PM End of Week Market Commentary - 6/3/2016

davefairtex
By davefairtex on Sat, Jun 4, 2016 - 4:53am

Nonfarm Payrolls as a driver for prices did not disappoint: on Friday gold shot up +32.60 [+2.77%] on heavy volume, while silver rose +0.43 [+2.69%] to 16.44 on moderately heavy volume.  Right at 08:30, gold launched $13 higher in 1 minute, and from there it just never looked back, closing quite near the highs for the day.  The miners went absolutely ape; juniors were up more than 12%!  The buck was crushed, losing -1.54; half of the gains from the 5 week dollar rally vanished in just one day.  After witnessing all the fuss, I ran clean out of superlatives and collapsed back in my chair.

This week, gold rose +31.20 [+2.57%], silver climbed +0.19 [+1.17%], GDX shot up +13.69%, and GDXJ was up a massive +15.42%.  Platinum rose +1.05%, palladium was up +2.86%, and copper rose +0.43%.  The vast majority of the gains happened Friday.

Gold spent four days this week generally drifting lower - at one point knifing briefly through support at 1206 only to bounce back by end of day.  I was happy to see that my fears of a larger gold breakdown never materialized.  Even so, it appeared as though traders were not particularly willing to take a long position prior to the payrolls report on Friday.  But then when payrolls came in at a shockingly low +38k number (worst since September 2010), the bearish sentiment instantly reversed.  It appeared to me as though traders were generally leaning to the downside in advance of payrolls, and the terrible number caught many of them offside.  When that sort of thing happens, everyone tries to reverse direction - and some capitulate faster than others.

At times like this, it helps if you have a mental contingency plan to help your brain out when you have to react in real time.  I was definitely one of those people expecting a good payrolls number, but when I saw the bad print and how the buck was reacting, I instantly switched direction, rather than waiting to see how things played out.  A 38k payroll number was horrid: some miners needed buying, even though they had opened up 5%; I was willing to take the chance price would continue moving higher.  (Had I sat there and remained in shock at just how bad my prediction was, I would have wasted time and missed out.  Fortunately since I'm wrong often, I have a lot of practice at not-remaining-shocked.)

On the chart, we see that gold printed a convincing swing low, a pair of strong-looking up-day volume bars, moved cleanly through the 9 EMA and then stopped right at the 50.  If we are being picky, the rally stopping at the 50 is mildly concerning, but I think its probable that when the Asia traders wake up Sunday night, we could move through the 50 relatively easily.  The close within a buck of the high is a bullish sign.

Silver dropped further than gold during the first half of the week, but like gold it managed to print a swing low on Friday's big move, and again like gold, the silver rally stopped right at the 50 MA.  Volume on the silver rally was not as strong as it was for gold; the gold/silver ratio rose on the week, underscoring silver's under-performance.  Still, its nice to see silver back above its 9 EMA.  We can say, roughly, that round number 16.00 support held.

Miners

Miners spent most of the week drifting slowly lower, with the falling 9 EMA acting each day as resistance.  The bearish action was wiped clean on Friday, as the miners gapped up way over the 9 and spent the whole day moving higher.  At least half of the day's gains came from intraday price movement; buyers were piling in even when prices had already risen 5%, and the shorts were being squeezed out right and left.  Candle print was a relatively uncommon bullish white marubozu, which means a white candle with no shadows: that says the day low was at the open, and the day high was at the close.

There was no bad news today in the miners.  Volume was excellent, intraday move was good, close was good, and they seem poised to break out to new highs relatively soon.  White marubozu very seldom marks a top; as in, odds are about 5%.  Until Friday, it seemed as though the miners were being sold (shorted) based on a probable rate rise from the Fed, and with the bad payroll number on Friday, the shorts ran to cover, and the buyers came racing back in.

The USD

USD looked to be moving slowly higher this week - right up until the payrolls report.  Once that hit, the buck cratered, losing -1.61%, smashing through its 9 EMA and 50 MA.  Euro rose +1.91% breaking out of its downtrend, Yen rallied too (+2.17%), and even the BRExit-plagued pound managed to move up +0.63%.  These were one-day moves, all a result of the payrolls report on Friday.  You can bet the central bankers at BOJ and ECB are not happy over these results.  Here they are, moving heaven and earth to weaken their currencies, and five weeks of jawboning are half-wiped out in just eight hours.  Its tough to be a central planner these days.

On the chart we see a huge red candle on Friday.  Common saying: market is an escalator on the way up, but an elevator on the way down.  I know goldbugs sometimes complains this only happens to gold.  It doesn't.  Its an artifact of traders having to adjust rapidly to a new reality in the marketplace, and most often, the bigger adjustments happen to the downside.

We can also see some similarly-large red candles from surprises that happened in previous months.  If memory serves, they too mostly had to do with the changing prospects of a rate rise.

US Equities/SPX

US equities were almost dead flat this week, rising +0.07 to 2099.13.  You would think bad payrolls numbers might have hurt equities - but you would (mostly) be wrong.  Pavlov and his bell-ringing program resulted in a bunch of salivating dogs, and as best I can figure it, a good chunk of the trading population now salivates at the potential for more loose money whenever they see bad economic news, and so the initial selling reaction by the fundamental owners is then bought by the fed-watchers.  I'm guessing, of course.  I don't think this is Fed futures buying, but I do believe the current behavior pattern is entirely driven by ZIRP.  VIX rose +0.35 to 13.47.

Sector map shows this is roughly about rates.  GDX did absurdly well, but beneath that we see utilities, which yields 3.32%.  At the bottom are financials, who would much prefer to have rates move higher.  Configuration of the sector map looks vaguely bearish - with tech, consumer discretionary, and homebuilders losing ground.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 13.69% 33.97% rising rising rising rising ema9 on 2016-06-03 2016-06-03
Utilities XLU 2.56% 20.04% rising rising rising falling ema9 on 2016-05-26 2016-06-03
Healthcare XLV 1.56% -1.34% rising rising falling rising ema9 on 2016-05-24 2016-06-03
Telecom XTL 1.15% -1.52% rising rising rising rising ma50 on 2016-05-24 2016-06-03
Cons Staples XLP 1.06% 13.75% rising rising rising rising ema9 on 2016-06-01 2016-06-03
Materials XLB 1.02% -3.12% rising rising rising rising ema9 on 2016-05-20 2016-06-03
REIT RWR 0.68% 12.14% rising rising rising rising ma50 on 2016-06-02 2016-06-03
Industrials XLI 0.11% 2.49% rising rising rising rising ma50 on 2016-05-25 2016-06-03
Homebuilders XHB -0.26% -4.50% rising rising falling rising ma200 on 2016-05-25 2016-06-03
Cons Discretionary XLY -0.26% 4.66% rising rising rising rising ma50 on 2016-05-25 2016-06-03
Technology XLK -0.36% 3.93% rising rising rising falling ma50 on 2016-05-24 2016-06-03
Energy XLE -0.88% -13.73% falling rising falling rising ema9 on 2016-06-03 2016-06-03
Financials XLF -1.26% -2.61% falling rising falling rising ema9 on 2016-06-03 2016-06-03

Gold in Other Currencies

While gold did well in dollars, it also managed to rally in most of the other currencies too, all except for JPY which did very well against the buck as a result of payrolls.

Rates & Commodities

Bonds (TLT) screamed higher this week, up +2.81% making more in capital gains what it would yield over the course of an entire year.  While the bulk of the gains came Friday (a massive +1.42%, breaking out to new highs), TLT was on fire for most of the week.  Perhaps some bond traders got an inkling of what the payrolls report would show.  Or maybe it was inside information, who can say.

JNK rose +0.13%, more or less moving sideways.  JNK's sideways movement is hinting to us that its probably not time yet to jump in short with equities.  JNK is giving us a neutral signal this week for risk.

The CRB (commodity index) was up +0.34% on Friday (a poor performance given the dollar near-collapse) and +1.36% for the overall week.  CRB continues to make new highs and remains in a decently strong uptrend.

WTIC fell -0.66 [-1.33%] to 48.90, drifting slightly lower on the week.  Crude printed a swing high on Tuesday, but did not follow through, and it remains just above its 9 EMA.  The Petroleum Status report on Thursday showed a mildly bullish oil inventory draw, which seemed to keep prices afloat.  Payrolls caused crude to drop for a few hours, but buyers appeared and pushed prices back to about even.  Momentum has definitely stalled for crude, and it looks like a correction should start relatively soon, but so far all the dips are being bought.  Its tough to get a correction started when the buyers keep showing up.

Physical Supply Indicators

* Shanghai gold closed the week at a +4.11 premium to COMEX.

* The GLD ETF tonnage on hand rose +12.78, with 881.44 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +2.80. That's probably an artifact of some sort.

* ETF Premium/Discount to NAV; gold closing of 1246.50 and silver 16.44.

 PHYS 10.43 +1.49% to NAV [up]
 PSLV 6.28 +0.05% to NAV [up]
 CEF 12.75 -3.88% to NAV [up]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold, and a 1% premium for silver in Singapore.

* HAA big bar premiums are lower for gold [2.02% for 100 oz bars in NYC], lower for silver 1000 oz bars  [3.01% for 1000 oz bars in NYC], and for silver eagles at +16.06%.

Futures Positioning

COT report covers trading up through May 31st.

Gold commercials continued to cover short, closing -23.8k shorts but also selling -12.6k longs.  Managed money also closed -13k longs and -5.2k shorts.  These are medium-sized changes for the commercials, and a much smaller change for managed money.   Things are improving, but we are still a long way from being bullish from a COT perspective.

In silver, commercials added +873 longs and covered -1.5k shorts, while managed money sold -6.3k longs and -2.1k shorts.  Changes in silver were negligible.  The short overhang for the commercials remains very large, and bearish.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

PM components have all regained their 9 EMA, but as mentioned before, the metals have not quite regained the 50.  Junior miners are leading, with senior miners in second, which is a bullish sign.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Junior Miners GDXJ 15.42% 51.55% rising rising rising rising ema9 on 2016-06-03 2016-06-03
Senior Miners GDX 13.69% 33.97% rising rising rising rising ema9 on 2016-06-03 2016-06-03
Silver Miners SIL 11.86% 37.39% rising rising rising rising ema9 on 2016-06-03 2016-06-03
Gold GC.CW 2.61% 6.07% rising rising rising falling ema9 on 2016-06-03 2016-06-03
Silver SI.CW 1.17% 2.11% rising rising rising rising ema9 on 2016-06-03 2016-06-03
Platinum PL.CW 1.07% -10.01% rising rising falling rising ema9 on 2016-06-03 2016-06-03

Gold Manipulation Report

There were no material after-hours spikes this week.

Summary

This week was less about trends; instead, it was almost entirely about the Nonfarm Payrolls Report Surprise.  Only +38000 jobs created: surprise!   Worst reading since fall 2010.  Traders reacted almost instantly, selling the buck, and buying gold and the miners.  Well, it was paper gold, but still.

The gold/silver ratio rose +1.03 to 75.82, which looks bearish, although the ratio is well below where it was in March.  The GDX:$GOLD ratio broke out to a new 2-year high, while GDXJ:GDX moved up slightly but still looks a bit bearish.  Downtrend appears to be over for gold and the miners.

COT report for gold show that the commercials engaged in some moderate short covering this week, but the change in position is still far from conclusively marking a low.  Silver saw little change, and remains bearish from the COT point of view.

Gold and silver big bar shortage indicators show no signs of shortage.

The market for PM and currencies remains almost entirely about rates right now: good economic news is interpreted by the market as an increased likelihood of a rate rise by the Fed, while bad news is seen as a lower chance of a rate rise.  Friday's headline employment number was bad, but under the covers, it looked even worse: +468k people are now working part time "for economic reasons", and we actually lost -59k full time jobs.  This was accompanied by a bearish manufacturing ISM report on Thursday, and a weak non-manufacturing ISM report on Friday.  As Mish said, "Fed is not raising rates in June."

As a result of NFP and the other bad news, I believe gold and the miners should continue rising into next week.

One risk is that gold, the miners, and the buck have risen too far too fast in one day, and they'll retreat next week as traders take profits.  That's just a near-term risk; I'd expect dips to be bought if the market remains persuaded no rate rises will be happening.

Another risk to a higher gold price and a miner breakout is a possible parade of Fed governors that decide to appear this weekend in an attempt to persuade the market that a rate rise still might actually happen.  Likewise, the BOJ and/or the ECB central planners might propose a possible more-extensive money printing campaign in an effort to talk their own currencies down.

Current view from the computer:

  • Uptrend: gold, silver, miners, copper, SPX, treasuries, natgas
  • Downtrend: crude, USD, DJIA.

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2 Comments

KugsCheese's picture
KugsCheese
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
NFP and VIX and Swiss

It should also be pointed out the two prior months were materially revised down.   It is all a massage.   Fake elevated to help Dems then reveal more true numbers to let FED get out of raising rates.   We are in a volatile time, the VIX is worthless as forward looking.   Thankfully the Swiss voted down Basic Income 4 out of 5.  

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
agree about the facts

Kugs-

I agree with your factual statements (there were some pretty big revisions, and not in the happy direction), but since I'm not invited to the big meeting anymore, I have no idea about the specifics of who faked what and why.

We are looking like about January 2008 right now.  If the current numbers aren't revised lower in the next few months, of course.

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