PM End of Week Market Commentary - 4/15/2016

davefairtex
By davefairtex on Sat, Apr 16, 2016 - 6:14am

On Friday gold rose +6.50 to 1235.80 on light volume, while silver rose +0.07 to 16.25 on moderately heavy volume.  Both metals managed to find buyers on Friday, but silver actually broke to a new high while gold was happy just to crawl back above its 50 MA.

This week, gold fell -4.30 [-0.35%], silver climbed up +0.89 [+5.83%], GDX rose +3.54%, and GDXJ was up +7.09%, with silver, GDX, and GDXJ all making new highs.  Platinum rose +1.92%, palladium climbed +5.06% and copper rose +3.26%.  Everything did well except gold.

Last week gold broke above its downtrend line and for several days looked as though it might be attempting a breakout, but buyers were not powerful enough to push gold prices above 1260; sellers took over, gold printed a swing high, and as a result gold fell back down to its 50 MA.

At this point, the failed breakout looks like it might be a right shoulder of a head & shoulders reversal pattern.  The 50 MA seems to be providing some support, but I feel that the bounce we saw on Friday was way too feeble to provide much comfort.  One danger is a "sunday night special", where our friends at the banks hammer prices through support at the start of the Asia trading session.  They like to do this when the market is relatively weak.  I should run a correlation between spikes and commercial short concentrations.  That would be a smoking gun, wouldn't it?

After breaking above its downtrend line last week, silver followed through by rallying to new highs.  This relatively dramatic move was a surprise to anyone (me!) who had become accustomed to silver's chronic underperformance since...hmm interesting...mid-2014.  Here's what the silver chart looks like - break to new highs on very heavy volume.  Friday's candle print was a spinning top - no information from that, alas.

And here's what that big drop in the gold/silver ratio looks like:

Miners

Miners broke out to new highs this week, followed gold lower, and bounced off the 9 EMA on Friday.  Looking at the miner chart in isolation, it looks like the miners could well be a buy - a few days of selling, support at a moving average, and by all accounts it looks like they are ready to jump higher.  It looks bullish, but I do not think it will hold up if the commercials have their way with gold.

The USD

The dollar rallied +0.46 to 94.69, printing a swing low and managing to close back above its 9 EMA.  It is entirely possible the buck has put in a low here, and if so, that would encourage gold to continue moving lower.  The COT commercial shorts for the buck are at their lowest level since mid-2014, which looks bullish to me.  Commercials aren't as reliable at picking tops and bottoms in USD as they are with gold, but they do a relatively decent job of it.

US Equities/SPX

US equities rose, climbing +33.13 [+1.62%] to 2080.73, with SPX making a new high - rising above the previous high set back in December 2015.  Last Friday, it sure looked as though SPX was about to tip over, but an oil and commodity rally pushed prices sharply higher.  However even with the rally, RSI is showing a slowing of momentum.  What's more, a sentiment indicator I follow (called "dumb money confidence") has moved into excessive optimism territory.  Such things don't guarantee immediate market corrections, but they are signs that risk is increasing.  VIX fell -1.74 to 13.62 - that's confidence for you.

Once again miners and materials led, but this time industrials and discretionary followed closely behind.  It feels like a commodity-driven rally, at least for this week anyways.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 3.54% 13.43% rising rising rising rising ema9 on 2016-04-05 2016-04-15
Materials XLB 3.39% -6.13% rising rising falling rising ema9 on 2016-04-11 2016-04-15
Industrials XLI 2.45% 1.40% rising rising rising rising ema9 on 2016-04-12 2016-04-15
Cons Discretionary XLY 2.08% 5.69% rising rising rising rising ema9 on 2016-04-13 2016-04-15
Energy XLE 1.88% -22.99% rising rising falling rising ma200 on 2016-04-15 2016-04-15
Technology XLK 1.03% 7.47% rising rising rising rising ema9 on 2016-04-12 2016-04-15
Healthcare XLV 0.97% -3.87% rising rising falling rising ma200 on 2016-04-13 2016-04-15
Telecom XTL 0.43% -4.23% rising rising falling rising ema9 on 2016-04-13 2016-04-15
Financials XLF 0.41% -7.08% falling rising falling rising ema9 on 2016-04-05 2016-04-15
Utilities XLU 0.08% 14.54% rising rising rising rising ema9 on 2016-04-15 2016-04-15
REIT RWR 0.03% 2.52% rising rising rising rising ema9 on 2016-04-15 2016-04-15
Homebuilders XHB -0.06% -6.35% rising rising falling rising ema9 on 2016-03-28 2016-04-15
Cons Staples XLP -0.69% 9.83% falling rising rising rising ema9 on 2016-04-13 2016-04-15

Gold in Other Currencies

Gold prices were mixed this week; gold in XDR was more or less flat.

Rates & Commodities

Bonds (TLT) were flat this week, dropping -0.10%.  TLT staged a minor correction on the week, but managed to close back above its 9 EMA on Friday.  It remains in an uptrend.  TLT has actually stayed relatively strong, moving more or less sideways during the recent 10-week SPX rally.  If SPX actually ever does correct, my guess is that TLT will break out and probably make new highs.  As a trade, given current performance, buying TLT would seem to be a lower risk option than actually going short SPX.  You have the upside if SPX falls, and while you wait you collect the (massive) 2.1% annual interest payment.

JNK rallied +1.23%, making a new high and closing above its 200 MA for the first time since mid-2015.  JNK's rally is more or less all about oil.

The CRB (commodity index) rose +1.52%; commodities staged a nice rally this week, but unlike oil, the CRB was not able to make new highs.  CRB remains above its 9 EMA and 50 MA and in a short term uptrend.

WTIC rallied +2.09 [+5.27%] this week, managing to close above its 200 MA for the first time since mid-2014.  While the Petroleum Status report showed a disappointingly large inventory build, there were rumors that Russia and Saudi Arabia were set to agree on a "production freeze" regardless of what actions Iran took which drove prices higher.  Oil continues to be a news driven market, since the whole oil glut (I believe) is engineered by Saudi Arabia itself.  As a result, any hints that Saudi Arabia might be willing to talk about climbing down from its policy of max production causes prices to rally.

We have an OPEC meeting in Doha this weekend.  That should be good for some volatility come Sunday evening.  Which way it will go - I don't have any idea.  Charts don't give me any clues either.  I'm mostly on the sidelines for this one.

Physical Supply Indicators

* Premiums in Shanghai fell to a premium of just +1.22 vs COMEX.

* The GLD ETF tonnage on hand fell -5.35 tons, with 812.46 tons remaining.

* ETF Premium/Discount to NAV; gold closing of 1241.30 and silver 15.36.

 PHYS 10.18 -0.15% to NAV [up]
 PSLV 6.20 -0.21% to NAV [down]
 CEF 12.46 -4.60% to NAV [up]

* 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 lower for gold [2.16% for 100 oz bars in NYC], lower for silver [3.27% for 1000 oz bars in NYC].  Silver Eagle premiums fell [16.49% in NYC].

According to my math, PSLV managed to buy $100 million in silver last week.  That's 194 tons.  Once again, this is hard evidence that silver actually is available in size, much to the shock of goldbug writers everywhere.  But here's a thought: might that purchase have encouraged COMEX silver to rally this week?  I don't know.  Its a fair amount of silver, but there are 25k tons of silver produced every year, so this is less than 1% of global production.  And its only 1250 SI contracts.  Hard to imagine this action single-handedly caused this week's rally.  But who knows, maybe it did.

Futures Positioning

COT report covers trading up through April 12th.

So commercials unloaded short on the market this week, adding +28k shorts but also +4k longs.  Last time commercials were this net short was just after the top in 2012.  Managed money for their part, added 16k longs and covered 2k shorts.  Like the commercials, the last time managed money was this heavily long was back in 2012, right at the top.

In silver, the commercials added +13.6k shorts, while managed money added +9k longs and closed -4k shorts.  Managed money long position is historically high for silver - as in, never this long ever.  Last week the positioning was starting to ease a bit, but this week things are right back to their highs.

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

Gold is now below its 9 EMA.  Everything else still looks as good as it gets.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 8.61% 14.93% rising rising rising rising ema9 on 2016-04-06 2016-04-15
Junior Miners GDXJ 7.09% 32.24% rising rising rising rising ema9 on 2016-04-05 2016-04-15
Silver SI.CW 5.79% -0.25% rising rising rising rising ema9 on 2016-04-07 2016-04-15
Senior Miners GDX 3.54% 13.43% rising rising rising rising ema9 on 2016-04-05 2016-04-15
Platinum PL.CW 1.92% -14.86% rising rising falling rising ema9 on 2016-04-07 2016-04-15
Gold GC.CW -0.43% 3.15% falling rising rising rising ma50 on 2016-04-15 2016-04-15

Gold Manipulation Report

There was one after-hours gold spike on Thursday, which was an attempt to push prices lower following gold's swing high.   To me, the spike down in gold revealed a bit of weakness on the buy side.  There was a silver spike lower also, but that spike was eaten up by the bulls, which treated it like "silver on sale."

I think its relatively likely we'll see more of these in the days ahead, especially for gold, where the (COMEX) buyers are looking a bit thin on the ground right now.

Summary

Commodities raliled this week, and that helped the US equity market to move higher.  Gold weakened, while silver made new highs, as did the miners.

The gold/silver ratio fell a massive -4.71 this week to 76.03.  Maybe its all due to Eric Sprott over at PSLV!  The GDX:$GOLD ratio spiked higher again, and is very bullish.  The GDXJ:GDX ratio moved higher too.  From a ratio perspective, things are looking more and more bullish.  Money continues to pour into PM risk assets.

COT report for gold and silver now show very high (and bearish) commercial short concentrations.

Gold and silver big-bar physical shortage indicators show no signs of shortage.

We are still confronted with a semi-historic struggle between managed money and the commercials, with bets increasing on each side.  Do we believe what the miners are saying (buy!) or what the COT report is saying (sell!)?  I like it a lot better when everything lines up, the way it did at the December lows.  Gold's swing high and drop below the 9 EMA says risk is high for gold right now.  Those commercials have a vested interest in moving prices lower.  We know they engage in shenanigans when the buying pressure starts to fade; I expect more of those magical spikes next week, perhaps as early as Sunday evening.

I'm convinced that, while they can't move prices wherever they want them to be, they certainly do pounce when they spot weakness on the buy side.  Right now, gold is weak, while silver is not.

So what does my computer say about the current trends?  This week, it says: long silver, copper, miners, oil, USD, equities, and short gold.  This long silver/short gold position reflects the strong unwind of the gold/silver ratio this week.  Computer doesn't know specifically about the GSR.

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20 Comments

davefairtex's picture
davefairtex
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China's Gold Fix

Here's Martin Armstrong's take on China's new "gold fix" and what it means for gold.  Will this be the moment where virtuous physical buying FINALLY takes the pricing power away from all that dastardly futures market trading, and the dollar is instantly turned into confetti overnight?

https://www.armstrongeconomics.com/markets-by-sector/precious-metals/gold/chinas-coming-gold-fix-april-19th-2016/

Creating a yuan based gold fix is once again not about gold but about a test for floating the yuan. Sophisticated players will use this for the currency and China will monitor the trading as a test case for floating the currency. This is the small step forward. China has to float its currency or it will NEVER make it to the big leagues. Capital has to freely be able to move in and out without applying for permission to enter and leave.

I thought this was pretty interesting: its about floating the Yuan.  Not something that would have occurred to me.

Mark Cochrane's picture
Mark Cochrane
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What about pre-2012?

Dave,

With the gold COT lined up the way you show it seems to imply high risk of gold getting slammed in line with the 2012-2016 wash-rinse-repeat cycle but that has all played out in the down trend. Given what you have stressed about not being able to manufacture the trend, this leads to a few questions.

How did the COT set up look the last time the gold trend went from a down to up (bear to bull?) change (i.e. pre-2012)? Did the commercials lose one or more of these pivotal battles then? Did the COT interplay between commercials and managed money work differently during the uptrend? Has the game changed since gold broke the earlier trend, or can this still be managed to be a continuation of the down trend in a technical stick save if done at the right time with enough force?

As for your speculation

According to my math, PSLV managed to buy $100 million in silver last week.  That's 194 tons.  Once again, this is hard evidence that silver actually is available in size, much to the shock of goldbug writers everywhere.  But here's a thought: might that purchase have encouraged COMEX silver to rally this week?  I don't know.  Its a fair amount of silver, but there are 25k tons of silver produced every year, so this is less than 1% of global production.  And its only 1250 SI contracts.  Hard to imagine this action single-handedly caused this week's rally.  But who knows, maybe it did.

Wouldn't that indicate a very tight silver market if true? How much speculator interest would be needed to collapse the existing gold/silver ratio back to something more typical over the decades?

No way of really knowing how or when this will play out but interesting to consider the possibilities...

Penny551's picture
Penny551
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Pre-2012 CoTs

Hey Mark,

Here's the Gold and Silver CoT data going back 9yrs, w/ price overlaid above.  It looks like in 2011 the Commercials covered their shorts into a rising price, but that's abut it.

Mark Cochrane's picture
Mark Cochrane
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Wash cycle was much reduced

Thanks for that.

The main difference that I see is that the Wash-Rinse-Repeat cycle for Silver changed state in 2012 and only became severe and prominent after 2013. For gold the state change was in 2013. If we are truly in an uptrend state again, which looks increasingly evident, then for Silver commercials they will rarely drop below 40 and noncommercials wont go below 30 until the trend changes again. For Gold commercials they will rarely drop below 200 and noncommercials will stay above 150. Very different than the last few years.

I am not sure that tells anyone much about price but it would seem to confirm trend if the COT stays above those levels for much longer. You guys are the gurus on this stuff but my read is that a macroview shows two states, up or down trend. A numerical analysis would be needed to get the high frequency connection to weekly price changes. By eye, they do not look markedly different during either up or down trends.

Perhaps I am being naive or this is bloody obvious to everyone but I had not noticed it before seeing this.

By the way, what is going on with Open Interest in silver? It's been ramping since 2009 and heavily since 2012.

 

 

davefairtex's picture
davefairtex
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detrended commercial shorts

Here's a chart of the de-trended (position - MA(position,52)) gold commercial short position vs monthly gold.  My sense is, they got off their game during the 2010-2011 period (they covered massively at the start of 2011) and only got back on the game at the end of 2012.  Perhaps it took them by surprise.

You can see how high (relatively speaking) the current spike is.  It isn't quite historic, but its not small either.

davefairtex's picture
davefairtex
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Mr Oil Freeze has left the building

Mixed metaphors aside - it looks like the Doha OPEC meeting closed without a "production freeze", taken as an indicator by the markets that Saudi Arabia still isn't going to return to its role of swing producer for a while longer.

Oil is off about $2 in Asia as a result.

 

cmartenson's picture
cmartenson
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That's okay, Mr. 2:00 a.m. entered...
davefairtex wrote:

Mixed metaphors aside - it looks like the Doha OPEC meeting closed without a "production freeze", taken as an indicator by the markets that Saudi Arabia still isn't going to return to its role of swing producer for a while longer.

Oil is off about $2 in Asia as a result.

While oil did spike lower, the mysterious fundamental force known as 2:00 a.m. showed up and rescued everything.

The entire world's equity markets seem unable to resist this powerful force, equal to any Fed statement, and better than a blowout earnings report.

If this 2:00 a.m. phenomenon were a simple trading 'feature' it could have been competed away long ago, but it's been with us reliably since 2005 and here it still is.  

;/

Michael_Rudmin's picture
Michael_Rudmin
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if the two AM rescue is regular...

... then figure out when it'll hit, buy just before, sell just after.

davefairtex's picture
davefairtex
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hmm

While oil did spike lower, the mysterious fundamental force known as 2:00 a.m. showed up and rescued everything.

So Chris, that's a five point move.  Might you be engaging in a bit of hyperbole?

I need to study that timeframe more.  If its really that frequent and that easy, I want to buy at 2am every day too.  I'm happy to take free money.  Thats $250 per day per ES contract.

But something tells me its not that easy.  Even the blatant intraday silver fix manipulation wasn't a money maker for me.  I studied that one pretty hard.

I have yet to find a manipulation I could turn into cash.

Not through lack of trying, mind you.

cmartenson's picture
cmartenson
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Nope.
davefairtex wrote:

While oil did spike lower, the mysterious fundamental force known as 2:00 a.m. showed up and rescued everything.

So Chris, that's a five point move.  Might you be engaging in a bit of hyperbole?

I need to study that timeframe more.  If its really that frequent and that easy, I want to buy at 2am every day too.  I'm happy to take free money.  Thats $250 per day per ES contract.

But something tells me its not that easy.  Even the blatant intraday silver fix manipulation wasn't a money maker for me.  I studied that one pretty hard.

I have yet to find a manipulation I could turn into cash.

Not through lack of trying, mind you.

Nope.

Just paying attention to the patterns.  

The 2:00 a.m. moves are signals to the ""market"" that the 'correct' thing to do is stop selling immediately.  If you keep trying to sell you will be standing in front of whatever entity(ies) are there performing that regular 2:00 miracle.

So the selling just dries up. That's a rescue.

Later, if the futures still happen to be down at the open, immediate buying of the open, panic buying even, is the next move.

Wash, rinse, repeat.

You should really like the interview I just recorded with Eric Hunsader of Nanex.  As data driven and as market manipulation averse as he is, he is stumped by the 2:00 feature.  

Why?  Because you cannot explain it easily in a non-manipulated context because it really shouldn't exist.

 

 

KugsCheese's picture
KugsCheese
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Re: Nope...Mr 2:00 AM

Can anyone estimate what the gross profits would be from a HFT play running since 2005 buying at 2:00 am and selling at 6:00 am?  Or is there not enough volume and the intent is only to goose the S&P 500 open?

cmartenson's picture
cmartenson
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Yes, the profits are massive
KugsCheese wrote:

Can anyone estimate what the gross profits would be from a HFT play running since 2005 buying at 2:00 am and selling at 6:00 am?  Or is there not enough volume and the intent is only to goose the S&P 500 open?

According to Erix Husader, you can be even more precise than that...buy at at 2 and sell at 3:00 a.m.

Your profits are enormous....they account for the vast majority of ALL US stock gains since 2005:

Of the roughly 70% gains since 2005, more than half (or 45% out of 70%) came during the hour from 2-3 a.m.
 

Edwardelinski's picture
Edwardelinski
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3 cheers for Eric H!

Congrads on that interview! No doubt he will separate fact from fiction with proof.Looking forward to it.

davefairtex's picture
davefairtex
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oil

So from what I can see, the oil market is doing a lot better than it initially opened earlier following the bad news from this weekend.  XLE is in the process of printing a nice big white candle (up +1.43%, after being down hard at the open - up a full 2 points off the lows), with me here watching mostly from the sidelines.  But I wasn't going to gamble on this outcome, so here I sit.

While you believe this is all about 5 points of futures movement at 2am, to me it looks like an oil rally.  :-)

 

dryam2000's picture
dryam2000
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I recommend posting this within one of your full articles

Thank you Chris!

cmartenson wrote:

 

 

Great graph, it's one of the best I've seen.  I recommend posting this within one of your coming articles as I suspect many readers would very be interested in seeing it.  

 

davefairtex's picture
davefairtex
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Posts: 5687
massive profits...

Some quick math:

  • SPX in 2005: 1202
  • SPX today: 2080
  • Change: 878 points
  • Trading days since 2005: (2016-2005) x 251 = 2761 days
  • Points per day: 878 / 2761 = 0.31.

Its one of these manipulations like the silver fix that won't make you any money - unless it is actually occasional, you can quantify what it looks like, and then perhaps you can figure out from market context when it might appear.  And of course by "you" I mean "me."

See I would dearly, dearly love to find something like this, if its occasional.  Boy.  Talk about the holy grail...

If I do find it, I'll write a short note about it here, and then invite you to sign up for my service that notifies you in advance when such things are likely to occur...  :-)

 

Quercus bicolor's picture
Quercus bicolor
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steady trends for many/most hours over 11 years!

The amazing thing is that many of the hours, and especially 2 AM, maintain a steady trend over 11 years despite the big changes in overall trend including 2008-2009 and the flattening of the rally over the past year or two.

I think that says as much about manipulation as the net change over the period for each hour.

debu's picture
debu
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Why the Blatancy?

Why the 2 - 3 am timeframe so consistently? You would think there would be at least a slight attempt not to be so obvious about it.

KugsCheese's picture
KugsCheese
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debu wrote: Why the 2 - 3 am
debu wrote:

Why the 2 - 3 am timeframe so consistently? You would think there would be at least a slight attempt not to be so obvious about it.

We will find out more with Eric Hunsader podcast.  Would be great if he joined PP!

Adam Taggart's picture
Adam Taggart
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Posts: 3211
Hunsader podcast now live

The Hunsader podcast is now live:

http://www.peakprosperity.com/podcast/97873/eric-hunsader-financial-syst...

Fair warning, though. The market corruption he recounts will make your blood boil.

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