PM Daily Market Commentary - 5/3/2016

By davefairtex on Wed, May 4, 2016 - 12:59am

Gold fell -5.20 to 1288.20 on heavy volume, while silver dropped -0.12 to 17.46 on moderately heavy volume.  Gold took another shot at 1300 today as the dollar broke through 92.50, but then sold off when the buck rebounded.  Gold ended up printing a swing high on the day, as did silver.

To me the big news today was the dollar.  During trading in Asia, the buck smashed through 92.50 support and drove lower, hitting a low of 91.88 and most likely running the stops of all the dollar longs before finding buyers below 92.  But once that low was made, buyers pushed the buck steadily higher and by end of day, the buck was almost back to 93, closing out the day up +0.31 to 92.93 and printing a bullish harami (60%).

Across the pond the Euro rallied strongly in Asia, but then reversed as the dollar found buyers.  Euro dropped -0.29% on the day, printing a bearish-looking dark cloud cover candle pattern after hitting 115.74.  The AUD was absolutely crushed, losing a big -2.37%, printing a nasty red candle and appearing to go into free-fall.  Its cousin CAD lost -1.53% blowing through its 9 EMA.  These are some big moves and the way I read it, the currency market is more than hinting that our commodity rally might be at an end.

Here's why traders panicked out of their dollar longs in Asia: in the chart below, a trader I respect would call this "a lot of air" below 92, which means there are very few indications of potential support once the 92.50 level is breached.  That's what caused the panic.  But once the panic was past, dip buyers appeared and all the new shorts that sold the breakdown were reversed right out of their positions.

The fact that buyers appeared in such strength (and the signs of a top appeared in several other currencies) all suggests we probably have a low: today's brief move below 92 was probably just a headfake.  Market's job is to hose the most number of people, and this particular move qualifies - hosing the longs first by the terrifying breakdown, and then reversing to hose the new shorts.

Gold has had two shots now at 1300 and has failed both times.  If the dollar is putting in a low here, gold will find it tough sledding to continue moving higher.  Certainly the commercials will be encouraged to see a bid underneath the buck.  Although gold is holding up pretty well given the strong rebound in the buck, today's swing high in gold is a warning sign.  On the longer term weekly chart, you can see the 2015 gold high at 1307.80 which is proving troublesome.  If the buck has put in a low, we probably won't get a break through 1307 in this cycle.

Silver is back to underperforming gold, although there is no massive selling as of yet.  Silver printed a swing high today, and is moving slowly lower towards its 9 EMA.  Silver is in dangerous territory now; a break through that 9 EMA could lead to all those silver momentum traders bailing out en masse.  Silver will be heavily influenced by commodities, oil, and the dollar.

Miners sold off along with everything else, with GDX off -2.88% on heavy volume, while GDXJ lost -2.95% on moderately heavy volume.  Both miner ETFs printed swing highs on the day.  The heavier drop in GDX today suggests to me that if gold sells off sharply, the miners will likely sell off also.  GDX hasn't seen more than two red candles in a row since January 2016, but if gold drops tomorrow, it probably happens.  The 9 EMA remains critical support for the miners.

Platinum fell -1.23% and printed a swing high, palladium dropped -2.36% (printing its swing high yesterday), and copper plunged -2.12%.  With those moves as a backdrop, we can see that gold and silver actually performed pretty well.

WTIC fell -1.01 [-2.25%] to 43.88, closing below the 9 EMA for the first time in four weeks.  Crude printed its swing high yesterday and so today was follow-through from that.  The API report at 16:30 showed an inventory build of 1.265 million barrels; the release prompted oil to rally about 50 cents, but the move soon faded.  Hard to read these tea leaves, as the inventory build was modest.  Was this a failed rally on modest bad news?  Certainly its not bullish, but neither is it bearish - lets call it neutral.  Petroleum Status report tomorrow at 10:30 could be more decisive.  Unless we get a bullish reaction from the report tomorrow, it feels like oil prices will move lower from here.

SPX fell -18.06 to 2063.37, pulled lower by falling commodity prices.  Energy (XLE:-2.36%) and materials (XLB:-1.65%) led the market lower with utilities (XLU:-0.08%) being the strongest performer.  Falling commodity prices are causing a slow-moving correction in the broader index.  Why slow-motion?  Mainly because we are not seeing a broader breakdown in the other sectors, such as consumer goods and industrials.  VIX rose +0.92 to 15.60.

TLT caught a bid, rising +1.26%, wiping out yesterday's losses and then some, and managing to close back above its 50 MA.  Risk off.

JNK fell a big -0.77% printing a swing high and closing below its 9 EMA.  This is the first hint of trouble from junk debt in five weeks.  Risk off.

CRB fell -1.47%, following through off yesterday's swing high and driving below its 200 MA and 9 EMA all in the same day.  We may have that top in commodities.

Gold's failure to clear 1307 yesterday in Asia when the buck had fallen through 92 was a tell, I believe.  It feels a bit like gold has run into selling by the commercials at the same time the buyers are beginning to fade, and although the actual selling by the longs has yet to become general, I don't think there are enough buyers to push price through 1307 unless we were to see a serious near-term dollar collapse.

Even though miners have been quite strong, I believe them to be the most at risk if a more significant decline in gold prices appears.  GDX has literally been a twobagger since the January 2016 lows, and a correction would not surprise me at all.

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

From econoday; this forecasts a weak Nonfarm Payrolls report - due out on Friday at 08:30 Eastern.  Gold, silver, and the long bond all jumped at the time of this report's release.

Released On 5/4/2016 8:15:00 AM For Apr, 2016
  Prior Revised Consensus Consensus Range Actual
ADP employment 194,000  193,000  165,000  to 210,000  156,000 

Consumer spending and economic growth are slowing and now the labor market, at least based on ADP's estimate, is softening. ADP sees private payrolls rising only 156,000 in April for what would be one of the weakest prints of the economic cycle and the lowest since 142,000 in February 2014. ADP, whose reputation as a leading indicator isn't perfect, has nevertheless been on a 4-month hot streak and today's report is certain to raise talk of trouble for Friday's employment report.

KugsCheese's picture
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
Life of Illusion

Panicked helicopter money coming?

davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
Petroleum Status: build +2.8M barrels

Oil sold off after receiving this news.  Oil market sells off on somewhat bad news: normal reaction, although the selling was fairly brisk, off more than a buck from the highs.  Conclusion: new oil downtrend likely remains in place.  This also seems to be dragging down SPX - probably because XLE is down almost 2%.

Lots of red in the commodity/equity space today.

Miners aren't happy either: GDX is off more than 4%, and at this time is clearly through its 9 EMA.


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