PM Daily Market Commentary - 5/25/2016

By davefairtex on Thu, May 26, 2016 - 2:39am

Gold fell -2.90 to 1224.30 on heavy volume, while silver rose +0.09 to 16.34 on moderately light volume.  Gold sold off in Asia and London until right before the US market opened, making a new low at 1217.70, then rebounding back and recovering most of its losses by end of day.  Silver just moved steadily higher, aided by a rally in copper.  A weaker dollar probably helped too.

Gold's candle print today was a spinning top - not a reversal bar, even though it looks to the hopeful eye like it might be a hammer or something like it.  Candle isn't long enough, shadows not long enough, etc.  Still, gold did bounce, and the volume was decent, and if gold can rally even a little bit tomorrow and hold onto its gain, gold will mark a swing low which is just this side of acceptable.  Gold is currently somewhat oversold, with the RSI-7 at 21.97.  Certainly its a reasonable time for a bounce.

Silver managed to actually rally, which is modest good news, but it too was unable to print any sort of reversal bar.  The small white candle on relatively light volume doesn't give much away.  Silver did not manage to move back above its 50 MA, but it did seem to have buyers, probably because of copper's big rally as much as the support level at 16.25.  Sometimes its not just one thing - it is several of them at once.

Miners managed a fairly strong showing today, with GDX up +2.49% on moderately heavy volume and GDXJ up +3.75% on heavy volume.  Once again, miners spent only 90 minutes in the red before rallying for the remainder of the day.  There was no unpleasant sell-off at end of day, which is a positive sign.  Candle print today was "piercing", which in this context is around a 35-40% reversal chance - decent odds - but the volume wasn't as high as I'd have liked to have seen.  I want to see big money come back, not just the goldbugs who feel they missed out on the last rally.  (Is that anyone you know?)

Platinum fell -0.58% (another new low), palladium was flat at +0.11%, while copper rallied +1.72% back up to 2.102.  Copper printed a swing low, and closed above its 9 EMA for the first time in four weeks.  My feeling is that this was a positive influence on silver.  Does this mark the low for copper?  It might.  It was oversold and hopefully we will see copper move higher.  I suppose it depends on China.

The buck fell -0.24 to 95.34, selling off steadily for most of the day, erasing most of the gains from yesterday's rally.

WTIC rose +0.64 to 49.74, making a new high and moving ever closer to round number 50.  While the petroleum status report showed a -4.1 million barrel inventory draw, oil sold off almost immediately following the release, appearing for a time to provide us a bearish "sell the news" event.  That sell-off didn't last long, and by end of day oil was back to making new highs.  Bulls remain in control.

SPX continued moving higher, up +14.48 to 2090.54.  Today it was back to energy (XLE:+1.58%) and materials (XLB:+1.23%) pulling prices higher, with utilities (XLU:-0.29%) weakest.  Even so, it wasn't just about commodities; financials also did fairly well.  VIX fell -0.52 to 13.90.

TLT fell -0.38%, dropping below its 50 MA, and signaling risk on.  TLT may be starting a correction.

JNK climbed +0.23%, making another new high and signaling risk on too.

CRB rose +1.07%; commodities remain in a strengthening uptrend.

Are miners the tell?  I think we need the buck to top out for the miner rally to continue.  If copper continues to move higher, that's helpful also.  If we get a drop in the buck, a rise in copper, then silver should rally, and perhaps that will drag gold higher also.  Today could mark the low, but I suspect only if everything cooperates.

A wildcard: those commercials are heavily short both gold and silver.  They need to cover at some point.  How much are they covering now?  If their short covering is substantial, it could provide some unexpected support for prices at these levels.  In fact, they could by themselves mark the low.

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740
fun results

So I have some fun results from some new code I've been working on.  Goal of the code is to predict 2 things for individual equities: bounce chance (% chance this is the low for the next 20 day period), as well as the expected maximum ROI within the next 20 days assuming the bounce happens.

Looking at 500 items today + the two dozen miners I watch, the highest ROI readings I get are from three mining companies, two of which are in GDXJ:

  • HL 54.7% chance bounce for a 20.1% max ROI
  • MUX 55.5% chance bounce for 20.4% max ROI
  • AUY 54.5% chance bounce for 20.4% max ROI

These 3 miners have (more or less) the top ROI score the code can give for this pattern.  Even though the bounce chance is only about 50/50, the reward is extremely good.  Average max ROI values are around 5%, and bounce chances are well below 50%.

Paint is still drying on this code, so take it with a grain of salt.  Other miners looked ok, these three were the best.  Use stops.  54% still means a 46% chance you are buying too soon.

Same code also pinpointed CHK yesterday as one of its top picks; yesterday CHK opened up 4% and proceeded to jump almost 10% intraday before falling back to up "only" 7%.  Code gave CHK a 67% bounce chance, but only a 16.4% max ROI value.

Dlumb77's picture
Status: Bronze Member (Offline)
Joined: May 25 2014
Posts: 44
Enjoying the technical commentary

Hi Dave,

Just a quick note to say that I'm enjoying the technical commentary and language you've started to add to your daily reports: "spinning top", "marubozu", "shadow", "candle", "doji". It makes a sometimes dry topic more fun and introduces the basics of technical charting to us mortals.

As always, immensely enjoy your reports and comments on the site.



cmartenson's picture
Status: Diamond Member (Online)
Joined: Jun 7 2007
Posts: 6035
Boom! There goes oil

WTIC just vaulted above $50.  In true to modern form, it did it extremely suddenly with a lot of volume...algos and all that.

It remains to be seen if the the "unambiguously good" for stocks meme continues as oil goes higher.

I my view oil is going to be easily $100 and probably a lot more by 2018, mainly because of all the deferred and delayed projects leading to the current excess supply being overtaken by field declines leading to structural deficits for at least a couple of years.  

Uncletommy's picture
Status: Platinum Member (Offline)
Joined: May 3 2014
Posts: 651
Exuberance on oil still a ways off.

Coupled with a strong USD and north America's demand for the black stuff, especially of the summer months, prices may glimmer somewhat.  However, that may only be because of recent production issues:

We can only hope things turn around, but the current world economic slowdown will hamper any significant optimism, IMHO. 


davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5740
oil @ 100

Could oil hit $100 by 2018?  I need to do the math.  At some point Canada's extra million comes back, and Nigeria too, there's also the fracklog which just in Bakken was about 1000 wells, and there's another 1500 that have been inactivated by producers awaiting higher prices.

I think the US could turn on 500k-1000k barrels/day within a few months.  Maybe more.

And then add in Iran on top of that.

Would that make up for the decline from the deferred projects and the declines?  That's the key question.

I certainly hope you're right.  I own this junk bond that needs paying, and the only way that happens is if a certain drilling company starts to get contracts again.  :-)

If the $100-by-2018 prediction pans out, one could make a fair amount of money with a CL June 2018 contract...currently trading at $52.53.

I do think oil equities still have a fair amount of room to rise; they're trading at about half their 2014 levels.  And I'm not just talking about shale here.  Many of the services companies are still really hosed.  Some look worse than senior miners did not so long ago.

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