed a swing high today, dropping -0.72%.  I wonder if the goldbugs who like to write about how dollar/yen movements somehow dictate the price of gold noticed the dropping yen - and the rising gold price today.  It looks like the strong move in dollar/yen after the BOJ went negative has run its course, at least for now.

Canadian dollar had an especially good day, up +1.25%.  Over the past five weeks, CAD is up almost 9%!  The move in the loonie has (roughly) paralleled a recovery in copper over the last month and a half; they both bottomed within a day of each other  Check out the correlation on the long term chart.  We even see a monthly swing low for CAD.  Maybe it will lead to something - probably a good idea to watch if you follow the commodity space.  A conclusive close above that monthly 9 EMA is probably a required first step.  Copper has yet to print its monthly swing low, although it has done so on the weekly chart.

SPX had a decent rally today, closing up +21.90 to 1951.70, breaking above its previous high of 1947.20 set back on Feb 1.  It also managed a close above the 50 MA.  GIven the oil rally you might have expected energy to lead, but today it was financials, industrials, and basic materials.  I saw news articles talk about a good durable goods report being the cause, but the equity market rally didn't really kick off until oil broke higher.  Although energy stocks didn't participate much - it was nevertheless oil that seemed to propel equity prices higher.  VIX fell -1.61 to 19.11.

JNK did relatively well, rising +0.44% and climbing up to touch its 50 MA.  It is not far from the previous high set back in Feb; a break above the previous high would (technically) end the JNK downtrend.   That doesn't mean an instant uptrend - but at least downtrend will be at an end, much as has happened with gold.

TLT rose +0.36%, but printed an inverted hammer candle on the day, suggesting a failed rally.  TLT did not like the oil price rally, and gave up most of its gains as oil shot higher.

CRB rose +0.71% - it is still bouncing along the bottom, but now slowly moving higher.

WTIC crude (CLJ16) had a volatile day, dropping as low as 31 before rallying sharply higher in the afternoon in NY, finally closing up +0.86 to 33.08.  This brings crude back above its 9 EMA; no breakout yet for WTIC, but the chart picture is steadily improving.  Brent's chart looks better; it has broken above its consolidation, and has risen above its 50 MA and now appears poised to move higher.  However, there was a curious disconnect between oil equities and oil today; XLE did not participate in today's oil rally.  I expected to see a lot more excitement out of XLE after the bounce in oil.

No new tons added to GLD today.

My sense is, gold will continue slogging higher until we run out of new western gold buying interest for the current cycle, and the selling from the miners hedging production (1240 gold!!) as well as the commercials overwhelms the supply of buyers.  Could we see a sharp breakout higher?  If oil prices keep moving up, probably not.  If oil prices suddenly collapse and return to the 20s, then - heck - we could test 1300, at least based on recent patterns anyway.

I need to remind both myself as well as you - this remains a "flight to safety" move.  The gold/silver ratio of 81.49 tells us that.  Once there is a reduced concern about safety, even for a short period of time, the price of gold will drop.  An oil price rally back into the 40s = a lot of people breathe a sigh of relief.

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14 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Online)
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Posts: 5072
Shale BK estimates: ten cents on the dollar

So remember back in 2014 when shale companies were saying how profitable they were at $70, then $50, and then $30 per barrel?  Turns out, the current expectations for unsecured bondholders from the bankrupcty process of EXXI and/or SD - coming soon - suggest there will be massive losses for the holders of all that debt.

http://www.bloomberg.com/news/articles/2016-02-25/biggest-wave-yet-of-u-s-oil-defaults-looms-as-bust-intensifies

The U.S. shale boom was fueled by junk debt. Companies spent more on drilling than they earned selling oil and gas, plugging the difference with other peoples’ money. Drillers piled up a staggering $237 billion of borrowings at the end of September, according to data compiled on the 61 companies in the Bloomberg Intelligence index of North American independent oil and gas producers. U.S. crude production soared to its highest in more than three decades.

[We are shocked, simply shocked to find out that the shale boom was a ponzi scheme.  Too bad Bloomberg didn't see fit to look more closely at the problem before EXXI went from $25/share down to 35 cents.  We were too busy being cheerleaders for the shale space.  But in the spirit of closing the barn door literally 18 months after the horse has bolted...we now let you know that...]

SandRidge is likely to file for bankruptcy, analysts at junk bond research firm KDP Investment Advisors Inc. wrote in a report last week. S&P wrote in a separate report that Energy XXI is probably going to file. Since the start of 2015, 48 North American oil and gas producers have gone bankrupt with a total of $17.3 billion in debt, according to law firm Haynes and Boone. The largest was Samson Resources Corp., which entered Chapter 11 in September owing more than $4 billion.

Bond investors aren’t likely to recover much money from oil and gas companies that default. Standard & Poor’s estimates, for example, that Energy XXI’s and SandRidge’s unsecured noteholders will receive, at most, 10 cents on the dollar.

[And that's the money shot.  Equity wiped out, and unsecured debt gets 10 cents.  But our ace reporters somehow missed this one.]

Market says:

The EXXI bond issue due to pay off Dec 2017, coupon 9.25%, is trading at 3.4/5.58 - if you wanted out, you'd get 3.4 cents on the dollar.  Ten cents looks like an awesome deal from that perspective.

Mark Cochrane's picture
Mark Cochrane
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More 'technical glitches'?

Anything to these fortuitous technical problems that appear to ignite rallies?

Here Is The Reason For The Sudden Buying Spree

Deja vu all over again.  Just as we saw after yesterday's "glitch" in POMO unleashed a huge short-squeeze buying rampage, so today's "technical issue"-delayed 7Y Auction has sparked panic-buying in stocks.

Edwardelinski's picture
Edwardelinski
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Yuan denominated gold price fix.

I just read it is set to launch on April 19th.Any thoughts Dave?

davefairtex's picture
davefairtex
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RMB gold fix

Eh, I'm not sure if the act of fixing a price matters all that much.  I mean, *I* could fix a price for gold every day, but who would care?

It is only when contracts are written using that methodology that it will start to matter.  Then we'll see banks trying to wang the fix around in an attempt to hose their customers.

If you have a variable rate mortgage priced at "LIBOR + 3%" then the value of LIBOR suddenly becomes really interesting to you.  Before the loan, what LIBOR did simply wasn't important.

Sometimes I get the sense that when goldbugs see the words "China" and "gold" in the same sentence, all sense of analysis and proportion gets lost, and its assumed by said goldbugs that inevitable conclusion from the juxtaposition of these two power words - China + Gold - means that the price of gold will start moving inexorably higher, and that the disagreeable COMEX will simply vanish from the face of the earth.

Western gold buying still matters a lot in terms of setting price.  We have more money in aggregate than they do.  The recent rally was all about westerners deciding they finally wanted to buy gold again.

I'm pretty sure the SGE is not an exchange I can trade.  They have gold futures there, just like on COMEX, but I can't buy or sell them.  I can buy gold futures on London, and at COMEX, but not on the SGE.  Maybe someday China will have an internationally-traded gold futures contract that people will choose to use over COMEX.  If that happens, that might be a deal.  Could I take delivery of gold from this Chinese exchange?  That would be interesting.  I'm not sure it would be game-changing - unless COMEX defaulted, in which case it *would* be game-changing.

Edwardelinski's picture
Edwardelinski
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Rmb gold

Thank you Dave

davefairtex's picture
davefairtex
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silver breaks support: down -0.38 to 14.78

Silver broke support today and is moving seriously lower in a hurry.  That pressure from the unpleasant-looking COT report situation is really beginning to weigh.

Silver also appears to be dragging gold lower also, down -23 to 1215.   But as long as gold remains above 1200 its still in decent shape.

My guess is, Tom will get to buy his little silver coins for $14 (plus a whopping 18% premium if he wants silver eagles) within the week.

Gold/silver ratio is 82.14.

davefairtex's picture
davefairtex
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Unstoppable Trump: Matt Taibbi. Must Read.

Taibbi knocks it out of the park.  A really, unbelievably good article.  He is a throwback to an actual age of journalism where the writers actually wrote something approximating the truth.  Perhaps this age existed only in my dreams - its hard to say.  Only in Rolling Stone, I guess.  No "mainstream" national publication would be able to print pieces like this anymore.  We have to get our news from Comedy Central and Rolling Stone.

Anyhow.  Must-Read article.

http://www.rollingstone.com/politics/news/how-america-made-donald-trump-unstoppable-20160224

Edwardelinski's picture
Edwardelinski
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Taibbi

Check out the one on Joe and Mica as MSNBC lapdogs.His drinking games are hilarious.

thc0655's picture
thc0655
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Not $13.25?

This recent rally toward $15.50 scared me: thought I might have missed the low.  But I've held off hoping for $13.25 (or actually anything less than the previous lows in the area of $13.80).  But my ears will perk up when it hits $14.00 (nice round number).  If it stabilizes there I'll pounce.  If it keeps falling I'll pounce on wherever it stops again.  You don't think we're in for one last low before liftoff?

thc0655's picture
thc0655
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Unstoppable Trump

It is sad that we have to get some real thinking/writing from Rolling Stone.  And even though Taibbi clearly despises Trump, he at least sees the core of the problems and brings them into view. For instance, I agree with Taibbi's implication that the way the mainstream media covers/co-opts these farce elections is part of what is causing many people to vote for Trump.  If you hate the mainstream media, who do you vote for?  Trump is the ideal candidate to express that.

And when Rubio gets exposed in the debate as a talking haircut, a political Speak n' Spell, suddenly the throng of journalists who spent the past two weeks trying to sell America on "Marcomentum" and the all-important "establishment lane" looks very guilty indeed. Voters were supposed to take this seriously?

Trump knows the public sees through all of this, grasps the press's role in it and rightly hates us all. When so many Trump supporters point to his stomping of the carpetbagging snobs in the national media as the main reason they're going to vote for him, it should tell us in the press something profound about how much people think we suck.

And I agree again with Taibbi, that one of the most important reasons people are voting for Trump is that he is the legitimate anti-establishment candidate.  I remember that one of the main reasons people voted for the junior Senator from Illinois in 2008 was that he was perceived to be the anti-establishment candidate.  He turned out to be more establishment than GWBush!  So now voters are going to extremes trying to find a REAL anti-establishment candidate.  I read one commentator say people aren't voting for Trump because he will fix Washington, but because he will break it.

Reporters have focused quite a lot on the crazy/race-baiting/nativist themes in Trump's campaign, but these comprise a very small part of his usual presentation. His speeches increasingly are strikingly populist in their content.

His pitch is: He's rich, he won't owe anyone anything upon election, and therefore he won't do what both Democratic and Republican politicians unfailingly do upon taking office, i.e., approve rotten/regressive policies that screw ordinary people.

He talks, for instance, about the anti-trust exemption enjoyed by insurance companies, an atrocity dating back more than half a century, to the McCarran-Ferguson Act of 1945. This law, sponsored by one of the most notorious legislators in our history (Nevada Sen. Pat McCarran was thought to be the inspiration for the corrupt Sen. Pat Geary in The Godfather II), allows insurance companies to share information and collude to divvy up markets.

Neither the Republicans nor the Democrats made a serious effort to overturn this indefensible loophole during the debate over the Affordable Care Act.

Trump pounds home this theme in his speeches, explaining things from his perspective as an employer. "The insurance companies," he says, "they'd rather have monopolies in each state than hundreds of companies going all over the place bidding ...  It's so hard for me to make deals  ... because I can't get bids."

He goes on to explain that prices would go down if the state-by-state insurance fiefdoms were eliminated, but that's impossible because of the influence of the industry. "I'm the only one that's self-funding ...  Everyone else is taking money from, I call them the bloodsuckers."

Trump isn't lying about any of this. Nor is he lying when he mentions that the big-pharma companies have such a stranglehold on both parties that they've managed to get the federal government to bar itself from negotiating Medicare prescription-drug prices in bulk.

So Trump is a nightmare for the Democratic establishment, for the Republican establishment, and for the mainstream media.  That's exactly why people are voting for him.

Of course, if elected he'll be a loose cannon and pretty unpredictable.  He might be totally ineffective.  He might get co-opted by the Establishment in spite of his rhetoric. He might be assassinated (as approvingly suggested by a NYT writer).   He might turn out to be our version of Hitler.  People are saying, "Whatever!  At least he is not part of the System that got us to where we are today."

I read another commentator suggest why we need Trump: he's declared bankruptcy four times, and that's just what our country needs to start over.

Good find, Dave.

Cornelius999's picture
Cornelius999
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Thanks for the best fun read

Thanks for the best fun read I've had this year Dave!

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newsbuoy
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So zi vorld is crazy, here everything is beautiful

Even zi orchestra is beautiful.

Even Donald.

 

Liza Look'n good

Bankers Slave's picture
Bankers Slave
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A wee tune to remind us all about the real Trump!

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Wildlife Tracker
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Haha that song is amazing!

Haha that song is amazing! Thank you so much for sharing bankers slave 

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