PM End of Week Market Commentary - 3/18/2016

davefairtex
By davefairtex on Sat, Mar 19, 2016 - 7:47am

On Friday, gold fell -2.60 to 1256.00 on moderate volume, while silver dropped -0.11 to 15.82 on moderate volume also.  In Asia, silver hit a new high of 16.17 before selling off steadily for the rest of the day.  Gold was substantially less energetic, not even exceeding Thursday's high before retreating.

On the week, gold rose +4.90 [+0.31%], silver gained +0.31 [+2.03%], GDX was up +3.15%, while GDXJ rose +4.60%.  Platinum rose +0.95%, palladium rose +2.57% while copper climbed +2.25%.  Everything went up, and silver finally decided to join the party.

This week gold made a brief dip below its 9 EMA and appeared to be setting up for a more serious correction, only to be rescued (for the second week in a row) by a central bank.  This week it was the Fed, who changed postures to an unexpectedly dovish position.  The best summary I found came from ZH:

http://www.zerohedge.com/news/2016-03-17/what-happened-yesterday-either-something-spooked-fed-or-there-central-bank-accord.

Yesterday’s FOMC meeting and press conference generated widespread unease. My personal uncomfortable feeling was reminiscent of a time many decades ago when a date stood me up and provided an excuse that made little sense. Simply put, the combination of the FOMC’s forecasts, economic assessment, and guidance on the future path of interest rates were incongruous and disconnected to their ‘data dependency’ message

Basically, the Fed changed its underlying rationale for rate increases, but didn't fess up to it.  Now they're going by some secret playbook, they're still pretending to be "data driven", and that's sure to confuse everyone trying to read the tea leaves.

Gold really enjoyed this on the day it happened, but that was only good for the one day.  My sense is, if not for FOMC, gold would have corrected substantially.  When the buck drops 2% in two days, and gold can't manage a rally on that second day, its not a sign of strength for gold.

Silver not only enjoyed the initial day, but also followed through on the second day - silver seemed to benefit a lot more than gold from the falling buck.

After FOMC, it seems as though we saw gold pass the leadership baton off to silver; silver made a new high, while gold did not.  This suggests to me that we may be moving into a different sort of market now, driven more by rising commodity prices rather than a flight to safety.

Miners

Miners appeared to be headed lower this week but the FOMC dovishness on Wednesday really saved the day, and on Thursday the miners made a new high intraday, but then sold off.  The miners appear to be more bullish than gold - perhaps equivalent to what silver is doing right now.

The USD

The buck fell -1.11 [-1.15%] to 95.12, with the losses coming immediately after the FOMC announcement on Wednesday.  It seems that in recent months, every single central bank action has led to selling in the dollar - even though both the BOJ and the ECB lowered rates and the ECB at least stepped up its printing activity which presumably should have caused their currencies to drop and the dollar to rise.  Perhaps the dollar was just too overbought, and no matter what action was taken, the answer was to sell the buck.

If the buck keeps falling, it should continue to help commodities, oil, and - based on recent price action - probably silver more so than gold.

US Equities/SPX

US equities rose for the 5th straight week, up +27.39 [+1.35%] to 2049.58, breaking above the 200 MA and apparently heading for a re-test of the previous high at 2081.56.  From a chart perspective, the move higher still looks relatively strong - momentum indicators have not rolled over, and the 9 EMA has acted as support all during the move higher.  The rally this week drove the VIX down -2.48 to 14.02.

What does the sector list tell us?  The rally is starting to broaden out, with home builders and industrials starting to pick up.  Financials still lag, and commodities continue to play an important part of the move higher, but the move higher is no longer just about a commodity-driven rally.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 3.15% 10.16% rising rising rising rising ema9 on 2016-03-16 2016-03-18
Homebuilders XHB 2.99% -6.59% rising rising falling rising ma50 on 2016-03-01 2016-03-18
Industrials XLI 2.94% -2.06% rising rising falling rising ma200 on 2016-03-01 2016-03-18
Materials XLB 2.30% -7.14% rising rising falling rising ma200 on 2016-03-16 2016-03-18
Energy XLE 1.81% -16.23% rising rising falling rising ema9 on 2016-03-01 2016-03-18
Technology XLK 1.68% 3.12% rising rising rising rising ma200 on 2016-03-01 2016-03-18
REIT RWR 1.11% -1.21% rising rising rising rising ma50 on 2016-03-01 2016-03-18
Financials XLF 1.07% -6.77% rising falling falling rising ma50 on 2016-03-02 2016-03-18
Cons Discretionary XLY 1.02% 2.84% rising rising rising rising ma200 on 2016-03-11 2016-03-18
Utilities XLU 1.00% 9.08% rising rising rising rising ema9 on 2016-03-03 2016-03-18
Telecom XTL 0.74% -6.63% rising rising falling rising ma200 on 2016-03-17 2016-03-18
Cons Staples XLP 0.38% 8.94% rising rising rising rising ema9 on 2016-03-01 2016-03-18
Healthcare XLV -2.55% -10.11% falling falling falling falling ma50 on 2016-03-18 2016-03-18

Gold in Other Currencies

Gold fell this week in almost every currency; in XDR it fell -15.60.  You can see that gold's relatively less negative performance in USD was a currency effect from the falling dollar.

Rates & Commodities

Bonds (TLT) climbed this week, up +1.33%, which is a bit surprising given the strength in equities and the fall in the buck.  Perhaps the drop in rate expectations make those 30 year bonds yielding 2.68% even more attractive.

JNK rallied again this week, fifth week in a row, up +0.61%.  JNK ended the week just under its 200 MA.  JNK's rally on the weekly chart has been pretty much of a straight line up. That's a continuing risk-on signal.

The CRB (commodity index) rose again this week, third week in a row, up +1.63%.  The commodity rally has a long way to go before commodity prices return to 2014 levels; we've had a 50% decline, and a 13% rally, and math tells us that it requires a 100% rally to erase a 50% decline.

March WTI Crude (CLJ16) slowed down a bit this week, up +0.86 [+2.23%] to 39.35.  The week ended on a bit of a sour note/failed rally (March crude fell -0.99) but the candle print wasn't quite bad enough to indicate a high confidence reversal.

We also had a contract roll this week; CLJ16 rolled into CLK16, which means that the current "front month" oil price is actually at 41.13 due to oil's still-strong contango, which right now is at 1.78.  This strong contango means if you're buying "USO" or one of its ETF cousins to participate in this oil rally, you end up facing a headwind of more than 4% per month due to that contango.

Physical Supply Indicators

* Shanghai has moved deeper into discount: -1.06 vs COMEX.

* The GLD ETF tonnage on hand rose +8.32 tons, with 8.32 tons remaining.

* Gold is not in backwardation, with the spread between the first two contracts at +0.50.

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

 PHYS 10.35 +0.02% to NAV [down]
 PSLV 6.31 +3.92% to NAV [up]
 CEF 12.15 -7.70% to NAV [down]

* 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 slightly higher for gold [2.17% for 100 oz bars in NYC], a bit higher for silver [3.58% for 1000 oz bars in NYC].  Silver Eagle premiums fell [17.36% in NYC].

Futures Positioning

COT report covers trading up through March 15th - this did not include the period following the FOMC announcement.

During the coverage period, commercials actually started covering short, losing 4.2k shorts and adding 2k longs.  Don't get too excited though - it was a very modest change.  Likewise, managed money covered 3.4k shorts and dropped 1.1k longs.

In silver too, not much happened.  Commercials covered 1.1k shorts, and managed money covered 1.8k shorts too.

COT positioning for both silver and gold remains in the danger zone that usually marks the tops in both commodities.

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

No change in the moving averages; 52 week change values continue to improve.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 6.66% 6.25% rising rising rising rising ema9 on 2016-03-02 2016-03-18
Junior Miners GDXJ 4.60% 23.20% rising rising rising rising ema9 on 2016-03-16 2016-03-18
Platinum COMEX.Platinum 4.44% -12.47% rising rising falling rising ma200 on 2016-03-10 2016-03-11
Senior Miners GDX 3.15% 10.16% rising rising rising rising ema9 on 2016-03-16 2016-03-18
Silver COMEX.Silver 1.28% -1.91% rising rising falling rising ema9 on 2016-03-17 2016-03-18
Gold COMEX.Gold -0.39% 7.25% rising rising rising rising ema9 on 2016-03-17 2016-03-18

Gold Manipulation Report

There were no meaningful spikes up or down this week - well there was one on Monday in silver which I saw that didn't show up on my detector.  It was one of those up-spikes specifically targeting the managed money shorts.  It appeared that the commercials were trying to mark the top on Monday, and it looked like those commercials had things well in hand for the expected move lower, but of course that all changed when FOMC surprised everyone by being dovish.

Summary

The commodity and oil rallies continued to lift equities and junk bonds; the FOMC's dovish change of heart just added fuel to the commodity fire by pushing the buck off a small cliff.  After the dust settled, silver is now looking stronger; gold, weaker.

The gold/silver ratio dropped more substantially, losing -1.30 to 79.37, a reflection of silver's strength.  The GDX:$GOLD ratio rose again and continues to look bullish; the GDXJ:GDX ratio rose too, and remains near-term bullish.  Miners continue to catch a bid.

COT report shows both commercials and managed money remain at their customary places to mark a top; net positions in both gold and silver are well within their danger zones.  And yet PM continues to struggle higher.

Gold and silver big-bar physical shortage indicators shows no signs of shortage; in the west, ETF premiums were mixed.   GLD tonnage rose, but gold is not in backwardation at COMEX.  Big bar premiums for gold and silver at HAA were at average levels, mostly unchanged.  Discounts widened slightly in Shanghai.

So what's the vibe going into next week?

Gold looks to be weakening; I really didn't like seeing gold drop when the USD fell 1% on Thursday.  Silver on the other hand looks set to break higher, and possibly the miners also.  Does the dollar have further to fall?  If so, commodities should continue to move higher, and then silver may well break sharply up.

If the buck keeps dropping and commodity prices continue to rise, I'd buy the breakout in silver - for a trade.  When silver gets a bid, it tends to move up quickly.  I don't think I'd take that same risk with gold.  While gold remains above the 9 EMA, it isn't reacting all that well right now to what should be bullish influences.

Longer term, I'm still waiting for the COT to have its way with the market.  Unless those commercials start to cover their short exposure, I expect that a correction will eventually happen.

So what does my computer say?  Last week it was wrong about gold, silver, and copper; I blame the suddenly dovish FOMC, which neither the computer, nor I, nor the market saw coming.  (This is why holding a position into FOMC sometimes feels like shoving your chips all on "red" and hoping for the best).  This week its long gold, silver, copper, miners, oil, and equities, short USD.

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.

5 Comments

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

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
candles

Steve-

I'm in the middle of doing a bunch of statistical analysis on candlesticks - I'm trying to answer the question "given this candle print in this context, what are the chances of a reversal based on today's market context."

My code tells me the crude oil candle on Friday was a spinning top, forming the second part of a "bearish harami", not a shooting star.  Definition of shooting star says the length of the upper shadow must be >= 2x the body.  Shooting stars can be unpleasant, bearish harami not so much.  I think the idea is that failed rally needs to be a bit more exciting for it to be a stronger candidate for reversal.

Bulkowski (one site I'm using to help me in my work) suggests that a bearish harami is a continuation pattern 53% of the time.  http://thepatternsite.com/HaramiBear.html

Here is the def of "shooting star":  http://thepatternsite.com/ShootingStar.html

Prior to my recent work, I have been a bit sloppy in identifying the various candle patterns!  My code is now keeping me in line...

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
more candles

After running some tests on spinning tops as potential reversal candles:

Of all the 10-point reversals that have been spotted, spinning tops are the top tick 6.8% of the time.

Given today's context of CL (overbought, etc), the chance of this being the top tick is increased to 22.5%.  At least that's what my code tells me anyway.

I don't have stats on bearish harami just yet.

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 761
Art Berman: Oil price rally based on short-term sentiment

 

Thanks, Dave, for the continued commentaries, and also Steve for initiating the discussion of oil prices.

Here are some notes I made from Art Berman’s Another False Oil Price Rally: Crossing a Boundary (published 14 March). A short summary of this might be:

This rally will be short because we're in a deflationary rut with low demand and high inventory/supply, but eventually peak (cheap) oil will force higher prices that are more sustained.

Notes:

-U.S. crude production peaked in April of 2015 at 9.69 million barrels per day (MMbpd)

-There has been a 47% increase in WTI over 20 days (mid-Feb. - March 14 2016)

-The current rally in oil prices is similar to the rally in the spring of 2015 (March-June), when price increased due to market sentiment/expectations, and not due to fundamental changes in supply or demand.  

-Currently, just as in the spring of 2015, storage volumes are too large and demand is too weak to sustain higher prices.

-In the March-June 2015 oil price rally, U.S. crude inventories were over 100 million barrels (mmb) above the 2010-2014 5 year average.  Today they’re over 150 mmb above that average.

-There is a similarly high level of inventory across the OECD countries.

-Changes in consumption lag changes in price by several months.  For example, consumption was actually increasing during the oil price rally of the spring of 2015, but this increase was most likely due to the fall in prices in Q4 of 2014 and Q1 of 2015.

-Storage volumes need to fall closer to the 2010-2014 averages before a meaningful price rally can be maintained.

-It’s better for sellers to pay the monthly storage cost for oil (approx. 65 cents/barrel) and to sell the oil forward on futures contracts, in the hopes that oil price and demand will increase in the future.

-The futures market has a huge impact on oil prices (Berman likens it to a casino), but price changes due to sentiment do not last long, whereas price changes due to changes in supply and demand are more sustainable.

-The current oil price rally is due to a weaker dollar and the talk about production cuts by OPEC and Russia.  The idea of a production freeze is mostly meaningless.  (I assume that Berman says this b/c “freezing” production when the major exporters are already producing at full capacity is just lip service.)

-While this price rally may last as long as the rally of the spring of 2015 (~3 months or so), it is mainly based on short-covering and other trading factors, as opposed to underlying factors of supply and demand in the oil industry.

- Berman thinks the world has crossed a major boundary in the oil markets, where the world economy has been so substantially weakened by the financial crisis of 2008/09 and is so hamstrung by debt that demand for oil (and everything else) is just weaker.  This seems to be consistent with Tverberg’s position (e.g. here and here).

In the “not-too-distant future” fossil fuel depletion will lead to much higher oil prices.  (Is Berman parting ways with Tverberg’s deflationary oil peak thesis in the longer-term?)

And a couple of nice quotes from Berman:

Oil markets are a leading indicator for the broader economy because the economy runs mostly on energy and not so much on money.

World production now appears to be falling and that is certainly a necessary step in the right direction toward market balance. I anticipate an OPEC plus Russia production cut in 2016 and that will unquestionably move the market to some kind of balance. I suspect, however, that the new balance may be one in which prices and demand both remain lower than on the other side of the price-collapse boundary that was crossed in 2014.

 
davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5462
bearish harami

I'm not sure if that's plural or not.

Anyhow, this particular bearish harami, according to my freshly-run code (with all the potential for bugs that implies) suggests a 54% chance of a reversal lasting at least 5 days.  That's relatively high.

That said, CL has had two other bearish harami show up during the past two weeks and that didn't slow it down, so there is that.

I think I need to do a bit more work on this one.

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