PM Daily Market Commentary - 6/20/2016

davefairtex
By davefairtex on Tue, Jun 21, 2016 - 3:38am

Gold fell -8.60 to 1293.00 on moderately heavy volume, while silver was unchanged at 17.52 on moderate volume.  A very strong rally in the pound/a weak dollar wasn't enough to keep gold afloat.

Gold gapped down after a weekend of Remain-positive BRExit news, hitting a low of 1280 in London trading, but managed to bounce back during the US session.  While gold didn't lose any ground compared to its open price, the big drop in the buck should have provided more support.  This tells us that gold in other currencies sold off fairly hard: gold:Euro down -0.97%, while gold:Pound down -2.72%.  Forget about the polls - the markets are voicing their opinion that BRExit is not gonna happen, and as a result we are seeing the unwind of the BRExit-related safe haven trade.

Trader exercise: "ok, gun to your head, is BRExit more or less likely after the assassination of the pro-Remain UK member of parliament?"  The "gun to your head" part of the thought-experiment is just to dramatize the requirement for you to pick a direction without dawdling or temporizing.  Yes or no - you must decide now.  Traders made their choice last Thursday across the board in almost every market I track, and things have more or less followed through from there.

On the chart we can see that the initial sell-off in gold dropped price down to the 9 EMA where it found support; buyers then pushed price back up to where gold opened the day, printing a doji candle.  If you ignore the weak dollar, today's move doesn't look like a big deal, but if you factor in the dollar drop, gold's response appears bearish.  The one bit of good news is that the buyers at COMEX did show up around the 9 EMA and so we got a doji candle instead of an ugly red one.

Silver did better than gold today, probably because of the risk-on mood permeating the related commodity markets.  Silver did sell off alongside gold, and it too found support at its 9 EMA.  As with gold, silver in other currencies fell; silver managing to stay even today was entirely due to currency effects.

Miners gapped down at the open because of gold's sell-off, but buyers immediately started showing up, steadily moving prices up for most of the rest of the day.  GDX ended up closing down -0.58% on moderately light volume, while GDXJ actually rose +1.02% on moderately heavy volume.  Both miner ETFs gapped below their 9 EMAs at the open, but by end of day had rallied back above their respective 9 EMAs.  It was a welcome show of strength after several days of distribution.

Platinum climbed +1.76%, palladium rose +2.54%, and copper closed up +1.66%.  Rather than a PM-positive response, this suggests risk on to me.

The buck had a bad day, falling -0.66 [-0.70%] to 93.68, a result of a massive jump higher in the pound (XBP:+2.11%).  After making a low last Thursday, the pound has rallied 6.6 points - almost 5% in just three days.  To me, the market is clearly saying that BRExit is probably not going to happen, and the turning point on the charts for this move was the assassination of the UK member of parliament.  Of course I don't know what will happen, but the market seems pretty sure of itself, at least for now.  Given the Fed is in a dovish mood, with (presumably) no threat from BRExit, the dollar's near term future is starting to look a bit bleak.  This should help commodities and risk assets - favoring silver over gold.

WTIC rose +0.98 [+2.01%] to 49.84, following through off the big reversal move from Friday.  Candle print today was a two-day swing low which provides a 60-80% chance that this was the near-term low.  Perhaps we will get to see new highs from oil in the next few days.  Oil's path probably depends on what the Petroleum Status report says on Wednesday.

SPX rose +12.03 [+0.58%] to 2083.25.  SPX rallied overnight in the futures markets and it opened up almost +30, but soon after the market opened, the selling started and it didn't really stop until the end of the day.  Industrials led (XLI:+0.92%) while utilities brought up the rear (XLU:-0.38%).  While SPX closed higher, the intraday price action wasn't particularly bullish, but the almost-shooting-star candle print wasn't too dangerous - just 13-23% chance of a top here.  VIX fell -1.04 to 18.37.

TLT fell hard, losing -1.07% and closing below its 9 EMA for the first time in 3 weeks, following through off the swing high printed on Friday.   TLT is looking more bearish short term, and is signaling risk on.

JNK also followed through from its own swing low on Friday, rising +0.72%,moving back above its 9 EMA, and signaling risk on.

CRB also did well, up +1.06% closing back above its own 9 EMA.  CRB is back in its strong uptrend.

It looks like the bearish trend changes from last week were just a headfake driven by an increased fear of BRExit which is now apparently subsiding.  What does this mean for gold?  Well, gold did spike up to make a year high due to BRExit fears, but I suspect the commercials will jump on gold once the referendum is held - assuming the vote is to Remain.  Sentiment for gold (https://sentimentrader.com) is at excessively bullish levels - last seen in Aug 2011, back when gold was trading at 1793.  That's a contrary indicator, and it suggests prices will most likely fall from here.

In truth, this chart makes me extremely nervous, especially when combined with a likely non-BRExit.  Excessively bullish sentiment means traders are all on one side of the boat, and that's exactly the time when you do not want to be long.  We could move higher from here, but we'd need a driver, and if we don't have BRExit, I'm not sure what it would be.

In addition, it appears that the forces of the status quo seem to have knee-capped the Trump campaign, or perhaps Trump just augered in all on his own; with Trump its hard to say.  In addition, the EU has successfully bribed Turkey to control the migrant problem - for now - so...unless something new appears, I'm thinking the COT report may start to play out as usual post June 23rd.  It looks like the pot will have to simmer for a bit longer before anything boils over.

We've already seen a three-day unwind in the Treasury market.  Bonds were in a much higher "excessive optimism" position than gold.  Bonds could be the coal mine canary for gold.

I would not be short any risk assets at this point - unless you have some sense that the voters in the UK will vote Leave.

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