PM End of Week Market Commentary - 3/25/2016

davefairtex
By davefairtex on Sat, Mar 26, 2016 - 6:01am

Friday was a holiday in the west, so the markets were closed.  On Thursday, gold fell -3.40 on moderate volume while silver dropped -0.05 to 15.20 on moderate volume as well.  It was a relatively quiet day for the metals; after a strong sell-off, dip-buyers appeared to some degree in oil, copper, and SPX; less so in gold and silver.

In this the holiday-shortened week, gold fell -39.30 [-3.13%], silver dropped -0.62 [-3.95%], GDX lost -5.58% and GDXJ was down -5.04%.  Platinum [-2.55%] Palladium [-2.60%] and copper [-2.10%] all fell also.

After the one bullish burst on the day of the FOMC announcement last week, gold has moved steadily lower.  RIght now it is clearly in a short term downtrend.  Gold is entering a rough support zone from 1200-1210 which also intersects with the rising 50 MA.  It is likely some buyers will appear there; whether they will be numerous enough to keep gold from moving lower is the key question.  If this is going to be a normal cyclical decline for gold after a long rally, the answer is most likely no, but given the change in the long term trend for gold, it is possible there are enough dip-buyers waiting in the wings that will jump in around the 1200 level.  We will just have to see when traders come back on Monday.

We did see some buyers appear intraday on Thursday after gold was pounded lower by the shorts; they weren't numerous enough to give gold a green close, but given the relatively light trading pre-holiday, it was still at least somewhat encouraging.

After making a new high last week, silver printed a swing high this week on a dramatic drop Wednesday.  There is some support for silver at the 15.20 level - which is where silver closed this week - and assuming that support level fails, there is also strong support down at the 14.60 level.

I think buyers for silver only show up if the commodity uptrend continues.

Miners

Miners printed a swing high this week on Wednesday's big move down in gold, but the rally on Thursday in GDX resulted in a "bullish harami" candle pattern - which my new code gives a 42% chance of marking a short term low.  GDX is now below its 9 EMA and has printed a swing high, but has yet to break below support.  If gold can find buyers and keep from declining much further, the miners might well bounce right back up again.  I'd say the odds are against that (that 42% number suggests this too), but they are doing pretty well all things considered.  You can see that they managed to find buyers on Thursday while everything else in PM declined.

The USD

The buck rose +1.05 [+1.11%] to 96.17, almost completely reversing the losses from last week's FOMC announcement.  USD printed a swing low, and is now back above its 9 EMA.  While I found no signs of the dollar moves affecting prices intraday, it does not surprise me that gold and silver's correction arrived at the same time the buck printed a swing low and rallied for five days straight.  I had also heard that several Fed governors went on the lecture circuit and said how the market misunderstood what Yellen was saying and that there was definitely a chance of a rate increase in April.  What do I believe?  GDP Now has floated down to a 1.4% growth rate prediction for Q1, from a high of 2.6 just six weeks ago.  At the same time, Fed-measured inflation is starting to pick up.  What will the Fed do when faced with stag-flation in their own data?  You got me.  But if the buck keeps rising, gold will probably continue lower, all else being equal.

US Equities/SPX

US equities fell this week, dropping -13.64 [-0.67%], taking a rest after five straight weeks of rally.  SPX printed a swing high, but remains above its 9 EMA - a rally on Thursday pulled prices back almost to even after a brisk pre-market sell-off in the futures markets overnight.  Thursday's candle print looks like a bullish reversal "hammer" candle, but my new code informs me that the candle wasn't long enough to qualify - in actuality it is a much more neutral "spinning top."  VIX rose +0.72 to 14.74 on the week.

SPX could be starting a correction here, and the swing high at these levels would be a reasonable short entry point.  At the moment the market seems in no hurry to move lower, but I suspect if commodities continue to correct, the move lower will pick up steam.

Gold in Other Currencies

Gold fell this week in every currency; in XDR it fell -33.70.

Rates & Commodities

Bonds (TLT) climbed again this week, up +0.37% after finding support on the 50 MA.  Perhaps it was the flow of money returning to the US after last week's FOMC meeting, and maybe also TLT is sniffing out a top in equities.  Either way, its a soft "risk off" signal.

JNK fell a brisk -1.13%, printing a swing high, dropping below its 9 EMA, and leaving little doubt that it is now entering a correction phase after a strong six weeks of rallying.  If JNK is a leading indicator for SPX, it is leading lower.  JNK is more strongly signaling risk off.

The CRB (commodity index) fell -2.36% on the week, a sharp move that took CRB below its 9 EMA and also printed a swing high.  CRB also appears to be entering a correction.

WTIC fell this week along with commodities, dropping -1.54 [-3.74%] after testing the 200 MA last week and failing.  WTIC printed a swing high, and ended the week just below its 9 EMA.  On Thursday, after a nice intraday rebound, WTIC printed a bullish reversal candle called a "takuri line" (like a hammer, but with a longer lower shadow) but my code gives it only a 25% chance of a successful near-term reversal under these circumstances.  Also important was a large inventory build at Cushing reported on Wednesday, 9.4 million barrels, to which the market reacted by selling off.  This is unlike what happened in previous weeks - this time, the market did not shrug off bad inventory news.  That change in behavior I take to be bearish.

On the Crude COT report, managed money has reduced their short position to levels last reached during last summer's $60 peak for oil, which is bearish for oil.  Commercial shorts aren't quite as short as they were back then, so the signal for a COT-suggested top for crude is only partially in place.

Physical Supply Indicators

* Premiums in Shanghai rose to +7.22 vs COMEX; perhaps that was an artifact of Friday trading in Shanghai while COMEX (and the western gold markets) were on holiday.

* The GLD ETF tonnage on hand rose +4.76 tons, with 823.74 tons remaining.

* ETF Premium/Discount to NAV; gold closing of 1217.20 and silver 15.17.

 PHYS 10.35 -0.34% to NAV [down]
 PSLV 6.11 +4.98% to NAV [up]
 CEF 11.80 -7.50% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold but a 1% or higher premium for silver in most locations.

* HAA big bar premiums are slightly higher for gold [2.22% for 100 oz bars in NYC], lower for silver [3.27% for 1000 oz bars in NYC].  Silver Eagle premiums rose slightly [17.57% in NYC].

Futures Positioning

COT report covers trading up through March 22nd - this includes the FOMC announcement day, but not the large sell-off that happened Wednesday.

During the coverage period, commercials increased their net short position, adding +22.9k shorts but also +8.5k longs.  This brings the commercials to the highest short position I've seen them have in the past few years.  That's bearish!  Managed Money loaded up on longs, adding +15.3k longs, most likely during the FOMC rally day.  Shorts were unchanged.  This suggests that FOMC rally was entirely about managed money piling in long rather than any sort of short-covering.  Managed money has the highest long level in the past few years also.  Again, these are the guys that are usually wrong at the highs.

In silver, the commercials also went more heavily short, adding +8.5k shorts but also +1.3k longs - moving the commercial net position to the highest short position they have been in years, just as with gold.  Managed money increased longs by +5.4k contracts, and also added +1.5k shorts.  This moved managed money's net to the highest net in years also.

For both gold and silver, one of these two positions will end up being wrong.  Usually, its not the commercials.  We have already seen a brisk correction, but the COT report suggests that there may be a lot more downside ahead.  Takeaway: COT got even more bearish this week.  Net positions have moved to extremes.

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

Price dropped below the 9 EMA for all components this week.  This is usually the first sign of a downtrend beginning to form.  Interestingly enough, we had golden crosses added this week for silver and the silver miners.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Platinum PL.CW -2.55% -17.24% falling rising falling rising ma200 on 2016-03-24 2016-03-25
Gold GC.CW -3.05% 1.68% falling rising rising rising ema9 on 2016-03-21 2016-03-25
Silver SI.CW -3.98% -10.62% falling rising falling rising ema9 on 2016-03-23 2016-03-25
Silver Miners SIL -4.61% -2.81% falling rising falling rising ema9 on 2016-03-23 2016-03-25
Junior Miners GDXJ -5.04% 10.74% falling rising rising rising ema9 on 2016-03-23 2016-03-25
Senior Miners GDX -5.58% 0.52% falling rising rising rising ema9 on 2016-03-23 2016-03-25

Gold Manipulation Report

We had one "after hours" spike in silver on Thursday - price spiked down to 15.10 marking the low for the day - but the dip was completely bought within several hours.  Although silver ended up closing down, the spike did not seem to lead to the decline.  I'm calling this one "not meaningful."  Same thing happened to gold, except the $4 price drop was not large enough to register - gold also rallied back into the green, so this spike I also believe was "not meaningful."

I think we may see more of these in the coming weeks, as the commercials try to move price lower.  Whether they can or not may depend on what happens with commodities overall.

Summary

A large number of commodity-related items have given off signals that they are in the process of reversing trend.  While it is possible that price will turn back up, recrossing the 9 EMA for all these items and invalidating all those swing highs, the odds are against this happening.

The gold/silver ratio started climbing this week, up +0.68 to 80.05 after silver's big correction Wednesday.  The GDX:$GOLD ratio fell this week, after rising for 7 of 8 weeks previously.  The GDXJ:GDX ratio moved slightly higher, and remains near-term bullish.  Senior miners may have topped out here, although they remain the strongest PM element.

COT report shows both commercials and managed money have both increased their respective positions, pushing the net position for each participant to multi-year (and bearish) extremes.

Gold and silver big-bar physical shortage indicators are mixed; in the west, ETF premiums were neutral except for PSLV, which has almost a 5% premium on it right now.  GLD tonnage rose somewhat.  Big bar premiums for gold and silver at HAA were at average levels, with only minor changes.  Shanghai has moved relatively strongly into premium.

Odds say we go lower from here.  Gold and silver showed at least a reasonable bid on Thursday in the face of the after-hours spike assault, and miners had that bullish harami - those are both positive, but that COT position has become even more overwhelmingly bearish, and there are all those 9 EMA crossings in almost everything.  If we imagine that Managed Money might win this struggle over market direction, it will be one of only a few times in history that this has has happened.

Simply put, swing highs and 9 EMA crossings have happened across the board - not just in gold and silver, but in copper, oil, the CRB overall, as well as in junk debt.  For now, the the orchestra is all playing from the same sheet of music; momentum is to the downside, and risk is increasing.

So what does my computer say?  Last week it was wrong about everything.  Oops.  Computer isn't Nostradamos reborn; it doesn't predict trend, it just tells you what the current trend is, and it tries to change rapidly as it sees the trend change.  This week, it says: short gold, silver, copper, crude, miners, equities, and long USD.

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2 Comments

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

 

I thought it was it was quite interesting how rapidly the Commercials went form heavily net long to net short on the S&P CoT.  Below is a c&p from

Clive Maund:

 

 

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
clive maund & e-mini COT

Interesting guy.  He gets quite the shower of arrows from the goldbug camp.  Its likely because of his horrible attitude.  :-)

Ok after a false start, here's the magic combo he is talking about.  Initially I was looking at the E-MINI COT which wasn't useful.  Here's the SP COT, "longs - shorts -> net" for both the commercials and the "non-reportables" (also called small specs).  The SP commercials aren't quite as good as they are in gold, but they do seem at least halfway decent at the major highs and lows.

As you say, its an interesting (recent) change.  They are not quite to the level they were at the last high, but close.  Might be another week or two, based on this.

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