PM End of Week Market Commentary - 6/24/2016

davefairtex
By davefairtex on Sat, Jun 25, 2016 - 11:47am

On Friday, gold rose +59.80 [+4.75%] to 1319.10 on massive volume, while silver rose +0.48 [+2.78%] to 17.77 on very heavy volume.  Gold hugely outperformed silver - it was a massive flight to safety following the UK's vote to leave the EU.

On the week, gold climbed +17.50 [+1.34%], silver rose +0.30 [+1.71%], GDX moved up +3.57%, and GDXJ rose +3.60%.  Platinum climbed +1.77%, palladium moved up +2.85%, and copper rose +3.14%.  From the week perspective, everything did well.

Gold spent most of the week dropping due to the expectations of the market for a UK-Remain victory.  However in the early hours of Friday morning, the market started to change its mind as the referendum vote-counts trickled in.  As Leave became steadily more probable, gold broke through the previous high and then finally it went vertical in a rash of apparent short-covering; my sense is that the four-day sell-off prior to Friday's vote may have lured managed money short, and they had to panic out once the UK voted to Leave.  Panic they did, with price hitting a high of 1362.60.  However, that high point was marked early in the day, and price soon dropped, resulting by end of day in a close just barely above the previous high - by only 20 cents.  Still, this is the first close above the 2015 high @ 1307, and that's bullish.  Volume was immense.

Silver also sold off prior to the big reversal on Friday, but not as heavily.  However, the rally on Friday wasn't nearly as strong, and unlike gold, silver was unable to close above its most recent high at 17.88, never mind this year's (former) high of 18.06.  Silver did have some heavy volume as one would expect given the breakout, but it did not look like traders were eager to take silver home for the weekend.  Part of the problem could have been bad days for oil (-5.11%) and copper (-2.26%) as well as commodities (-2.50%), all of which had problems on Friday.

[Note; I used "July Silver - SI-N-2016" for today's chart, since the continuous contract $SILVER understated today's trading volume]

Miners

Senior miners more or less chopped sideways for most of the week, dropping briefly below the 9 EMA but not selling off substantially.   However on Friday, miners gapped up big at the open (I saw GDX up more than 10% initially) but then sold off hard in the first 40 minutes of trading, and then more or less traded sideways for the rest of the day.  A 5.91% gain for GDX is certainly nothing to sneeze at, but the new high printed today was an "opening black marubozu" which is not a bullish candle in this circumstance (25-45% chance of marking a top).

The USD

USD rallied strongly this week, up +1.23 to 95.57.  As with most things, the dollar's move came largely on Friday, where the buck closed up +2.05.  The dollar had rallied more strongly immediately following the victory of Leave, but backed off its highs as the day wore on.  My sense with the buck - along with a fair number of other items - is that a large number of traders were wrong-footed by the Leave victory, and those who were short had to rapidly panic out of their positions, causing exaggerated initial moves that were later retraced once all the panic had subsided.  I also expect there was a fair amount of coordinated, official intervention that helped to put a floor on prices - or at the very least, to buy the dips once the initial panic move had exhausted itself.  (I'd give a fair amount to be able to read the "how to officially intervene" white paper/operating manual for the PPT.  Maybe that's my next FOIA request.)

Although the buck set a new high for this cycle, it still looks relatively weak from a "weekly chart" perspective.  It remains below its weekly 50 MA, and this week it printed a spinning top candle.  However if uncertainty continues, it is likely the dollar will continue to move higher.

The pound on the other hand was off -4.76% this week - and it had a 15% one-week trading range.  The pound did manage to close above 136.17 which was the 2009 low.  I can't say that's a positive sign - rather, its just not crushingly negative.  The whole thing reminds me a bit of the US financial market tantrum that happened when Congress refused to pass TARP the first time around.  "We, the bankers, do NOT want you to exit the EU."  Crash!

US Equities/SPX

US equities fell -33.81 [-1.63%] to 2037.41.  That doesn't sound bad, except that the loss on Friday was -75.91 points, on truly immense volume.  The bank index $BKX fell a massive -7.30%; this is not the largest move ever, but its still pretty big, and it suggests that all is not well in the banking industry.  Candle print for the bank index was a very bearish "black marubozu" which means: "opened at the highs, sold off all day, and then closed at the lows."

On the SPX chart we see a week's worth of rally, followed by the dramatic Friday swing high/reversal, which is also a relatively rare "bear strong line" candle (a bear candle 3x larger than the average candle size).  Code says this swing high is a 73-89% chance of a top - this is "the top 1%" of all swing high patterns.  It doesn't get any worse than this.  Huge volume probably added insult to injury here.  This doesn't mean the market collapses from here, it just says that this will probably be the top tick for the next 10-20 days.

VIX screamed higher: up +8.51 to 25.76.  (I was one of those contributing to the panic, bailing out of my short VXX trade...oops!)

Here's the sector map; problem is, the map shows the whole week, whereas the interesting bits happened on Friday.  Over the week, we see the "safe havens" at the top, while materials and financials at the bottom.  That's bearish.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 3.72% 48.48% rising rising rising rising ema9 on 2016-06-24 2016-06-24
REIT RWR -0.25% 15.23% falling rising rising falling ema9 on 2016-06-24 2016-06-24
Utilities XLU -0.28% 24.70% rising rising rising falling ema9 on 2016-06-23 2016-06-24
Energy XLE -0.52% -12.26% falling rising rising rising ema9 on 2016-06-24 2016-06-24
Cons Staples XLP -0.69% 11.97% falling rising rising falling ema9 on 2016-06-24 2016-06-24
Healthcare XLV -1.07% -7.88% falling falling rising falling ema9 on 2016-06-24 2016-06-24
Technology XLK -1.79% 0.66% falling falling rising falling ema9 on 2016-06-24 2016-06-24
Homebuilders XHB -2.16% -12.01% falling falling falling falling ema9 on 2016-06-24 2016-06-24
Cons Discretionary XLY -2.26% -0.65% falling falling rising falling ema9 on 2016-06-24 2016-06-24
Telecom XTL -2.30% -3.56% falling rising rising falling ema9 on 2016-06-24 2016-06-24
Financials XLF -2.34% -9.52% falling falling falling falling ema9 on 2016-06-24 2016-06-24
Industrials XLI -2.42% 0.58% falling falling rising falling ema9 on 2016-06-24 2016-06-24
Materials XLB -2.50% -5.64% falling rising rising falling ema9 on 2016-06-24 2016-06-24

Gold in Other Currencies

Gold rallied in most currencies this week, but the rally was not as pronounced as you might expect, since gold had sold off fairly briskly prior to Friday's rally.  Gold in XDR was only up $12. 

Rates & Commodities

Bonds (TLT) rose just +0.13% - it sold off for most of the week, bouncing back sharply on Friday, but only managing to recover its pre-BRExit losses.  We'll call this a modestly bullish signal for bonds, but it sure doesn't have that same bearish tone as SPX.

Likewise, JNK rose +0.43% on the week, even with a big -1.49% loss coming on Friday.  Still, JNK remains above its 50 MA, although like SPX, it too printed a swing high on Friday.

CRB fell -1.92% on the week, and -2.50% just on Friday alone.  CRB looks fairly ugly, as it has now printed a lower high and a lower low as a result of Friday's drop.  CRB looks to be in a downtrend at this point.

WTIC fell -2.56 on Friday and -1.29 [-2.64%] on the week, closing at 47.57.  While crude remains above its 50 MA and has yet to form a lower high/lower low pattern, it does appear as though it is starting to break down.   Candle print on Friday was a "bearish belt hold" which in this context is fairly disagreeable: 46-63% chance of marking the top for now.  If WTIC loses the 50, it could sell off hard - last time it was below its 50 was back in February.

Physical Supply Indicators

* Gold is now trading at a discount of -1.67 vs COMEX.

* The GLD ETF tonnage on hand rose a big +26.43, with 934.31 tons in inventory.

* Gold is not in backwardation; the two front month contracts differ by +2.40.

* ETF Premium/Discount to NAV; gold closing of 1322.00 and silver 17.775.

 PHYS 10.98 +0.78% to NAV [down]
 PSLV 6.80 +0.25% to NAV [up]
 CEF 13.74 -2.95% to NAV [down]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no particular sign of premium for gold or silver.

* HAA big bar premiums are lower for gold [1.95% for 100 oz bars in NYC], slightly lower for silver 1000 oz bars  [2.95% for 1000 oz bars in NYC], and lower for silver eagles at +14.74%.

Futures Positioning

COT report covers trading up through Tuesday June 21st.

Gold commercials continued to add to their short positions, adding +21k short contracts probably during last week's post-FOMC rally, but also adding +6.5k longs as well.  Managed money added +17k longs and closed -3.7k shorts.  Positions continue to move into even more bearish territory.

In silver, commercials added +7k shorts and closed -930 longs, while managed money added +10.6k longs and closed -3.5k shorts.   Managed money is once again at bearish extremes for their net position, mostly because of an increasingly large long position.  Managed money has almost tripled its long position since the PM market smash of 2013.

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

The weekly chart looks like a typical PM rally week, with miners in the lead and gold bringing up the rear.  That conceals the correction from Monday-Thursday, and the big BRExit-driven rally on Friday.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Senior Miners GDX 3.72% 48.48% rising rising rising rising ema9 on 2016-06-24 2016-06-24
Silver Miners SIL 3.69% 48.02% rising rising rising rising ema9 on 2016-06-03 2016-06-24
Junior Miners GDXJ 3.37% 68.77% rising rising rising rising ema9 on 2016-06-22 2016-06-24
Platinum PL.CW 1.63% -8.85% rising falling rising falling ema9 on 2016-06-24 2016-06-24
Silver SI.CW 1.48% 12.44% rising rising rising rising ma50 on 2016-06-08 2016-06-24
Gold GC.CW 1.34% 12.57% rising rising rising rising ema9 on 2016-06-24 2016-06-24

Gold Manipulation Report

There were a ridiculous number of spikes this week; 9 down for gold, and 8 for silver, 17 up for gold, and 13 up for silver, with most of them on Thursday and Friday.  I don't get the sense that anyone was able to manipulate the trend with any of these spikes.

Summary

This was BRExit Surprise Week.  It felt a bit like a tsunami.  All week the market rallied, sucking in most of the participants (including yours truly) into the water, and then the referendum tidal wave hit washing all before it in a massive wave of surprise and panic.  If you want to paddle around in these waters, it is important to be either right, or quick to admit you were wrong.

The gold/silver ratio fell -0.27 to 74.02.  GDX:$GOLD rose, while GDXJ:GDX was flat.  That looks modestly bullish for PM.

COT report for both gold and silver shows more builds in commercial short positions, but the COT does not cover the crazy action on Friday.  We have to wait for next week for that information.  The currently bearish COT became more even bearish, but to date it still hasn't seemed to matter.

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

So where to from here?  We're in a clear risk off mode right now.  Eurozone countries generally had 10-15% drops in their equity markets - even core nation Germany lost 7% on the DAX.  FTSE bounced back sharply, from down 10% to down only 3%, but I'm not sure I trust the bounce.  Its generally too expensive to set the trend via intervention, but intervening for one day is almost expected, given the extraordinary situation.  Financial stocks were creamed.  That could be a black swan in the offing; its something to watch.

Commodities really didn't like BRExit either; copper and oil both had sizeable drops.  Instead, safe havens were the focus - US treasury bonds, gold, USD, JPY, and to some extent silver.  Regardless of what the politicians are saying about "no contagion", traders fled European risk en masse.  If the risk off mood continues, gold should retain a bid, as should the USD.

It will be interesting to see if the public starts buying gold too.  If they do, it should start to show up in premiums.  Perhaps we'll get some good anecdotes from members over the weekend.

I don't know what our central planners can do to even slap a band-aid on the current uncertainty surrounding BRExit.  Lower rates further?  Rates are already negative, and the banks are already complaining about it.  Buy more bonds?  They're already buying bonds.  Helicopter money?  Hmm.  It is the only thing left they haven't tried.

Current view from the computer:

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

Dan Norcini was interviewed in "The Daily Gold Podcast" about the BRExit event.  Worth listening to.  Long ago, KWN kicked him off probably because he was too bearish on gold during the 2012-2015 gold market decline.  (Imagine that - bearish during a decline.  Heresy!).  He's bullish now. http://thedailygold.podomatic.com/entry/2016-06-24T15_08_41-07_00

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5072
incompetent exit polling?

Mish had a pair of articles this weekend - the first one describing how exit polls were forecasting a majority for the socialists in Spain (https://mishtalk.com/2016/06/26/exit-polls-give-absolute-majority-to-united-we-can-psoe/) followed by a second article which more or less blames "bad exit polling" (https://mishtalk.com/2016/06/26/exit-polls-note-even-close-we-can-clobbered-in-low-turnout-another-hung-spanish-election/) for the discrepancy between exit polls and the announced results.

Pollsters in Europe must be among the world’s worst. In Spain they cannot even get exit polls correct.

“United We Can” was supposed to soar into second place in Spanish elections. Instead, with 94% of the vote counted, “We Can” has a mere 13% of the vote.

What do you imagine happened here?  Have people suddenly become incompetent at exit polling?  Are Spaniards particularly bad at it?

Or could it be that, just perhaps, Brussels is now terrified of any change, to the point where all "sensitive" elections going forward must be rigged lest more voter-driven turbulence result?  "We did it for the good of The Project" (and of course, to protect our own jobs too).

I think vote-rigging is far more likely than a sudden, massive failure in exit polling.

Problem is, in an age of Wikileaks, does Brussels think this can possibly remain secret?  As with everything else, when word of this gets out, the credibility of Brussels will be entirely destroyed.  Not damaged - it will simply be gone.

All the young people (who are for the EU and the project overall) will be totally disillusioned by this betrayal of democratic principles by the leadership - who themselves are clearly anti-democratic.

That's my prediction anyway: at some point, there will be a release on the issue of Brussels-instigated systematic voting fraud in the member states, and it will destroy the EU, almost instantly.  How's that for a new Black Swan?

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