PM Daily Market Commentary - 4/27/2016

davefairtex
By davefairtex on Thu, Apr 28, 2016 - 2:56am

Gold rose +2.50 to 1247.30 on moderately heavy volume, while silver climbed +0.08 to 17.28 on moderate volume.  The FOMC announcement was a nothing-burger: prices oscillated after the announcement but ended up having only a modest effect by end of day.

Gold rallied into the FOMC announcement, the big guys ran the stops intraday both on the high side and the low side, and then price eventually sold off gently into the close.  As FOMC announcements go, it was a mild one.  Gold printed a spinning top, which gives us no clue as to direction going forward.  At least that's better than selling off, which is what I expected was likely to happen after last week's swing high.

Instead of rallying or selling off, gold seems to be chopping sideways within a trading range.  I suspect gold's next move higher will await either a new emergency, or a substantial collapse of the buck through 94 support.

Another day, another move higher out of silver.  I'm sure the commercials continue to go short, while the managed money gang buys more silver COMEX contracts.  First notice day is approaching, sometimes a time for danger for PM, and silver continues to move more heavily into overbought territory, with RSI-7 around 90.  Risk is high, but someone is out there accumulating paper silver as if there's likely to be a shortage.

Did I say shortage?  Did I say DEFAULT??  Heh.  Ok, no default.  No signs of shortage from PSLV, whose premium is in negative territory.  But "something" happened on or around April 11th that lit a fire under the (COMEX paper) silver market.  Gold/silver ratio has fallen to 72.16.  It looks to be a real deal.  Price climbing when RSI=90 is pretty convincing to me.  I'm not saying to buy now, but it definitely feels like something has changed, and that bodes well for the longer term trend.

Miners moved higher along with metals, with GDX up +1.09% on moderately light volume, while GDXJ was up +0.67% on moderate volume.  Miners continue to move higher, holding true so far to the recent pattern of a two day decline followed by a rally to new highs.  If the dollar remains relatively weak, we should probably see new highs from the miners within a few days.

Platinum rose +1.32%, palladium was up +1.05%, and copper fell -1.04%, printing a swing high.  Copper may have put in a lower high; it remains above its 200 MA for now but the commodity rally needs copper to continue moving higher.

The buck bounced around after FOMC, but settled the day down -0.18 to 94.37.  It looks like the market wanted to hear more talk of a rate rise, and when it didn't get it, traders sold the buck.

WTIC rallied once again today, up +0.67 to 45.33, a new high and the first close above 45 since early November 2015.  The Petroleum Status report showed a build of 2 million barrels, while gasoline demand is up 5.6% y/y.  Oil sold off hard following the report, but then buyers appeared causing a modest rebound, and the rebound really caught fire following the FOMC announcement.  Big money is buying bad news in oil - that's usually quite bullish.

SPX rose +3.45 to 2095.15.  Once again the energy sector (XLE: +1.90%) had a fantastic day, along with utilities (XLU: +1.45%).  The big utility move is a bit of an odd note, but interest rate sensitive items all sold off the week before FOMC, so perhaps today's rally is just a bit of dip-buying from traders who were worried the Fed might have been a bit more hawkish.   VIX fell -0.19 to 13.77.

TLT rallied strongly today, up +1.00% while printing a swing low.  Looks like more relief that the Fed wasn't hawkish.

JNK rallied +0.54%, making a new high and continuing to signal risk on.  JNK is our coal-mine canary; junk debt is the first thing to get thrown off the lifeboat when things start to get iffy in the markets.  Its probably not wise to be too bearish while JNK continues to make new highs - you are swimming against the current.

CRB rallied +0.55%, printing a new closing high and moving CRB right up against its 200 MA. 

Do we have a new direction for anything?  I think the only thing that changed are the interest-rate sensitive instruments.  For the rest, the trends currently in place remain as they were.  Gold is tracking sideways, silver, oil and junk debt are moving higher, while equities are slowly losing momentum.

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3 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
great post on market from CHS

Great post from CHS about reform, which hints at a truth about the markets.  Here's the part I liked best:

http://www.oftwominds.com/blogapr16/reform-impossible4-16.html

Elevating the market into the oracle of economic health creates a systemic risk: If the market tanks, the status quo is called into question. People start asking, is it truly a wonderful arrangement that benefits us all, or is it really just a skimming machine that funnels money and wealth from the many into the voracious maws of the few?

In my opinion, the market has always been a skimming machine that funnels money and wealth from the many into the voracious maws of the few.  Here's the intro of a book written in 1940.

Where are the Customer's Yachts? -- Fred Schwed, Jr, 1940.

Once in the dear dead days beyond recall, an out-of-town visitor was being shown the wonders of the New York financial district. When the party arrived at the Battery, one of his guides indicated some handsome ships riding at anchor. He said,

“Look, those are the bankers’ and brokers’ yachts.”

“Where are the customers’ yachts?” asked the naïve visitor.

--Ancient story

Hussman offers a methodology to keep "the customers" from repeatedly getting their pockets picked.  He uses a very long term "10 year expected returns" calculation to show if the market is expensive or cheap.  Right now: expected return for the next 10 years is about 0%.  Message to "the customers": don't freaking buy!

As a charter member of the "customer" group, you will need to stay away from the market for many years if you use this metric.  As a reward, you won't suffer the 40% drawdowns and sell at the bottom, and you will have the opportunity to buy low - right down there at the bottom when fear is at maximum.  Everyone will think you are stupid for years at a time.  You will miss out on years of ponzi and have to endure years of worry.  You will not have very much company to make yourself feel better.

Good news is, you'll only need to make a decision once every 4-6 years.

Can you do it?

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 2939
Fabulous Comment
davefairtex wrote:

As a charter member of the "customer" group, you will need to stay away from the market for many years if you use this metric.  As a reward, you won't suffer the 40% drawdowns and sell at the bottom, and you will have the opportunity to buy low - right down there at the bottom when fear is at maximum.  Everyone will think you are stupid for years at a time.  You will miss out on years of ponzi and have to endure years of worry.  You will not have very much company to make yourself feel better.

Good news is, you'll only need to make a decision once every 4-6 years.

Can you do it?

A fabulous comment, Dave. Pithy & spot on.

Luke Moffat's picture
Luke Moffat
Status: Gold Member (Offline)
Joined: Jan 25 2014
Posts: 364
Trouble in Paradise?

From Reuters;

The European Central Bank's ultra-low interest rates could worsen problems for already weak banks in Europe, German Chancellor Angela Merkel said on Wednesday, calling for a tightening of monetary policy.

Politicians beginning to distance themselves from central banking policy? I always thought it was a matter of time. Once people come to the realisation of what has occurred I expect the likes of Draghi and Kuroda to feel really lonely...

The ECB stimulus prompted a fresh wave of criticism from German politicians who fear the ultra-easy monetary policy is eroding both the savings of thrifty citizens and also bank margins, putting the banking system at risk.

I think Ms Merkel is more worried about private banks than her citizens at this hour but that time will come...

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