PM Daily Market Commentary - 3/21/2016

davefairtex
By davefairtex on Tue, Mar 22, 2016 - 12:10am

Gold fell -11.90 to 1244.10 on moderate volume, while silver rose +0.04 to 15.86 on moderately light volume.  Gold was hit for a $10 loss during the Asia trading session and never really recovered, while silver tracked oil and copper, both of which were neutral-to-positive on the day.

Gold has continued to fall after the big $30 rally post FOMC; it is now down below the 9 EMA once again, and it appears to be drifting lower.  Perhaps this wave of gold buying has finally peaked.  The previous low at 1226 looks to be an important support level; if that fails, selling could get more intense.  I don't like to see gold below that 9 EMA.  It is tempting to think that gold could recover, but those technical indicators are there to remind us that hope is generally our enemy when trading.

GLD gained +2.68 tons, with the total now at 821.66.  GLD buyers often continue buying past the high, as they appear to be doing right now.

Silver remains well above its 9 EMA, and remains quite close to its recent high.  Silver appears to be tracking the rising commodity complex rather than falling gold; the gold/silver ratio dropped a big -0.95 to 78.42.

Miners went nowhere today, with GDX off -0.19% on very light volume, while GDXJ rose +0.25% on light volume.  Both mining ETFs remain above their 9 EMA lines; the modest selling in gold does not yet seem to have affected the miners.

Platinum rose +1.00%, palladium climbed +2.20% closing above its 200 MA for the first time in months, and copper was up +0.04%.

The dollar rallied today, up +0.18 to 95.30, printing a swing low.  While the buck didn't appear to be the proximate cause of gold's drop today, a rising dollar will cause problems for gold and silver.  If the buck has truly put in a low for this cycle, that could accelerate the speed of gold's correction.  It could also cause problems for commodities as well.

WTIC (CLK16) recovered from Friday's sell-off, closing up +0.49 to 41.62.   Oil's 9 EMA has provided strong support all during the six-week rally, and at least right now it shows no signs of weakness.  There is all sorts of talk that it has reached the high, there is too much oil in storage, etc; forget about all that.  If price stays above that 9 EMA, hang in there.  Prices trump commentary every day of the week.

SPX basically went nowhere today, up just +2.02 to 2051.60.  Industrials and healthcare rose, while financials and energy sank, leaving the market somewhere in the middle.  SPX needs a close above the prior high at 2116, otherwise this remains just a bear market rally.   A new indicator I track ("Dumb Money Confidence") is starting to reach overly optimistic levels - and right now is about where it was during the previous lower high in November.  The next swing high might be a good short entry point, especially if we start to see oil and JNK weaken at the same time.  VIX fell -0.23 to 13.79, the first 13-handle for VIX since October of last year.

TLT fell -0.77% on the day; supposedly due to a friendly Fed governor who in a speech suggested that inflation is picking up and so an April rate rise may be on the table.  Hmm if they were worried about inflation why not signal such a thing after the FOMC meeting?  TLT remains in a downtrend, and this certainly didn't help.

JNK was mostly flat, closing down just -0.03%, not yet following through on the shooting star printed Friday.  JNK remains above its 9 EMA, but momentum is slowing somewhat.  My new code suggests a 50/50 chance at a reversal off this shooting star.

CRB was flat, closing up just +0.01%.  CRB remains above the 9 EMA, and in a medium term uptrend.

So where to for gold?  Here's the chart I like best.  It is bearish.  Gold priced in Euros has been below 9 EMA for the past two weeks, and I think a fairly large amount of buying pressure for gold in this recent rally was coming from Europe.

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8 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
candlestick probabilities

I've done a study of candlestick probabilities using as input the prices of all S&P 500 items dating back to 1985.  In the study, I asked the question, "what percentage of this sort of candle appeared at a reversal point."  So according to the first item in the table below, the two-candle pattern "thrusting" (eh, yes, that's really what it is called: http://thepatternsite.com/Thrusting.html) has a 42% of appearing at a bullish reversal point.

What's a reversal point?  Its the lowest tick in a group of 11 ticks, 5 left, and 5 right.  It doesn't speak to the size of the rebound, just that it was it the bottom tick within a relatively short time frame.

The table below just show averages - random selection, if you will.  What I've really be working on is something that refines these probabilities based on what else is happening on the price chart.  For instance, based on current context, the top 10% of "thrusting" instances have a 56% chance of a reversal, while the bottom 10% give only a 3.3% chance.

Note that Bulkowski (an online candlestick master, trader, and software engineer) comes up with different reversal percentages at his site.  That's because his criteria are different; he measures "success" if price closes above the candle group high, and "failure" if it closes below the low.

One thing that surprised me was how useless most of the single-candle doji patterns were; exceptions were dragonfly doji during a downtrend, and gravestone doji during an uptrend.

Table below is just the "downtrend" reversal chances.

Candle pct
thrusting 42
piercing 40
bull.tasuki.line 39
bull.engulfing 37
bull.harami 36
bull.belt.hold 30
takuri.line 30
gap.down.doji 27
hammer 26
homing.pigeon 23
bull.doji.star 23
inverted.hammer 21
dragonfly.doji 18
last.engulfing.bottom 17
southern.doji 16
high.wave 10
opening.black.marubozu 10
long 7
black 7
spinning.top 6
bull.strong.line 6
closing.white.marubozu 6
long.legged.doji 6
doji 5
white 5
black.marubozu 3
closing.black.marubozu 2
white.marubozu 1
opening.white.marubozu 1
gravestone.doji 0

 

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

Note that Bulkowski (an online candlestick master, trader, and software engineer) comes up with different reversal percentages at his site.

 

Someday, I hope to become a candlestick master as well!  Lol :) That site really is fascinating. I was also apparently putting a little too much stock into single day candles.  In the weekend commentary, Dave mentioned that for a gravestone doji to be valid, the wick has to be > 2x the body of the candle. Just eyeballing it, Fri's WTIC candle appeared to have met that criteria. (I would actually look if I wasn't typing on my iPhone).

Also, HughK posted some great fundamental analysis from Berman indicating lower oil prices in the months ahead. I think the caveat to that would be if the buyers showing up now have some unreported insight regarding geopolitical tensions in MENA that could potentially disrupt supply. The Oil CoT would suggest that is not the case, however, as the Commercials are positioned for a near term top. 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
candles et al

Steve-

I think you meant "shooting star" rather than "gravestone doji" for Friday's WTIC candle.

I actually did the math (knowing how often my new code has bugs); WTIC's close on Friday had an 86 cent "upper shadow" and a 50 cent body => spinning top rather than shooting star.

All this candle work is in the spirit of checking assumptions.  I realized I'd been assuming performance based on my own experience and expectations, and it really didn't align with reality.

I forget who it was who asked me the question about candle performance - I realized I didn't know the answer for certain and instead was just assuming a certain behavior, and so off I went chasing this wild goose. 

 

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
James Grant

Sorry Dave, shameless thread-jacking time. James Grant talking a lot of sense for those who missed it. Gold, market sentiment, wealth effect and CoCo Bonds. Well worth 40 minutes of everyone's time (IMO);

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
jim grant

Eh Luke I'm not sure how you could be accused of thread-jacking my daily gold commentary with a guy talking about gold.  :-)

Especially after he uttered the magic words, "I'm not willing to fob it off on manipulation or intervention...for some reason [gold] got ahead of itself...and some of us rode these mining shares down 90 percent.  That's NINE OH percent.  That's called 'not getting it right.'"  (He did talk about punching manipulators in the nose later on - but only after he admitted that HE made a mistake).

He also suggests that there is no amount of paper gold that will stand in the way when the public finally decides these crazy monetary experiments are dangerous, and then they want to buy.  He uses the recent rally as a case in point.

Jim Grant is the only goldbug I ever heard stand up and take unequivocal responsibility for getting the trend wrong for 5 years.

I have to say, it was worth 39:57 of my time just to hear that part.  My respect went up for him tremendously.  You cannot improve unless and until you first acknowledge that you made a mistake.  Blaming manipulators instead of standing up and admitting you got it wrong - those are the people I don't trust.  They don't even acknowledge that a problem exists, and so if we have another downtrend someday, they'll likely get that one wrong too, which presumably will cost anyone listening to them a bunch more money.

Choose your guru carefully!

Heh.  Sermon over.

Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Enjoy your basking Dave...

You have been right on price action.. but in the end, I predict you will be proven wrong when it comes to what underlies the price action.  

On a related note, Rob Kirby continues to promote the idea that some regulator is going to call out a bank (in this latest interview, he suggests it will be a non-US bank that gets called out) for PM manipulation;

 

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 384
No Worries
davefairtex wrote:

Jim Grant is the only goldbug I ever heard stand up and take unequivocal responsibility for getting the trend wrong for 5 years.

I have to say, it was worth 39:57 of my time just to hear that part.  My respect went up for him tremendously. 

I thought you'd like that :)

What caught my attention as well was the following (19:06 - 19:22) "Ben Bernanke never said that the stock market ought to go up, uh yes he did. He said it in so many words, he insinuated that policy actions were designed for that end and now they are stuck with it. They've had the wealth effect, and now what are they going to do?"

I think that's pretty much where we stand. And that perhaps markets will have to go it alone for a while. On the same vein though, it's no good central banks juicing the markets and then complaining about market complacency. What else did they expect?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
right on price action

JimH-

You have been right on price action.. but in the end, I predict you will be proven wrong when it comes to what underlies the price action.

Eh, I am ignoring whatever you said after the "you've been right on price action" statement...mainly because it doesn't freaking matter... :)  Right about price is the only thing that matters when trading.

Of course truth is, I haven't always been right about price action.  Maybe I'm even 50/50.  But when the market proves me wrong, I try to admit it as rapidly as possible and switch my stance - either go to cash and wait for the rest of the world to come around to my thinking, or actively go short (or long) if I think the chances are high enough.  Most importantly, I try and figure out what I got wrong.  I don't try and make up excuses that some all-powerful actor intervened and so my prediction did not work out.  Sometimes - the aggregate market just has different ideas, or events play out differently (dovish FOMC, anyone?) and that's how these things go.

Perfection is not required.  Humility (at least about this bit) in the face of market uncertainty is.  Nobody gets to impose their will on the markets.  Not the government, not the Fed, not the goldbugs, and not me and my little lines that represent support, resistance, downtrends, and whatnot.

Full points to those who went short based on the COT report - you know who you are.  As of right now, it looks like the COT report continues to function as a decent predictor of medium term market direction.

I think if anyone gets punished for their tactical manipulations of the PM market, it will be a competitor to our domestic TBTF banks.  Big surprise they get the boom lowered on them.  I mean, I really hope they all do.  But ultimately I don't think it will be a driver for price.  Not unless all 1500 tons of paper gold vanish.  Boy, that would definitely move price.

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