PM End of Week Market Commentary - 4/22/2016

davefairtex
By davefairtex on Sat, Apr 23, 2016 - 1:01am

On Friday gold fell -15.80 to 1233.70 on moderately heavy volume, while silver rose +0.03 to 17.03 on light volume.  A strong dollar rally seemed to both hurt gold and cap silver's attempt to move higher.

This week, gold fell -2.10 [-0.17%], silver climbed up +0.78 [+4.77%], GDX rose +1.76%, and GDXJ was up +3.57%, with silver, GDX, and GDXJ all making new highs.  Platinum rose +2.45%, palladium climbed +6.04% and copper rose +5.34%.  Everything did well except gold.

This week gold managed to rally above its downtrend line, thanks to silver, but ran into a wall of selling after ECB Chairman Draghi suggested that traders be patient on Thursday during his press conference.  It appears that traders do not view patience as a virtue; the buck promptly rallied, and gold printed the first half of its swing high, with the confirmation coming on Friday.  Gold ended the week by closing more conclusively below its 50 MA; it has not done this since early January.  This was not a good sign.

Silver broke out again this week, launching above its previous high at 16.37 on Tuesday.  However a rebounding dollar served to keep silver from closing much above 17 despite some very heavy buying pressure.  I suspect there is a huge amount of selling from the commercial shorts, encouraged by the rebound in the buck.  I say this because of the two days of very heavy volume (Wed and Thu) that ended up moving price just a tiny amount.  The forest of doji candles that resulted didn't form any particular pattern I recognize, but in general its a bad thing to see high volume indecision candles when an item is overbought, as silver is with RSI-7 at around 86.  On Friday the buyers look to have run out of steam; volume was quite light.  Perhaps the market is being set up for the trademarked commercial short Sunday-night surprise.

The gold/silver ratio dropped -3.58 to 72.44 this week - another huge move.  The ratio was last here back in November 2015.

Miners

Miners broke out to new highs again this week, but the momentum is starting to wane; RSI-7 shows a set of lower highs - that's a bearish divergence, which sometimes precedes a reversal.  GDX printed a swing high on Friday, also.  What's more, the down-day volume is starting to pick up, which suggests trader sentiment may be starting to turn bearish.

Nevertheless, GDX remains above its 9 EMA, so the trend remains up - and we have seen GDX ignore a swing high just last week.  But with each bearish indicator, risk increases.  While many of the miners may be in stronger hands right now, I suspect there are a fair number of momentum traders that own mining shares that will bail out wholesale if price starts to reverse in earnest.

The USD

The dollar rallied +0.32 to 95.08, after first re-testing support at 94.  It looks to me as though the buck has probably found a bottom here at 94.  The Euro appears to have made a bit of a messy top around 114 and made a new lower-low just on Friday.  Yen also collapsed Friday: -2.10% in just one day.  If the buck continues to move higher, as I think it probably will, that should be enough to move gold into a correction.

The currency markets had an interesting reaction to Draghi's "patience" talk - it seems as though traders aren't so focused on the specific rates.  That is, Euro sold off hard when Draghi indicated he wasn't going to change things.  Logically, one might have expected that to help the Euro, but it didn't.  Perhaps traders had purchased Euro bonds in anticipation of lower rates (front-running the ECB), and then had to reverse course - selling them (and leaving the Euro).  How much long-Euro unwinding will we see?  And of course there is the looming BRExit vote just two months away.  How long Euro do traders want to be in advance of this event?

US Equities/SPX

US equities rose, climbing +10.85 [+0.52%] to 2091.58 with SPX making another new high.  That said, SPX did print a swing high this week, and momentum does seem to be slowly declining, according to RSI-7.  It was a mild week for SPX, but there was quite a bit of turbulence underneath the covers.  This week's rally was led by energy equities, which rose a big +5.51%, while rate-sensitive utilities sold off hard, down -4.01%.  That's all pretty unusual - utilities typically rally when the market starts to correct.  It looks like money is rotating from sector to sector.  VIX fell -0.40 to 13.22.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Energy XLE 5.51% -18.69% rising rising falling rising ma200 on 2016-04-18 2016-04-22
Gold Miners GDX 4.73% 21.44% rising rising rising rising ema9 on 2016-04-05 2016-04-22
Healthcare XLV 2.43% -2.09% rising rising falling rising ma200 on 2016-04-13 2016-04-22
Materials XLB 1.85% -3.69% rising rising falling rising ema9 on 2016-04-11 2016-04-22
Financials XLF 0.41% -7.08% falling rising falling rising ema9 on 2016-04-05 2016-04-15
Industrials XLI 0.39% 1.54% rising rising rising rising ema9 on 2016-04-12 2016-04-22
Cons Discretionary XLY 0.16% 6.07% rising rising rising rising ema9 on 2016-04-13 2016-04-22
Homebuilders XHB -0.06% -6.35% rising rising falling rising ema9 on 2016-03-28 2016-04-15
Technology XLK -0.29% 5.80% falling rising rising rising ema9 on 2016-04-21 2016-04-22
Telecom XTL -0.42% -5.31% falling rising rising rising ema9 on 2016-04-21 2016-04-22
REIT RWR -1.91% 0.21% falling rising rising rising ema9 on 2016-04-20 2016-04-22
Cons Staples XLP -2.47% 7.48% falling rising rising rising ma50 on 2016-04-21 2016-04-22
Utilities XLU -4.01% 9.47% falling rising rising falling ma50 on 2016-04-21 2016-04-22

Gold in Other Currencies

Gold in XDR was down gently this week, off $3.  Gold rallied sharply in Yen - that's because the Yen fell vs USD by -2.71% on the week.  Ouch.

Rates & Commodities

Bonds (TLT) had a terrible week, dropping a big -2.67% and plunging below both the 9 EMA and the 50 MA.  The long bond is now clearly in a short term downtrend - the money moving into the US is not flowing into bonds.

JNK rallied +1.39% making another new high.  JNK is continuing to signal risk on.  On Thursday JNK printed a bearish engulfing candle, which suggests a top may be forming, but there was no follow-through from the pattern on Friday.  JNK remains above all 3 moving averages and remains in a clear medium term uptrend.  I don't think SPX will correct as long as this uptrend remains in place.

The CRB (commodity index) staged an impressive rally, up +3.47% on the week and making a new high.  CRB is now encountering resistance from its 200 MA; a cross of the 200 (something not seen since mid-2014) would be a significant bullish signal.  A continued commodity rally would probably drag SPX to even higher levels.

WTIC rallied +2.00 [+4.79%] this week, making a new high and closing at 43.75.  While the failure of OPEC to reach a "production freeze" agreement in Doha last weekend caused oil to open $2 lower on Monday, buyers appeared and pushed prices steadily higher all week.  When markets rally on bad news, that's a bullish signal.  Traders frustrated because the market doesn't act the way they expect it to always seem to want to blame manipulation for the surprising outcome.  I always feel that's a "dog ate my homework" excuse.  I didn't expect a rally either, but the bullish price action on Monday told me to buy the rally.

Markets often act in surprising ways.  If they didn't, then this would be very easy, and we'd all be sipping margaritas on the beach.  Markets seem to act so as to hose the largest number of people possible.

Physical Supply Indicators

* Shanghai gold fell to a discount of -0.56 vs COMEX this week.

* The GLD ETF tonnage on hand fell -7.43 tons, with 805.30 tons remaining.

* Gold is not in backwardation: difference between two front month contracts is +0.40.

* ETF Premium/Discount to NAV; gold closing of 1235 and silver 16.97.

 PHYS 10.25 +0.61% to NAV [up]
 PSLV 6.42 -1.01% to NAV [down]
 CEF 12.73 -5.50% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold, and a modest 1% premium for silver.

* HAA big bar premiums are higher for gold [2.20% for 100 oz bars in NYC], higher for silver [3.32% for 1000 oz bars in NYC].  Silver Eagle premiums climbed sharply [19.69% in NYC].

Futures Positioning

COT report covers trading up through April 19th.

Gold commercials added modestly to their short positions, up +3.8k, while selling -4.4k longs.  Managed money added +6.1k longs and also +2.8k shorts.  Not much change on the week, but positions are at very high (bearish) levels for gold and they continue to rise.

Silver commercials added a big +13.5k shorts, and this was only through Tuesday's big rally; we have yet to see what happened on Wednesday-Friday.  Managed money added +7.7k longs.  These are big changes for silver.  What does this look like?  Commercial shorts: highest short position ever.  Another new "highest ever" long position for managed money longs too.

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

Everything green & gold.  Check out junior miners: up 44% over the last 52 weeks.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 7.83% 24.49% rising rising rising rising ema9 on 2016-04-06 2016-04-22
Junior Miners GDXJ 6.59% 43.86% rising rising rising rising ema9 on 2016-04-05 2016-04-22
Silver SI.CW 4.80% 7.71% rising rising rising rising ema9 on 2016-04-07 2016-04-22
Senior Miners GDX 4.73% 21.44% rising rising rising rising ema9 on 2016-04-05 2016-04-22
Platinum PL.CW 4.03% -9.11% rising rising falling rising ema9 on 2016-04-19 2016-04-22
Gold GC.CW 1.12% 5.27% rising rising rising rising ema9 on 2016-04-19 2016-04-22

Gold Manipulation Report

There were a flurry of after-hours spikes in silver; 4 up-spikes (1 on Tuesday for $0.09, 2 on Wednesday for $0.15, and 1 on Thursday for $0.09), and 2 down-spikes (1 on Tuesday for $0.08, and 2 on Thursday for $0.16).  My sense was, these were a byproduct of a very volatile silver market - both managed money and the commercials were injecting large amounts of money on both sides, and so prices tended to move hard in both directions.

Summary

Commodities continued to rally this week, and oil surprised by moving higher even after bad news from the Doha OPEC meeting.  Oil equities jumped higher as a result, and that helped pull the US equity market to a new high.  Gold weakened, while silver made new highs, as did the miners.

As mentioned, the gold/silver ratio fell -3.58 to 72.44, and is now in somewhat more bullish territory.  The GDX:$GOLD ratio moved higher again, and remains quite bullish.  The GDXJ:GDX ratio moved up as well, looking more bullish every week.  Ratios continue to look good.

COT report for gold and silver show increasingly high (and bearish) commercial short concentrations, especially for silver.  Both sides continue to increase their wagers on the outcome, in silver to record levels.

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

The slowly strengthening buck will eventually cause problems for commodities.  Gold appears to be the coal-mine canary for this effect.  Will miners be able to cling to their bullish trend if gold sells off more intensely?  I'd say probably not, but its hard to know for sure.  We have not seen more than a two-day correction for the miners since January.

So what does my computer say about the current trends?  No change from last week: long silver, copper, miners, oil, USD, equities, and short gold.

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4 Comments

Franklopez's picture
Franklopez
Status: Member (Offline)
Joined: Feb 11 2016
Posts: 8
A new era?

Thanks once again for excellent analysis Dave. Reading this weeks post I cant help but think that there is a danger in thinking too short term here and expecting a significant sell off in PM. I too was very sceptical of this rally initially, but gradually have come to the conclusion that something is radically different compared to previous rallies. Instead of seeing weakness now I see strength, I feel PM is looking very strong and is consolidating in anticipation of its next upleg. Don't forget PM has achieved this at the same time as a huge bear market rally in SPX has been unfolding. With JNK and SPX signalling a very strong ''risk on " signal I think PM resilience has been amazing. In short, the benefit of trying to sidestep a small correction here outweighs the risk of missing out on the next upleg which will no doubt commence when aforementioned SPX etc rolls over. 

I think Adam Hamilton puts it best in explaining exactly why this rally is different and gives a nice strategic overview in his latest essay...

http://zealllc.com/2016/silnbull.htm

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5686
expect corrections

So in every bull market - even in the big silver bull market - there were corrections.  I expect them.  I can't say for sure when they will happen (boy if I could, I'd be rich) but they always seem to happen, for one reason or another.

I think we're early in this silver move.  I don't think the market is yet ready for a phase transition.  Later on, when thing get nutty, I see the possibility of a period with no corrections, but my sense is, we aren't there yet.

Thing about goldbugs - they love to say that "this time is different."  Problem is, it is only very, very seldom "different."  Mostly, its just business as usual, and they end up being wrong.

Tycer's picture
Tycer
Status: Platinum Member (Offline)
Joined: Apr 26 2009
Posts: 617
Thanks again Dave.  For all

Thanks again Dave. 

For all your posts. Always thoughtful, always thought provoking. 

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

Both metals rising on the bullish macro picture, but the COT net Commercial/Spec positions are not exactly subtle signs of short term danger (for those with short term tradable positions).

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