PM Daily Market Commentary - 4/19/2016

By davefairtex on Wed, Apr 20, 2016 - 3:00am

Gold rose +17.80 [+1.44%] to 1251.80 on heavy volume, while silver screamed up +0.73 [+4.47%] to 16.95 on the highest volume in months.  Silver started its launch a bit after 02:00 Eastern, rallying 50 cents in 60 minutes, for no reason that I could fathom.  Gold mostly followed along, but it could just not compete.  Once silver decides it wants to move, it usually moves in a big hurry - in both directions.  Part of the motivating force could have been a large drop in the buck, which ended up closing below 94.

While gold did rally nicely off its 50 MA, it was unable to move above the downtrend line which today was located around 1260.  Until it can do this convincingly, the basic direction for gold remains unchanged: down.  Volume was decent today but nothing earth-shattering.  My sense is that the shorts appeared at the downtrend line and were more or less able to keep gold from breaking through.  The problem: just not enough buyers at COMEX.

Silver smashed through a previous high dating back to October 2015 which had acted as resistance for the past few days.  Once price moved above 16.37, the few remaining silver shorts were blown out of the market as COMEX buyers pushed prices higher and higher.  Volume was the highest in more than a year.

Will silver continue this crazy behavior or does this mark the top?  It really depends on why it happened.  Since I don't see any particular reason for this breakout (although copper did stage a nice rally today too - maybe that was one cause), and since this was a strong move above a previous high, my guess is this may have been more about big money running stops.  We will find out from the COT report on Friday what really happened.  The short covering moves don't last too long, but if this is about managed money deciding to pile in long, that's more bullish.

The gold/silver ratio dropped -2.20 to 73.83, the lowest level for the ratio since November 2015.

Miners broke out to new highs today, with GDX up +4.87% on moderately heavy volume, while GDXJ jumped +7.49% on very heavy volume.  Almost all of the GDX price move today happened at the open; once price opened higher, the balance of buyers and sellers looked fairly even, with GDX able to rise only slightly during the day.  This doesn't feel like a convincing breakout to me.  That is not true of GDXJ, which definitely moved higher during the day, closed near the highs, and printed a very high volume bar.  Part of the reason for this divergence is that GDXJ contains a number of silver miners - and the thinly traded silver ETF "SIL" was up +9.24%.

So where to for the miners?  GDX may be getting a bit tired.  Its odd to say that after an almost 5% move, and buyers could definitely appear tomorrow, but - look at the chart.  Traders don't look particularly excited to buy this breakout.  At least not yet anyway.  Perhaps if gold can close convincingly above the downtrend line this will change.

Platinum climbed +3.62% and broke to new highs, palladium was up +3.20%, and copper was up a big +2.84%.  Copper's big move started at the US market open; perhaps it was an artifact of silver's move, I can't say for sure.  Copper's rally stopped at its 200 MA, but after today it is looking substantially more bullish.  A convincing close above that 200 would be quite positive.

The USD fell -0.51, dropping to 93.95.  The buck has dropped three days in a row, and the decline is starting to accelerate.  If buyers don't appear for the buck here around 94, then the next support we have is at 92.50.  If the buck falls that far, PM almost certainly moves to new highs.  Commodity currencies were particularly blessed today, CAD +0.89%, AUD +0.81%, but the majors were mixed: JPY -0.40% and EUR +0.43%.  An observation: Yen fell and gold rose.  Is that supposed to happen?  "If you want to see what gold will do, watch the Yen."  Except when that's not true.  Sometimes they correlate, sometimes they don't.

WTIC followed on from its unexpectedly bullish performance yesterday, rising +0.95 [+2.29%] to 42.42.  Crude is convincingly above its 200 MA once again, but has yet to make new highs.  The API report at 16:30 today showed a build of 3.1 million barrels, which was unexpectedly high but the surprise did not lead to a sell-off in crude after hours, as it sometimes does.  The market is probably waiting for the Petroleum Status report, but my sense is, if the market can rally after a failed price freeze in Doha, we will see at least some kind of new high, more likely than not.  At least that's what I'm betting anyway.  Oil equities did well, with services leading the way; my favorite NE was up +11.27%, but its friend RIG did almost as well (+9.54%), and lottery ticket SDRL was up almost 25% at one point.  It feels like lots of short covering going on there - major drilling companies are moving like undercapitalized junior miners.

SPX moved higher today, up +6.46 [+0.31%] to 2100.80, setting a new high for this cycle.  This mild move concealed a strongly bifurcated market; materials (+2.14%) and energy (+2.00%) rose strongly, while tech (-0.56%) and cyclicals (-0.55%) fell.  SPX right now is still mostly about a commodity price recovery.  VIX fell -0.11 to 13.24.

TLT dropped again today, down -0.31% and dropping below its 9 EMA.  It remains solidly above its 50 MA, and is now more or less drifting sideways.

JNK popped again today, up +0.55%, making a new high.  JNK is continuing higher after executing a cup & handle breakout just last week.  Money continues to flow back into junk bonds as oil and commodity prices continue to recover.  As long as that JNK chart looks strong, its a risk on signal.

CRB rose a huge +2.19% and is closing on the high set back in March.  Part of that is copper, another part oil - and together those two things are helping to drive the energy & materials sectors higher.  Big miner FCX was up +8.98% today, as an example.  To me this feels like it is at least partly the "commodity dividend" from China dumping a huge amount of new debt into their economy.  That dump probably won't end well for the Chinese people, but the impact is moving price today.

After all the fuss in the metals today, gold remains below its downtrend line.  That says, gold is still in a downtrend.  Sellers (those commercial shorts, bearing the Mark of Satan) appear to be using the downtrend as an entry point.  That is emphatically not true for silver, where I have to pull back to the weekly chart to see the prior high at 17.77.  Perhaps for gold, this remains about the dollar: if the buck keeps moving lower, then gold probably breaks out.  If the buck finds buyers here at 94, then probably not.  Senior miners probably follow gold, although they will probably move a lot more enthusiastically.

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Jim H's picture
Jim H
Status: Diamond Member (Offline)
Joined: Jun 8 2009
Posts: 2391
Silver miner EXK

going crazy today... just an FYI.  AG went crazy yesterday.  Pure play Silver miners are a pretty small market.  

mikeg's picture
Status: Member (Offline)
Joined: Aug 30 2009
Posts: 11

Thanks for your posts Dave... one of the best around IMHO.

Still can't see how the banks let silver get away from them with all those shorts (and the record open interest).

I'm long the miners, but have a smaller (liquid) short position in a silver trade...


davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681


Thanks mikeg!

Silver move surprised me too, but in some sense, the large banker (COT) short position just shows history.  It represents shorts that have already hit the market; they only get to affect price once, so on their own these existing commercial shorts do not have some sort of vague malign influence on price going forward.  It is only new shorts that will stop prices from moving higher.

To me, big short position in the COT represents "bankers calling the top", and historically, they seem to be pretty good at it.  Sometimes they get it wrong, however, and now might just be one of those times.

I also think the bankers actively try to start the avalanche rolling downhill by overnight spikes once they are heavily short, but if the bid from the rest of the players is too strong, the avalanche-rolling strategy simply doesn't work; all it does is provide a nice discount for the other players.  Notice we haven't seen any spikes recently.  The last few got bought, which is even more money lost for the banker attempting to move price lower and having that attempt get stuffed.

Bankers aren't all powerful, and they certainly aren't larger than the total market.  Yesterday's rally showed that quite clearly.  All their existing short positions are now deeply in the red.  If they really did control the market, they never would have let that happen.

Contrast that with gold, where its pretty clear their ongoing efforts to enter short at the downtrend line have been pretty effective.  I believe they have been successful only because the gold buyers are just not that enthusiastic.

If you are long miners and short silver, I'm betting you are making a lot more on the miners than you lose on your short position.  However, if the miners correct, I suspect your short silver position won't cover the losses.

Hmm just now gold is finally selling off after a 0.50 move in the buck.  And gold peaked right on the downtrend line.    Gold down $10 now.  Silver still looks to be hanging tough.

If that buck keeps rallying, gold is probably in trouble.

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