PM Daily Market Commentary - 3/29/2016

davefairtex
By davefairtex on Wed, Mar 30, 2016 - 1:44am

Gold rose +20.70 to 1242.50 on moderately heavy volume, while silver rose +0.11 to 15.36 on moderate volume.  Gold staged a modest rally after 9am Eastern, but it really took off after Chair Yellen gave a speech at 12:20 Eastern where she said that "caution in raising rates is especially warranted" and that the Fed was not out of ammo and that they had "considerable scope" for additional stimulus if needed.

Bang, that's all it took, gold popped $12 immediately, the buck sank like a stone, equities took off too.

Traders that bought the dip after yesterday's spike lower are looking like geniuses today; gold printed a picture-perfect swing low (albeit on low volume), and gold is now back above its 9 EMA.  Is this as low as we go for gold's correction?  Well, those commercials are probably still dreadfully short.  I think it depends on the buck.  If the dollar falls out of bed here, gold could well break out - but gold in Euros has yet to break above its 9 EMA - it still looks bearish.  Plus, even gold in USD has yet to break back above its downtrend line.  It looks promising, but the jury is still out, as the trend remains down.

Silver is back to underperforming gold; it made a new low at 15.06, found support on its 50 MA, and rallied alongside gold after Yellen's speech, albeit more weakly than gold.  Because of the new low silver has yet to print a swing low, and its +0.72% rise on the day significantly underperformed gold's +1.69% move.

Miners had a great day; they rallied alongside gold after the start of Yellen's speech, with GDX ending the day up +5.77% on very heavy volume, while GDXJ popped +6.28% on even heavier volume.  GDX printed a swing low, it is back above the 9 EMA, and the huge volume is likely a combination of short covering plus miner dip-buyers showing up in force.  Both miner ETFs closed quite near their highs for the day.  Miners have ended their downtrend, but it will require breaking to new highs to resume the uptrend.  If gold cooperates, that outcome is entirely possible.  I would not be short the miners here after today's excitement.

Platinum rose +2.59%, palladium was up +1.55%, but copper fell -1.38%, the only sour note so far.  To me, the drop in copper suggests that silver will probably struggle if this rally continues, since this is all about economic weakness leading to a potential rate drop and perhaps even negative rates by the Fed.

The dollar fell hard, losing -0.79 to 95.15, printing a dramatic swing high and apparently headed back for a re-test of support.  Most of last week's "hawkish Fed Governor talk" dollar rally has now been retraced.  One wonders, what changed over the past week to cause Yellen to make this speech.  Was it the numbers pushing the Q1 GDP Now indicator down to 0.6%?  Do they have advance information about the Nonfarm Payrolls report coming this Friday?  (Likely they do - they are the Fed after all).  Why on earth would Chair Yellen be talking about having "considerable scope" for stimulus if there weren't trouble brewing ahead?

From what I can see, gold is now reacting quite strongly to any hints of dovishness by the Fed.  My guess is that any bearish economic news will most likely be bullish for gold, and my sense is that the US probably has more bearish economic news ahead.  Yellen probably wouldn't be talking about "scope for stimulus" for no reason.

WTIC fell -0.81 [-2.06%], making a new low to 37.91.  While it too rallied briefly on Yellen's speech and the dollar drop, the rally did not last long.  The API inventory report that came out at 16:30 showed a build of 2.6 million barrels, lower than expected, and that managed to pull oil up 30 cents just before the close.  The WTIC chart remains weak; 9 EMA is now resistance, and momentum seems to be lower.  While oil equities (XLE) rallied +0.47%, they too remain below their 9 EMA, which is an ongoing sign of weakness.  Petroleum Status Report tomorrow at 10:30 Eastern.

SPX shot higher along with gold at the time of Yellen's speech, jumping +17.96 to 2055.01.  The sector map shows technology, utilities, and healthcare leading, with financials bringing up the rear, barely in the green.   Market is saying a rate rise is probably off the table at this point; that's bad for banks, good for anything that has a yield.  VIX was smashed, dropping -1.42 to 13.82.  The bearish MACD crossover for SPX has now been reversed.  When will bad economic news become bad news for SPX? 

TLT had a great day, rallying +1.05%, making a new high.  While normally this would be a sign of risk off, I take this particular rally to mean that traders find the yield on the long bond is more appealing as the prospect of a rate rise fades.  Besides, bonds always like bad news, and "no rate rise" definitely hints at bad news in the offing.

JNK rallied today, up +0.29%, printing a "thrusting" candle pattern; code says that's a 54% reversal chance based on context.  JNK remains below its 9 EMA; it will be interesting to see if it can overcome oil weakness.  I'm not so sure.

CRB fell -0.64%, making a new low and generally behaving badly even though the buck was down heavily on the day.  CRB remains below its 9 EMA, and remains in a short term downternd.

It feels like something is afoot.  My sense is, Yellen wouldn't be reversing course so soon after those hawkish Fed governors were talking about an April rate increase still being a possibility unless some bad news were about to appear.   That's tea-leaf reading, plain and simple, but it would seem that prices confirm.  If the dollar continues lower, and we get a bad payrolls number on Friday, we might well see new highs for gold and especially the miners in spite of the COT report and the attempts by the commercials to push prices lower.

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1 Comment

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Online)
Joined: Jan 25 2014
Posts: 377
Grant Williams and Nathan Egger on Macro Voices

I thought this video gave an excellent summary of what is going on in the world of oil, equities and central banking actions in plain-speak;

The interview is split into two parts. Grant goes first and then Nathan goes second. It's all worth listening to in my opinion (recorded on the day of Draghi's ECB bazooka). If you can't spare the full hour I recommend listening to the last 12 minutes of Nathan's segment (from the 56:00 mark).

Cheers,

Luke

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