PM Daily Market Commentary - 3/1/2016

By davefairtex on Wed, Mar 2, 2016 - 5:12am

Gold fell -6.60 to 1232.70 on heavy volume, while silver dropped -0.05 to 14.84 on moderate volume.  PM rallied strongly early in the day, but sold off as the equity market rallied.  Buy the dip is still alive for gold, but gold does suffer when money ends up flowing elsewhere.

Today seemed to be an unwind of the safe haven move, driven mostly by flows into JNK and equities, and out of treasury bonds and gold.  Since junk debt is the antithesis of gold, I'm going to lead with that today, because the move in JNK was large and the chart of JNK describes where money is flowing most clearly.

In the JNK chart, we can see price is starting to go vertical, with today's gain a massive +1.83%.   Volume is increasing each day, and the RSI-7 (not shown) is now at 89, signaling that JNK is significantly overbought.   A fair amount of this move are traders buying the ETF versus the underlying bonds; the recent move has pushed JNK into a 2% premium to NAV.  Perhaps the JNK shorts are being squeezed too.

Moves like this don't typically last long, but they are no fun if you are the one being squeezed.  Regardless, money is flowing into JNK right now, and thats a definite risk on signal.

SPX is next; you can see it made a low on the same day as JNK, and while it didn't rise every single day that JNK did, it definitely followed roughly the same track.  Today SPX climbed a huge 46.12 [+2.39%] moving above its 50 MA with ease.  While money fled TLT, and to some degree gold, it seemed to end up in equities.  There was probably also an element of short covering too, as SPX made a new high today.  VIX fell -2.85 to 17.70.  Puts are slowly starting to get cheaper, but I think I'd wait until the JNK rally convincingly reverses before buying any.

TLT was crushed today, dropping -1.76%, making a new low.  Money fled bonds early in the day, incurring most of its losses in the first hour of trading.  You can also see that bonds topped out on the same day as JNK and SPX bottomed.  Money flows are clearly moving from the safe haven areas such as TLT to JNK and SPX.

And finally gold.  Gold fell just -6.60; it initially dropped all the way to the 9 EMA but found support and was bid back up.  The close didn't look all that strong, but - compared to what happened to its safe haven cousin TLT, gold got off fairly easy.  Its hard right now to pick a direction for gold, but - as long as that 9 EMA holds, that's a good thing.  Notice that gold too topped out when TLT made its high, on the same day that SPX and JNK hit bottom.

GLD ETF gained +8.93 tons of gold today.  Another gold tonnage increase on a price move lower.  I see a war between commercials and western gold buyers for control over price direction.  Conclusion: the commercials aren't all powerful - or else price would have dropped by now.  Just look at what happened to silver.

Silver rallied all the way up to the 200 MA but then sellers appeared; it was a logical place for resistance, and silver was unable to move through it.  Silver is at risk of lower prices ahead; bears look to be outnumbering bulls right now.  It is revealing to me how silver appears to be succumbing to the usual "commercial" PM cycle, while gold is holding strong.  Perhaps those Europeans don't see silver as a safe haven, and so the bid for silver just isn't there.

The miners ran into some heavy selling today, with GDX falling -4.18% on very heavy volume, while GDXJ lost -3.74% on heavy volume.  The miner situation is starting to look a bit more worrisome; today's drop in GDX pushed the miners below the 9 EMA for the first time in six weeks, the bearish MACD crossover occurred, and the volume on the sell-off was quite heavy.  We have had two high volume selling days in the past three sessions; this is a sign of distribution, as big money distributes their holdings, and prepares for lower prices ahead.

Unlike us - we can sell all our holdings and not move the market at all - big money requires many days to liquidate.  They have huge positions, and they cannot dump them all at once.  A pattern of high volume down days and lower volume up days - right at the top - are signs of big money distribution.  Lower prices usually follow.

Platinum rose +0.57%, palladium rallied a massive +5.01%, and copper climbed +0.87% to 2.14, making a new closing high for this latest move in copper.  Copper also made an interim low on the day of the SPX and JNK low too.  Lots of things are moving together here - its not just one market.

The buck rose +0.15 to 98.36, continuing to move above its 50 MA.  Buck also made its low on the day of the SPX low.  Dollar/Yen was crushed - which meant the Yen rallied - losing -1.24%.  Maybe now we are seeing some money come back to the US from Japan after four weeks of flight.  Canadian dollar continues moving higher, up +0.96% today to close at 0.75, up strongly from its low of 0.68.

CRB climbed +0.40%, up 4 days of the last 5, closing right under its 50 MA.  Might commodities have turned?  I won't believe it until I see that double-bottom confirmed.

WTIC crude (CLJ16) closed flat today, down -0.01 to 33.89; it had moved higher for much of the day and was clearly above that 50 MA for a time, but at 16:30 after the equity market had closed, the API Weekly Crude stock report was released that showed a massive build of 9.9 million barrels in inventory.  This caused WTIC to spike lower by 60 cents, and that's what pushed crude back to flat for the day.  Petroleum Status Report tomorrow at 10:30.

So in conclusion, one last chart.  Is this the driver for all of it?  Just check the date.  Crude low is the same day of the SPX low, the JNK low, the TLT high, and the high in gold.  It seems like it; Trader Dan said the other day, "regardless of what you THINK you are trading, you're actually trading oil" - or words to that effect.  Certainly the oil rally hasn't been anything too exciting, but perhaps avoiding a move lower is good enough right now.

Gold has been the most insulated from the Oil Effect.  As long as it remains above that 9 EMA, its a good sign.  Will the miners lead gold lower?  Perhaps.  The drop below the 9 worries me, there is a lot of distribution going on in the mining shares, and so in normal circumstances I'd be buying puts like crazy.

Of course, if that crude and JNK rally tops out, gold may well launch higher, breaking clean above its previous high at 1263.  Its hard to know which way things will jump.

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Penny551's picture
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154

Just curious; why do you use the 9 EMA?  I've seen the 17/45/50/200 DMA's used quite a bit, but never the 9.  I would think that these arbitrary numbers only work if enough "people" (er, machines) trade off of them.  Just looking at the Gold chart, it looks like maybe I'm the only dummy not using it though :)

Also, you mentioned..

and so in normal circumstances I'd be buying puts like crazy.

I bought a few longer dated GDX Puts a couple of weeks back (to hedge) and have been surprised by how this cycle seems to be playing different.  I'm cautiously optimistic that the JPM crowd's influence may be diminishing, but my gut still tells me that the PM complex is ripe for a "smackdown."  I would actually feel a lot better if we just got it over w/, and go on to make a higher low and then a higher high.  

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

I use the 9 EMA because it seems to work pretty well for the more tactical swing trading that I like to do.  You can see that for gold, it tracks 9 EMA pretty well, and that a break of 9 EMA tends to lead to bad things happening in the near term.

It doesn't work for everything (crude it isn't perfect, nor for $CRB), but for gold, silver, GDX, and SPX (and related items) it seems to do all right.

Trading isn't an exact science.  Lots of stuff is used just because it seems to work.

As far as PM being ripe for a smackdown - until the bid under gold vanishes, we aren't going to get a smackdown.  Overbought can be worked off by price moving sideways.  RSI7 for gold is around 60 now.  During some uptrends, daily RSI7 never drops below 50.  I know the commercials have loaded up, but if that bid persists, the commercials will give way.  "The market" is stronger than they are once the buyers get the bit in their teeth.  You can see this in the "commercial shorts" chart during the 2009-2011 gold rally.

Of course, if that bid vanishes for some reason - if things suddenly start to look better - I'd guess that the bottom would probably fall out in a big hurry.

If, say, Europe gets those migrants under control, and England decides to remain in the EU, and those Italian loans get carted off to the ECB to die...could get ugly for gold for a time.

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