PM Daily Market Commentary - 6/13/2016

By davefairtex on Tue, Jun 14, 2016 - 1:54am

Gold rose +10.50 to 1286.80 on moderately heavy volume, while silver climbed +0.12 to 17.45 on moderate volume.  Gold and silver continue to chug higher, with intraday dips being bought.  A weaker dollar helped, as did a rebound in copper prices.

On the chart we can see how gold rallied right up to resistance at the prior high of 1290.40 and then stopped.  Gold is in "overbought" territory, but we are seeing rising volume as price rises, and that's a bullish sign.  If gold can close above 1290.40, it stands a fair chance of being able to penetrate the 1-year prior high at 1307.  So far at least, the signs are that it will do just that; the bid under gold has remained strong ever since that unpleasant Nonfarm Payrolls number seven trading days prior.

Silver was hammered intraday, plunging 23 cents during trading in Asia, but buyers showed up and pushed prices right back into the green.   In the context of an uptrend, this large intraday move resulted in silver printing a "hanging man" candle, which is generally a bullish continuation candle; it very seldom (10%) marks a top.  Silver was supported today by copper, which managed to rally somewhat.

Miners looked a bit ugly today, with GDX off -0.19% on light volume, while GDXJ rose just +0.38% on moderate volume.  The miners gapped up at the open, but then sold off steadily for most of the day, managing to rally back 1% right at the close to get back almost to even.  With gold up $10, this behavior is both unusual and bearish.  If they are not being brought along by higher gold prices as in the past, some dynamic has changed, and its not something good.

It looks as though there are some fairly large positions being slowly liquidated on any moves into the 26-27 area.  If gold fails to break 1307, the current miner liquidation could turn ugly.

Platinum fell -0.19%, palladium dropped -0.06%, and copper managed to rally +1.26%, having a large trading range that ended up in positive territory.  Copper remains in a strong downtrend, and has yet to print any sort of swing low.

The buck fell -0.21 to 94.42, dropping back below its 50 MA.  Is a two day rally all we get?  We have a FOMC meeting starting tomorrow, with an announcement at 14:00 on Wednesday, and a press conference at 14:30.  I double-dog-dare Yellen to talk hawkishly with a 55/45% "Leave" poll showing up.  Will the "Remain" gang be able to rig the referendum?  I'm not so sure.  There are a lot of eyes watching.

WTIC fell again today, dropping -0.32 [-0.65%] to 48.56, finally closing below the 9 EMA, the first time it has done this since early April.  That said - tomorrow we have the API inventory report at 16:30 after market close, and the Petroleum Status report on Wednesday at 10:30, both of which tend to wang prices around.  As always, it is the market's reaction to the news that matters most.  If we get a nominally bullish inventory draw, and the market sells off, then its time to run - not walk - away from oil for the time being.  Likewise, a rally on a nominally bearish inventory build would be a sign to jump right back in and buy the recent dip. 

SPX fell relatively hard, dropping -17.01 [-0.81%] to 2079.06, falling clean through its 9 EMA and ending the day more or less at the lows - right at the 50 MA.  Sentiment is overly bullish right now, and the sector map shows both tech (XLK:-1.11%) and materials (XLB:-1.11%) leading the market lower.  Bank stocks (BKX:-1.05%) have been sinking for the past 7 sessions, and have now closed below all 3 moving averages.  They look weaker than the broader market.  The VIX went crazy, up +3.94 (+23%!!) to 20.97.  Traders are backing up the truck and loading up on puts.  It feels like a little bit of an over-reaction to me - we've only had two down days - but we'll have to see how it goes.

TLT rallied once again, up +0.45% breaking to another all time high for TLT.  The 20 year Treasury is now yielding 2.01%, which is an all time low - and the equity market correction is now all of two days old.  Money has been flowing into Treasury bonds for a while now.  I guess it doesn't want to stay in bank deposits for some reason.  TLT is signaling risk off.

What happens if rates rise?  According to this bond calculator ( you will lose 15% if rates rise to 3%, you'll lose 27% if rates rise to 4%, lose 38% if rates rise to 5%, and if long rates jump to 6%, your 2.01% bond will be worth just 54 cents on the dollar - a 46% loss - just from the rate rise alone.

In my view, the 20 year Treasury is a trading sardine, not an eating sardine.  Do you think we'll see ZIRP for the next 20 years?

In his seminal book Margin of Safety, hedge fund manager Seth Klarman tells an old story about the market craze in sardine trading. One day, the sardines disappear from their traditional habitat off the Monterey, Calif., shores, the commodity traders bid the price of sardines up, and prices soar. Then, along comes a buyer who decides that he wants to treat himself to an expensive meal and actually opens up a can and starts eating. He immediately gets ill and tells the seller that the sardines were no good. The seller quickly responds, "You don't understand. These are not eating sardines; they are trading sardines!"

JNK fell -0.57%, dropping for the third straight day and closing just below its 9 EMA.  That's the first sign of a correction for JNK, and it is now clearly signaling risk off.

CRB was mostly flat today, up just +0.01%.  Losses in livestock and energy were offset by gains in PM and Industrial metals.  CRB chart remains quite bullish in spite of the swing high printed on Friday.

PM is a bit split right now; gold remains quite strong, while the miners are acting as though there is a fair amount of selling pressure from Big Money.  The miner breakout five trading days ago was tepid at best, and they've just tracked sideways since then.  Rates have receded as a concern, BRExit has moved to the foreground, and even though we have an FOMC announcement coming two days from now, I think the chances of a rate rise are zero.  My sense is, the Fed as a player in the current drama is most likely off the field for now.  Commodities remain strong; if that continues, it will help to support silver prices.

My opinion: if BRExit wins, gold breaks 1307.  It may even break 1307 in anticipation of the event, if the polls continue to show increasing support for Leave.  I'm less sure about the miners.

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davefairtex's picture
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5683
bad day for the miners, ok for gold

Miners are following through on the past few days of selling - GDX now down -2.9% and will print a swing high if they close at current levels.  This could be because of the very strong dollar rally - up +0.60 to 95.02 making a new high today.

Oil and copper aren't helping.

Gold remains reasonably strong, however, almost flat on the day.  That's a pretty decent performance with the buck up this much.

KugsCheese's picture
Status: Diamond Member (Offline)
Joined: Jan 2 2010
Posts: 1469
S&P500 Market Open Today

The S&P 500 opened today with 8 minutes of heavy green.   LOL!

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