End of Week Market Commentary - 3/11/2016

davefairtex
By davefairtex on Sat, Mar 12, 2016 - 8:38am

On Friday, gold fell -22.00 to 1251.10 on heavy volume, while silver dropped -0.11 to 15.51 on moderately heavy volume.  In Asia, gold scored a new high, briefly hitting 1287.80, but then sold off steadily for most of the day, closing right at the lows.  Silver followed gold lower, but a decent commodity rally seemed to provide support for silver.

On the week, gold fell -9.00 [-0.71%], silver lost -0.03 [-0.23%], GDX was up +1.37%, while GDXJ rose all of +0.15%.  Platinum fell -1.65%, palladium rose +3.50% while copper dropped -1.06%.  It was a mixed bag this week, but overall PM looks a bit weak.

Gold bounced along the top this week, trying vainly to close above 1280 but failing to do so twice.  On Thursday a gold sell-off was rescued by a massive and unexpected move higher in the Euro following the ECB announcement of more money printing and lower rates but by Friday it was unable to keep the upward momementum moving higher.  In Asia gold did manage to move through 1280 but the rally lasted less than an hour; the shorts appeared and unloaded on the market throughout the remainder of the day, dropping price down $10 in the last hour of trading.

By the end of the day Friday, gold had closed below the 9 EMA, something it has not done since early January, back when gold was trading at about 1080.  To me, this is a clear danger sign, and absent some earth-shattering escalation of crisis somewhere, odds are we move lower on Monday.  Risk is increasing.

Gold's possible trend change is more easily seen by the gold-in-Euros chart, which shows that gold has plunged convincingly through its 9 EMA on Friday.  Unlike the hints we see for gold priced in dollars, this chart is showing clear signs of a trend change in progress.

Silver has managed to outperform gold again this week.  Silver's chart isn't as clear-cut as gold's chart, but it too is weakening having failed to make new highs this week.  Silver will almost certainly follow gold lower if gold continues correcting next week.

Miners

Miners did not confirm the failed rally from last week, but did endure one very heavy selling day that ended up finding support at the 9 EMA.  Overall, miners have chopped sideways with some high volatility.  Momentum indicators MACD and RSI have both turned negative, and high-volume distribution days continue to appear.  While that 9 EMA still shows miners remain in an uptrend, other signals are definitely flashing caution.  If/when gold gives way, the "distribution days" we have seen recently suggests that the miners may well see some significant selling pressure.

The USD

The buck fell -1.12 [-1.15%] to 96.23, with almost all of the loss coming on Thursday following the ECB money printfest announcement that surprisingly sent the Euro screaming higher.

Why is the Euro is rallying?  I don't know.  Its the same thing that happened when Japan went negative.  Perhaps traders are rushing to front-run the ECB, so they sell US assets, bring the money home, and buy local bonds.  I'm not a bond trader (one bond doesn't count!) so I don't track the details of how profitable it is to front-run a central bank when they pre-announce their buying policy and volume.  My guess: its probably profitable.

The ECB has also signed up to buy corporates - which hints at them buying the bad assets of the Italian banks as long as there's a guarantee by the Italian government.  Can a bankrupt government guarantee that the top traunch of a structured package of non-paying loans is high enough quality for the central bank to buy?  It seems that the answer is yes; free lunches do apparently exist.  What could possibly go wrong?

US Equities/SPX

US equities again this week, climbing +22.20 [+1.21%] to 2022.19, with all of the gains coming on Friday.   Although SPX printed a swing high earlier in the week, Friday's big 32-point rally marking a new high invalidated the swing high, and it has driven SPX to just above its 200 MA.  Momentum indicators still show relatively clear sailing for SPX.  VIX fell -0.36 to 16.50.

What does the sector list tell us?  This week was another leg higher in the energy/commodity relief rally.  But when industrials and consumer discretionary are bringing up the rear, and utilities are at the top, its not a sign of a new bull market.  And longer term, look at the sectors with "golden crosses": utilities, gold miners, and consumer staples.  Again, not the stuff of a new bull market move.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 2.30% -16.18% rising rising falling rising ema9 on 2016-03-01 2016-03-11
Utilities XLU 2.21% 10.46% rising rising rising rising ema9 on 2016-03-03 2016-03-11
Materials XLB 2.16% -11.43% rising rising falling rising ma200 on 2016-03-11 2016-03-11
Healthcare XLV 1.75% -4.40% rising falling falling falling ema9 on 2016-03-10 2016-03-11
REIT RWR 1.55% 0.74% rising falling rising falling ma50 on 2016-03-01 2016-03-11
Gold Miners GDX 1.37% 10.57% rising rising rising rising ema9 on 2016-03-02 2016-03-11
Technology XLK 1.06% 3.18% rising falling falling falling ma200 on 2016-03-01 2016-03-11
Homebuilders XHB 0.96% -9.22% rising falling falling falling ma50 on 2016-03-01 2016-03-11
Financials XLF 0.94% -7.83% rising falling falling falling ma50 on 2016-03-02 2016-03-11
Cons Staples XLP 0.79% 8.46% rising rising rising rising ema9 on 2016-03-01 2016-03-11
Cons Discretionary XLY 0.76% 2.37% rising falling rising falling ma200 on 2016-03-11 2016-03-11
Industrials XLI 0.48% -4.08% rising rising falling rising ma200 on 2016-03-01 2016-03-11
Telecom XTL -0.14% -6.61% rising falling falling falling ema9 on 2016-03-11 2016-03-11

Gold in Other Currencies

Gold fell this week in every currency, dropping $12 in XDR.  Gold in Euros was down $35.

Rates & Commodities

Bonds (TLT) fell again this week, dropping -0.96% and ending Friday right at the 50 MA.  Bonds are in a clear short term downtrend, which supports the risk on signal for equities.

JNK continued higher, rising +1.54%.  JNK spent most of the week moving sideways, with the big gains coming on Friday as it broke out to a convincing new high.  That's a strong risk on signal from JNK.

The CRB (commodity index) drove higher again this week, climbing a very solid +2.95%.  CRB is now in a strong short term uptrend, having confirmed the double bottom pattern last week.

Here's a sector list that shows what has happened to the various commodity categories: there is energy - down an incredible -42.65% over the past 52 weeks, even after the recent large rally in oil.   And there's PM, with the sole golden cross, up 6.85% over that same period.  Yay PM!  We also see that this week's commodity rally was entirely about energy.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Energy GSCI.EN 5.18% -42.65% rising falling falling rising ma50 on 2016-03-02 2016-03-11
Agriculture GSCI.AG 0.14% -11.40% rising falling falling falling ema9 on 2016-03-03 2016-03-11
Industrial Metal GSCI.IM -0.23% -15.07% rising rising falling rising ema9 on 2016-02-12 2016-03-11
Livestock GSCI.LV -0.50% -9.51% falling rising falling rising ema9 on 2016-03-07 2016-03-11
Precious Metal GSCI.PM -0.51% 6.85% rising rising rising rising ema9 on 2016-02-29 2016-03-11

March WTI Crude (CLJ16) had another great week, climbing +2.16 [+5.95%] to 38.49.   Remember four weeks back when Goldman was calling for $20 oil?  The article below was dated Feb 9 - the dead low for oil was two days later, on Feb 11th, and the swing low was marked on the 12th.  I wonder if Goldman was buying or selling at that point.  What do you think?

http://www.bloomberg.com/news/articles/2016-02-09/goldman-sees-more-oil-swings-that-could-drag-price-below-20

Higher oil prices reinforce higher junk debt prices.  Perhaps the bondholders in those bankrupt shale companies see higher recoveries from all those shale properties if oil can get back above $40.  If your recovery in bankruptcy goes from 10 cents to 20 cents, that's a twobagger - not for the initial bondholder that bought it at 100, but for you if you are a junk debt bottom-fisher.

Physical Supply Indicators

* Shanghai is still trading at a discount: -0.03 vs COMEX.

* The GLD ETF tonnage on hand rose +5.65 tons, with 798.77 tons remaining.

* Gold is not in backwardation, with the spread bewteen the first two contracts at +0.70.

* ETF Premium/Discount to NAV; gold closing of 1250.10 and silver 15.48.

 PHYS 10.34 +0.22% to NAV [down]
 PSLV 6.17 +3.78% to NAV [up]
 CEF 12.17 -7.20% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold or silver.

* HAA big bar premiums are lower for gold [2.15% for 100 oz bars in NYC], substantially lower for silver [3.38% for 1000 oz bars in NYC].  Silver Eagle premiums fell substantially too [17.60% in NYC].

Last week's big jump in big bar silver premiums appears to have been a blip, not a trend.

Futures Positioning

COT report covers trading up through March 8th.

During the coverage period, the gold commercials added +25k shorts and added +1k longs.  Commercial shorts are now fully loaded short.  The commercial "net" (longs - shorts) position is even more bearish.  Bearish bearish bearish, just in time for the trend change in gold-in-Euros on Friday.  Here's a chart.  Notice how the "net" position is about as deeply negative as it has been in recent years, which normally signals a top in the price of gold.  If gold corrects in the near future, it is more or less expected.   The only times it didn't correct under these circumstances was during the "phase change" period in 2010-2011.

Gold managed money added +27k longs, but they also added +3.4k shorts.  Managed Money is now officially offside-long, and their overall net position is also fully loaded for a top, based on recent history.

In silver, commercials added +5k shorts, and dropped -500 longs, while managed money closed -1.8k short and added 1.1k longs.  Things are back to normal after last week's strange blip - commercials are back to going short, managed money is once again covering and going long.  In silver both managed money and the commercials remain fully loaded for a correction.

Just for fun, I looked at the copper COT report.  I notice that copper managed money participants seem just as good at being net long (and wrong) right at the highs.  Right now, managed money net positions are in the danger zone for copper.  And if copper tips over, that won't do silver any favors..

Moving Average Trends [9 EMA, 50 MA, 200 MA]

This week platinum finally joins the rest of PM in crossing over the 200 MA.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum COMEX.Platinum 4.44% -12.47% rising rising falling rising ma200 on 2016-03-10 2016-03-11
Silver Miners SIL 4.28% 5.09% rising rising falling rising ema9 on 2016-03-02 2016-03-11
Senior Miners GDX 1.37% 10.57% rising rising rising rising ema9 on 2016-03-02 2016-03-11
Junior Miners GDXJ 0.15% 23.47% rising rising rising rising ma200 on 2016-02-05 2016-03-11
Silver COMEX.Silver -0.47% 0.59% rising rising falling rising ema9 on 2016-03-03 2016-03-11
Gold COMEX.Gold -0.88% 9.27% rising rising rising rising ema9 on 2016-02-29 2016-03-11

Gold Manipulation Report

There was one spike to report this week: a big spike higher on Friday, when gold touched 1287.80.  The volume spike was about 7500 contracts over a 5 minute period, or about 23 tons of gold.  To paraphrase the old-style goldbug writers: "who buys gold that way - clearly it was just an attempt to manipulate price higher." 

Wait - higher?  Gold is only ever manipulated lower!  Can this be happening?  Where are all the complaints from that fair-and-balanced goldbug writing community?   Anyone hear any complaints?  Anyone?  (

)

This spike marked the high for the day - and possibly, the high for this particular cycle.  I believe this is the commercials attempting to mark the top, after first hosing the last remaining managed money shorts before attempting to move price lower.  They tried this last week too, but so far, it hasn't worked.  But the drive lower off the 1287 high on Friday seemed to be pretty effective.

Summary

Risk on continues again this week, driven by the continuing rally in junk bonds and oil.  SPX responded by rising, TLT by falling, while PM largely chopped sideways.

The gold/silver ratio retreated in fits and starts this week, ending down -0.44 to 80.66.  The GDX:$GOLD ratio rose and continues to look bullish, while GDXJ:GDX ratio fell but still remains near-term bullish.

COT report shows both commercials and managed money are at their customary places to mark a top; net positions in both gold and silver are well within their danger zones.  Last week's short-covering in silver by the commercials reversed this week; it seems to have been a false alarm.

Gold and silver big-bar physical shortage indicators shows mostly no signs of shortage; in the west, ETF premiums were mixed, but PSLV now has almost a 4% premium.   GLD tonnage rose a little, but gold is not in backwardation at COMEX.  Big bar premiums for gold at HAA were mostly unchanged for gold, but substantially lower for silver, back to a normal range.  Silver eagle premiums dropped too.  Slight discounts were observed in Shanghai.  No shortages are apparent in big bar gold or silver.

So where do we stand?

Gold chopped sideways, tried making a new high, failed, and then sank below the 9 EMA.  That doesn't look so good.   Miners also chopped sideways and continued to show signs of distribution, which usually marks a top.  COT more firmly suggests a high for both gold and silver.  There are no signs of shortages on the physical side.

So, again simplistically: gold is now below the 9 EMA.  While it has yet to mark a swing high, nervous nellies (like me) may feel it is time to move to cash.  There are way too many other indicators that normally suggest the top for this cycle is probably in - and trading is about odds, not about "being right."

So what does my computer say?  Short gold, silver, copper, USD, and treasuries; long miners, oil, and equities.  Its not likely gold will drop hard if the buck keeps selling off, so computer is probably wrong about one of those two.  Likewise, short gold/long miners is an odd combination; it will get one of those wrong too, most likely.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

9 Comments

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

I noticed that unusually large reduction in commercial longs on the copper CoT. Also noteworthy is that the S&P CoT has shown the commercials adding to their net long position INTO the rally of the last few weeks, something inconsistent w/ a bear market rally....usually at least.   SPY does look (to me) short term overbought, but it's odd that the big banks are positioning themselves increasingly on the long side.  

I suspect that this week's "Fedlines" will resolve a lot of these anomalies and we'll see why "they" are positioned the way that they are and if this time really is different. 

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
Ted Butler CoT comments...

Based upon the current market structure, I’ve seen predictions for a certain sell-off and other predictions that the commercials will fail this time and get overrun. Both sets of predictions are made with equal implied certainty and seem made to achieve maximum benefit to those making the correct prediction. I’m not smart enough to predict with guaranteed precision, but I’m comfortable with the idea that things will likely work out in a way that most benefits JPMorgan. That’s what I mean when I say the probabilities favor lower prices on COT considerations alone.

If we do get an eventual price resolution to the downside, as the COT probabilities suggest, the actions of JPMorgan (described above) do suggest, more strongly than ever before, that this will be the final sell-off. That is, if JPMorgan succeeds in buying back and closing out a significant portion of its COMEX silver short position, it would then appear to be ideally positioned for silver price fireworks to the upside.

thc0655's picture
thc0655
Status: Diamond Member (Offline)
Joined: Apr 27 2010
Posts: 1614
Shadowing JPM

Butler's quote there has captured some of my thinking over the last two years.  JP Morgan has built up a huge position in physical silver which I take to mean they expect the price of physical to go much much higher. Yet they are short paper silver which I interpret to mean they're expecting a drop in price first. So I've been saving cash to make one last big silver purchase to capture the low and then capitalize on the rocket ship higher. That's what I've learned from Dave. I feel like a remora attached to a shark picking up tidbits from the shark's kills. 

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

thc,

My thoughts exactly.  Sinclair has said for yrs that when PM is finally allowed to really run, the banks will be positioned accordingly. That's the one fly in the ointment right now. If that is true, it will be confirmed by the commercials NOT shorting the next rally....perhaps even adding longs into a rising price. 

Steve

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
I like it

I think it does hang together.  Certainly those trading desks remember their failures from the last big move higher - which we saw clearly in the chart I posted - and they probably do not wish to repeat it.

A reasonable strategy for JPM might be accumulating silver in the longer term, while hedging out the dropping silver price by going short in the futures markets.  That way they don't have to take losses to their P&L while silver remains in a downtrend, and once price starts to reverse, they can simply close out those shorts and thus be naked long silver during the next bull phase.

And of course the only reason for owning actual metal would involve collecting the premium over COMEX that would develop if there is any sort of inability to deliver and/or physical scarcity.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
FOMC meeting

It seems like mere days since we had the last one - but we get another one this week, I guess because we were especially good boys and girls.  This meeting we also get to see and hear Janet Yellen speak too.

FOMC policy announcement Wed March 16 @ 14:00 ET, press conference at 14:30.

There are no expectations for any change in rates at this meeting among economists surveyed by Econoday.  (Wish we had a chart in how successful those economists were at predictions.)

My opinion: risk of a dollar rally is relatively high.  Oil's rebound, some moderate relief in the junk credit markets, and an accelerating move higher in the CPI all point to an increased chance of a rate rise, maybe not at this meeting, but soon.  Its not a popular position to have, but if the Fed raised rates with CPI hovering below 1%, now that its above 1% and visibly climbing, with the oil price and commodity price rebounds occuring now, I think there is a decent chance Fed will start talking more hawkishly than people expect.

I also project the market's reaction is likely to yank the buck higher, which will put pressure on gold.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
potential oil swing high

If we close at or around these price levels (WTIC = 36.94) we will print a swing high in oil.  The threshold value for a swing high is 37.92.  Another important waypoint is the 9 EMA, which is at 36.61.  A swing high and a close below 9 EMA would be a sign for everyone currently in oil to reduce risk.

A swing high for gold would be a close below 1249 - we are currently at 1243.80.  Gold is already below its 9 EMA.

GDX 9 EMA is at 19.63, and current price is 19.46.  A close at these levels (below the 9 EMA) would complete the bearish picture - GDX already printed a swing high last week.

Gold has bounced any number of times intraday, so we should really wait for the close before making any calls.

cmartenson's picture
cmartenson
Status: Diamond Member (Offline)
Joined: Jun 7 2007
Posts: 5729
Yep, commercials win again
Penny551 wrote:

Based upon the current market structure, I’ve seen predictions for a certain sell-off and other predictions that the commercials will fail this time and get overrun. Both sets of predictions are made with equal implied certainty and seem made to achieve maximum benefit to those making the correct prediction. I’m not smart enough to predict with guaranteed precision, but I’m comfortable with the idea that things will likely work out in a way that most benefits JPMorgan. That’s what I mean when I say the probabilities favor lower prices on COT considerations alone.

Yep, the commercials win again.  I remain unclear on why the specs continue to play against the bullion banks who never seem to lose at this game of pulling the rug out on the short side over and over again.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5417
commercials win again

Commercials win - along with anyone else who followed them in short, after seeing the close below 9 EMA Friday, along with gold-in-euros tipping over one day in advance.

Its not like gold didn't give us any warnings.  Rick Rule warned us, for heaven's sake.

To me it just looked like this wave of buyers just dried up, at least at these price levels.  Nervousness about the upcoming FOMC meeting and the (possibly related) dollar rally may have contributed.

Now we just need to see where the buyers come back in.  I really do think gold-in-euros may be the key chart to watch.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments