PM Daily Market Commentary - 5/18/2016

By davefairtex on Thu, May 19, 2016 - 1:30am

Gold fell -20.80 to 1259.50 on heavy volume, while silver lost -0.35 to 16.92 on moderate volume.  The release of FOMC minutes at 14:00 Eastern caused USD to jump sharply higher, and gold, silver, copper and oil to plunge.  The meeting notes were seen as surprisingly hawkish.

Gold actually started moving lower in Asia, but the largest share of the losses came immediately following the FOMC meeting notes release at 14:00.  As soon as the buck shot higher, gold fell off a cliff, and it never really recovered.  Gold made a new low today on heavy volume, ending its day right around 1260 support.  If the buck continues to move higher, I do not think 1260 will hold.  Gold is now back below its 9 EMA, and heading for a test of the 50 which is not far away.

The market seemed quite surprised by the hawkishness of the FOMC meeting notes.  I know I certainly was.  I thought the minutes release would be a non-event.  Of course the commercials used the rallying dollar as an opportunity to push prices lower - but when the market is surprised and the buck rallies as strongly as it did, the bids vanish and price just rolls downhill.

Silver's sell-off paralleled gold, breaking below 17 support and making a new low to 16.72.  The new low was one of those "spike" down moves that occurred towards the end of the trading day - it looks like some stops were run - but the spike was bought instantly.  That's a good sign that shows there is a bid underneath the market, but silver remains in a downtrend and if the buck continues rising (and copper continues dropping) I think prices go lower still.

Traders dumped their miner positions today, with GDX plunging -7.90% on the highest volume in months, and GDXJ looked much the same, losing -8.01% also on ridiculously high volume.  Both miner ETFs printed swing highs, and both closed at the lows of the day.

Intraday, miners were off a little bit leading up to the FOMC minutes release and were drifting sideways; immediately after the release, miners jumped off a small cliff and then it was just steady selling through end of day.  If GDX drops below the previous low at 23.29, that will be a lower low and a lower high, which is the sign of a downtrend.  My guess is, if the buck continues moving higher, that's what we'll see.  Risk of a continued decline is high right now.  It's not a guarantee of a new downtrend, but with volume this massive, traders really aren't kidding around - they wanted out today, and they didn't really care at what price.

Platinum fell -2.42%, palladium fell -2.16%, and copper fell -1.22%.  All three metals made new lows, with copper dropping briefly below 2.04.  After making a new low today, copper doesn't have any support until 2.00, and most likely that's where it is headed.  This should serve to drag silver lower too.

The USD rocketed higher, up +0.67 [+0.71%] to 95.20, blowing through the 50 MA and finally halting at the previous high of 95.23.  Some amount of today's move was probably short covering from the traders that thought the buck would not be able to surpass its 50.  A further move above the previous high will cause another round of short covering.  The Euro fell -0.82% to close at 112.20; for anyone keeping score, that's within 5 cents of Martin Armstrong's  line-in-the-sand which would (roughly) suggest that the Euro has made its high for the year.  One more nickel and we're there.

Other currency losers included JPY (-0.97%), AUD (-1.45%), CAD (-0.97%), all of which made new lows on the day.  None of the other charts look particularly good - based on that, my sense is the dollar will most likely continue higher.

WTIC fell also, losing -0.79 [-1.60%] to 48.45.  Prior to the FOMC minutes release, oil was looking strong, making a high of 49.56, but oil tanked alongside everything else once the dollar spiked higher.  Oil suffered the least of the commodities I track, and its chart looks the best; oil has yet to print a swing high, for instance.  The Petroleum Status report, which was later overshadowed by FOMC, showed a build of 1.3M barrels, an increase of gasoline demand of 5.7% vs last year, and dropping gasoline inventories, which caused an initial price dip that was rapidly bought.  My sense is oil looks relatively strong, although it might well decline somewhat if the buck continues moving higher.

SPX ended the day largely unchanged, up +0.42 to 2047.63.  SPX dropped along with everything else following the FOMC minutes release making a new low, but it recovered relatively rapidly to close just barely in the green.  Financials (XLF:+1.75%) were very happy about the prospects of higher rates, while utilities (XLU:-1.87%) and materials (-1.53%) were much less pleased.  The higher yielding equities all sold off hard.  Its a small down payment on what likely happens if and when rates actually normalize; traders will panic out of high-yielding equities and price will plummet.  VIX rose +0.38 to 15.95.

TLT had a terrible day, losing -1.42% (8 months of interest!) smashing through its 9 EMA and ending the day below the 50 too.  It looks as though TLT is entering a correction.  Nominally this would be risk on, but it feels more like what is happening to utilities - just the possibility of a quarter-point bump in rates end up causing a big sell-off.

JNK was mostly unchanged - down -0.09% - giving us no signal for today.

CRB fell just -0.25%, outperforming both energy and PM, doing well on a day when the buck rallied so strongly.  Commodities overall remain in a solid uptrend.

Well yesterday I suggested risk on for PM, with the risks being a dollar breakout and a plunge in copper.  Risks won.  We saw both a big dollar breakout and a move lower in copper, driven by the surprisingly hawkish FOMC minutes.  The near-term future for PM most likely depends on whether or not those two trends continue.  If the market believes all this hawkishness, the buck will move higher, copper will continue to fall, and most probably so will PM.  Miners are particularly at risk, since (if we look at a weekly chart) they are quite extended.

All that said - our friendly Fed governors may decide to go out on the speaking circuit and suggest they really weren't so hawkish, and that of course rates won't be rising.  There there, little market, we won't do anything that might disturb you.  They have done this before.  If that happens, the buck reverses, and so do gold and the miners, and its probably a relatively violent reversal.

Its hard to read the tea leaves when our central planners keep shaking the cup!

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