PM Daily Market Commentary - 5/24/2016

davefairtex
By davefairtex on Wed, May 25, 2016 - 1:47am

Gold plunged -22.00 to 1227.30 on very heavy volume, while silver dropped -0.15 to 16.25 on moderately light volume.  Gold sold off all day long, while silver's drop was restrained because of a move higher in copper.  A rising dollar certainly didn't help.

Intraday, there was no one event that caused the drop in gold - no spikes down to push prices lower.  Instead, price started slowly dropping from the open in Asia and it didn't stop until the close in NY.  Gold closed at the dead lows of the day.    Volume was very heavy, and the selling was relentless.  It did not have the feeling of a commercial-short assault - it felt more like long liquidation.  It looked to me as though someone with a large position wanted out.

On the daily chart, we see that gold sold off sharply immediately following yesterday's close below the 50.  Was this the cause?  Its hard to say.  I didn't see another trigger that might have caused the all-day gold sell off.  Gold needs to hold 1206, the previous low set back in late March, for the (technical uptrend) pattern of higher lows and higher highs to remain intact.  If this fails its not the end of the world, but it does mean that the current uptrend is at an end, and it will likely take longer to repair the damage from the correction.  Ideally, gold prints a nice reversal bar before hitting 1206 and we start moving back up again.

Silver's behavior was different from gold - it too was sold, but intraday there were several rallies, because copper decided it was going to try to break out and silver followed copper higher.  If you watch this stuff intraday, you can more easily see the tie between (say) silver and copper.  Copper spikes higher, and silver interrupts its sell-off to spike up right alongside.

On the daily chart, we see silver entering a 16.00-16.25 support zone where we might expect to see buyers appear.  The drop through the 50 MA looks somewhat alarming, but the market's response today was relatively mild.  Silver had every chance to collapse along with (and probably faster than) gold, but it did not.  If gold manages to bounce before 1206, then silver probably makes a low somewhere here above 16.  Copper is probably the determining factor.  If copper breaks through its 9 EMA, silver might be a buy right around here.  Of course if copper breaks the other way, silver probably ends up on its 200 MA.

Miners did not like the sell-off in gold, with GDX off -5.51% on heavy volume, while GDXJ fell -7.71% on extremely heavy volume.  Yesterday's drop at the close could have been the "tell".  Today miners made a new low, and closed right at the lows.  The selling was steady - similar to what happened last Wednesday after the FOMC minutes release.  It looks like another batch of traders wanted out.

On the daily chart, we see a collection of large red volume bars on the down days; that's a sign of distribution, which is bearish.  We have lower highs, and lower lows - bearish again.  Miners are clearly in a short term downtrend.  One does not buy downtrends, because one does not know how long they will last.  Hopefully we learned this over the past four years.  We need a sign of a reversal before jumping in, and this particular candle (a "closing black marubozu": 7% reversal chance) does not qualify.

We may well get a bounce in the miners tomorrow as the dip-buyers appear.  That's not the same thing as a reversal signal.  Miners bounced for two days after the sell-off Wednesday, but that just led to today's new low.

While today's drop stopped right at the 50 MA, I doubt the 50 will hold if gold does another swan dive.  That said, unless GDX drops below 19, the longer term uptrend remains in place and this remains a correction within the context of a larger uptrend.  In this context, we are waiting for a good entry point to buy.

Platinum fell -1.33% (new low, below the 50), palladium plunged -3.32%, while copper rallied +0.61%.  Copper was up much more strongly than that intraday, popping briefly above its 9 EMA, but it was unable to hold onto its gains.  It wasn't exactly a failed rally but neither did copper manage to change trend, although the close at 2.066 has started to bend the trend sideways rather than straight down.

The USD rose +0.36 to 95.59, making a new high, primarily on a big (-0.70%) drop in the Euro.  If you're a dollar bear - then you must be a Euro bull, that's the way the (fiat currency) game is played.  Are you a Euro bull?  Its hard to see how or why, at least right now.  And today, we had a decent "new home sales" number - the best since January 2008.  The better the economic news, the higher the chance for a rate rise, theoretically anyway.

WTIC rose +0.99 to 49.10, with half the rally coming at end of day on the strength of the API inventory report, which showed a very bullish-looking draw of 5.1 million barrels.   Oil continues to grind higher, apparently set to test $50 in the next day or so.  We get to see the Petroleum Status report tomorrow; if it confirms the inventory draw, we could see prices above $50.  The WTIC chart looks very strong, especially over the last week or two.

SPX rocketed higher today, up +28.02 to 2076.06.  In spite of the oil rally, today wasn't about energy, it was about tech (XLK:+1.88%) and financials (XLF:1.51%).  SPX rose somewhat overnight in the futures markets, jumped higher at the open, and then really took off after the happy news from housing which seemed to overwhelm yet another piece of bad news from manufacturing.  If you have a short term "short" position, you should have exited today on the breakout above the downtrend line.  VIX fell -1.40 to 14.42.

TLT fell -0.44%, a fairly restrained move given the big move higher in equities.  Risk on.

JNK climbed +0.60% scoring a new high and clearly signaling risk on.  No doubt the rallies today in oil, junk debt, and financial stocks are all linked.

CRB rose +0.08%, more or less unchanged.  CRB remains in a four-month uptrend.

The buck jumped higher today; I don't think that was the proximate cause of gold's decline, but it sure didn't help.  Gold sold off hard, while silver was more restrained.  Miners were hit relatively hard.  A copper rally probably explains silver's (relatively) restrained drop.

Both gold and silver are below their 50 MA lines, and are moving into "oversold" territory (RSI-7 < 30).  If gold's uptrend is to continue in a low-stress manner, they both need to bounce relatively soon.

Note: If you're reading this and are not yet a member of Peak Prosperity's Gold & Silver Group, please consider joining it now. It's where our active community of precious metals enthusiasts have focused discussions on the developments most likely to impact gold & silver. Simply go here and click the "Join Today" button.

5 Comments

HughK's picture
HughK
Status: Platinum Member (Offline)
Joined: Mar 6 2012
Posts: 764
Amazon and my friend

Davefairtex wrote:

SPX rocketed higher today, up +28.02 to 2076.06.  In spite of the oil rally, today wasn't about energy, it was about tech (XLK:+1.88%) and financials (XLF:1.51%).  SPX rose somewhat overnight in the futures markets, jumped higher at the open, and then really took off after the happy news from housing which seemed to overwhelm yet another piece of bad news from manufacturing.  If you have a short term "short" position, you should have exited today on the breakout above the downtrend line.  VIX fell -1.40 to 14.42.

Dear Dave,
 
I have this friend who has been trying to short tech since last fall.  After the downturn at the beginning of this year, he thought he'd never see Amazon at $700/share again and thought he'd missed his chance to short it.
 
But then AMZN went back up to those heights and, for the first time since he started buying PMs, he sold some physical in order to buy AMZN put options, expiring in Jan of 2017, with a strike price near the money.  He bought yesterday, on the very day you said that it was a bad time for shorting tech...
 
My friend means well, but he can really let his emotions get in the way of his trades.  His overall strategy and view on the markets is roughly in line with the ka-poom theory:  deflation and falling asset prices in the shorter 1-2 year term followed by inflation.  So, while his core savings are in PMs, he's currently putting some of his marginal savings into shorting and not accumulating more metal until the crash he's waiting for happens.
 
His current hope is that AMZN doesn't break above the 9 day moving average, as yesterday that seemed to provide some resistance at closing.  The MACD crossover also provides some hope.  But, he really needs to build a stop-loss price into his plan, even though his amygdala is opposed to this, "because stop-losses are for felines."  Any comments you'd like to send his way would be most appreciated. He's not afraid of having his beliefs challenged, or even mocked.   After all, it's only money.  :)
 
 
 
 
 
 
Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
"BTFD!!"

One does not buy downtrends, because one does not know how long they will last.  Hopefully we learned this over the past four years.  We need a sign of a reversal before jumping in,

As a recovering goldbug (Still nearly "all-in" on PM), this thinking is so logical yet so rare in the PM camp.  Actually selling miners or (God forbid!) shorting them is tantamount to treason and will surely result in expulsion from the PM camp if advocated.  I just returned from a weekend trading/investment conference and the main speaker (Jerry Robinson) opened w/ remarks along the lines of:

"I buy things that are going up.  If it stops going up, I sell.  If it's going sideways, I wait for it to start going up.  If I buy, and it starts going down, I sell.  I want to own things that are going up.  I do not want to own things that are going down."

I likely butchered that quote, but you get the gist.  So simple, yet practiced by so few (including me, until fairly recently). 

Thx, as always, for the balanced analysis!

Steve

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
Petroleum Status Report: selling the news

Ok, so this is the first hint of trouble we've had in oil for a while.  Today's petroleum status report was definitely a bullish number, an inventory draw of -4.2 million barrels.  What did the price of oil do?

After bouncing around for the traditional few minutes, oil dropped.  Its now off about 50 cents from the time the release hit about 45 minutes ago.

What does it mean when the market sells off on good news?  Well, that's bearish.  We will have to see how oil closes, but as of right now, I'm thinking its possible that oil prices may have topped out.

Edwardelinski's picture
Edwardelinski
Status: Gold Member (Offline)
Joined: Dec 23 2012
Posts: 338
Canadian banks begin layoffs

BMO just announced they will be laying off 4% of the staff citing energy concerns.

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5687
amazon

HughK-

So shorts are a tough game.  Doing some recent simulations, I noticed that the short candle patterns tend to significantly underperform the long candle patterns over the long haul, given the same relative "goodness" of the setup.

What's more, if the broader market is rallying, its going to make it difficult for your short to do well.  Yesterday's pop in SPX means you're swimming against the tide with any short trade.

AMZN right now is underperforming the broader market (AMZN:$NDX) but it is dramatically outperforming its index (AMZN:XRT).

The saying goes, "throw rocks at the wet paper bags."  Which means, don't try and short stocks that are breaking out to new highs, short the stuff that looks hurt already.  With AMZN, it has broken out to new highs; there is no overhead resistance, no selling pressure from trapped longs to help you out.

Shorts should be like jackals: hunt down the weak and helpless, not the targets with big nasty horns that show a lot of fight.  Pick off the weaker members of the herd, the stuff that's underperforming its competitors, that sort of thing.  Short the rallies back to moving averages.

And if you must short something near its all time high, by all means, if it breaks out to yet another new high, bail out!  There's no upper limit to how high it can go.  There is no resistance.  Run, don't walk.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Login or Register to post comments