PM Daily Market Commentary - 3/17/2016

By davefairtex on Fri, Mar 18, 2016 - 3:27am

The day-after-FOMC, gold fell -4.50 to 1258.60 on moderately heavy volume, while silver was the surprise winner, breaking out to new highs, up +0.30 to 15.94 on extremely heavy volume.  Both metals rallied as the dollar cratered, but gold ended up closing in the red, while silver raced higher and kept most of its gains into the close.

Today was all about the buck, commodities and oil.  The dollar seemed key today, so we'll start there.

The buck fell -1.12 to 94.80, a large follow-on move after FOMC was unexpectedly dovish on Wednesday.  While I was surprised at the level of dovishness, the market clearly was as well, and it is in the process now of rapidly correcting price.  The buck is off about 6% from its highs last December.  USD might find decent support starting at the previous low of 93.83, but if support around the 93-94 level fails, there is a whole lot of air between 93 and the previous levels of 82.  I think commodities would go absolutely nuts if the buck broke 93.  It all depends on how much hawkishness was built into the buck's current level.  I can't really say how much that is until the buck starts to slow down.

Gold initially rallied on the drop in the buck, but it did not move very far, nor could it retain the gains into the close.  Gold felt heavy especially compared with silver's rocketship move, as though gold had spent all its energy yesterday.  While the candle print was nominally bearish, it wasn't dramatically so - it only feels bad compared to silver's fantastic move.   Gold appears to have run into strong resistance at the 1270 level.

In spite of the drop, GLD gained +11.89 tons, with the total now at 807.09.  My guess is that retail decided to buy the day after FOMC; they are usually dumb money, and they take some time to respond to the news.  Professionals would have been buying same-day, most likely.  "And that's not meant as an insult, Mr. Ambassador..."

Silver was the surprise winner today, climbing +1.92% on a day when gold actually fell.  Silver broke out to new highs, producing a massive volume bar which suggests a lot of shorts stops were tripped.  The answer for silver's big gain has to lie in the commodity complex and probably oil, both of whom had great days also.

The gold/silver ratio, which has been sneaking steadily lower, dropped a big -1.80 today alone, falling to 78.98. 

Would I buy this silver breakout?  I think it all depends on what happens with oil & commodities.  If you think commodities are coming back in a big way, and the dollar has a long way to drop, then buy with both hands, because silver will probably be racing higher.  My answer - I think this could go for a while, but I'm not certain this is a long term commodity trend change.

Miners tried to continue yesterday's big rally, but ran into selling around mid-day and then sold off once it became clear gold would not advance.  GDX lost -2.06% on very heavy volume, while GDXJ dropped -2.70% on heavy volume.  It looked to me that a bunch of longs decided to ring the cash register after yesterday's big up day.  The candle pattern today isn't anything particularly bearish, and it would take a lot for GDX to print a swing high again.

Platinum rose +0.68%, palladium climbed +2.73%, and copper was up a big +2.78%, closing over its 200 MA for the first time in about a year.  Copper's steady rise off the lows now has it at 2.29, and the chart pattern appears to be projecting even higher prices ahead.

WTIC (CLJ16) broke out to new highs, up a big +1.74 [+4.51%] to 40.34.   (We had our monthly contract roll today - CLK16 is actually trading at 41.67).  Oil seemed to like the falling dollar as much if not more than silver.  Likely too is follow-on from the bullish-looking petroleum status report from yesterday.  Oil is not particularly overbought right now, and technically speaking it could continue higher for a while.  Oil equities also made new highs, with XLE up +1.37%.

SPX continued higher as well, moving up +13.37 to 2040.59, led by industrials, energy, and basic materials.  I'm not sure what got the industrials in a lather today, but the other two sectors make sense.  Mostly, SPX moves still are commodity-related, and commodities continue to rally.  VIX fell -0.55 to 14.44.  Puts are getting cheap once again, but if you can hold out to VIX sub 12.5, that has been the magic level for buying puts over the past 18 months.

TLT rose +0.41% - it is back above the 9 EMA, but the move today did not look particularly strong.  TLT is actually doing relatively well considering the strength in equities.

JNK jumped +0.67%, breaking out to new highs and continuing to signal risk on.  JNK is approaching its 200 MA, which it hasn't seen since mid-2015.

CRB gapped up at the open today, rallied nicely and closed at its high, climbing +2.24% and making a new high too.    Commodities have done well since confirming the double bottom several weeks ago.  Pulling back to the weekly chart, we see that they have a great deal of work ahead of them; the three-week rally is a relatively small blip at the tag end of a very long and unpleasant downtrend.  Still - they're in an uptrend now, and the commodity trends tend to last for many weeks.

You can see that an unexpectedly dovish FOMC announcement can have some pretty powerful effects - not just on gold, but on energy, commodities, and currencies too.  How long the dollar will correct is anyone's guess, but that big red candle today looks pretty unpleasant.  Will it benefit gold?  Possibly.  Gold dropping on a day when the buck fell more than 1% is quite a weak performance.  Silver, oil, and commodities?  Yes, I think so.  And those emerging markets currencies will also benefit too.  No rate rises means the carry trade is back on!

My computer, which can't really be trusted during the week, is bullish on literally everything except the dollar.

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