PM Daily Market Commentary - 7/5/2016

davefairtex
By davefairtex on Wed, Jul 6, 2016 - 4:55am

Gold rose +13.80 to 1358.70 on very heavy volume, while silver climbed +0.16 to 20.01 on extremely heavy volume.  This summarizes two days worth of activity; stockcharts and my data sources combines both days, while my trading app splits them up.

Gold did well, in spite of a strong dollar rally.  When gold and the dollar rally together, you know gold is rallying quite strongly in other places.

Gold in pounds is looking ridiculously strong right now (+2.91%) - breaking out and making a new high today, as did gold in Euros, to a lesser extent.  My guess is, the primary demand for gold right now is coming from Europe and the UK - but that's just a guess.  The object lesson for the rest of us is pretty clear: if your currency might be having a problem, you want to own gold.  In that circumstance, gold will probably rise faster than your currency will decline, so you'll end up winning twice.

On the USD-gold chart, we see a clean break above the recent consolidation, heading towards the prior high set on the day of BRExit at 1362.50.  If the current trend remains in place, gold should break though this level within the next day or so, as it is not very far away, the chart continues to look strong, and the candle print is bullish.  A "closing white marubozu" of this sort very seldom marks the top.

On Sunday night (early trading in Asia Monday morning) silver staged a massive rally, breaking out repeatedly until it managed to hit 21.23.  Then it hit a minor wall for a time, and after that it sold off, losing much of its gains - all while the US was celebrating 4th of July.  Tuesday saw more selling; was it manipulation, or the side effect of a large sell-off in the commodity complex?   Perhaps the one thing made the other thing a lot easier - and the strongly overbought situation didn't help.  On Friday, even KWN carried a story about sentiment that showed SLV's "excessive optimism" to be at levels last seen at the top in 2011.  All traders were on one side of the boat.  Silver ended up printing a very large "high wave" candle on massive volume; the code finds this to be in the top 1% of bearish high wave candles, which is a 51-59% chance of being a top.

And a last note: Mish had an article which suggested Chinese day traders were responsible for the big rally on Monday; it happened during the Asia trading session, so that part fits.  Could be.  https://mishtalk.com/2016/07/05/chinese-day-traders-fuel-rally-in-silver-says-saxo-bank/.  You can either choose this story, or you can think its because we're running out of silver, and for some reason, it all came to a head on Monday.

GDX rose +2.03% on moderate volume, while GDXJ was up +3.00% on heavy volume. Both miner ETFs made new highs, with the GDX volume looking a bit light.  Most of the action right now is in the juniors.  Miners are not staging any more dramatic moves, just steady price appreciation.  They appear to be following gold more than silver in this way.  Nothing bearish in the candle prints, things still look pretty good for the miners.

Platinum rose +1.08% making a new high, palladium fell -0.54%, and copper dropped -1.69% and printed a relatively ordinary bearish engulfing candle (32-46% bearish).  Something has the industrial metal sector worried.  Silver will probably find it tough sledding if the industrial metals start to reverse here, and the bearish engulfing candle from copper does suggest a top.

The buck rose +0.56 to 96.26, mostly because of the big loss in the Pound (-1.83%; dropping to 1.30, a new low) as well as a much more modest drop in the Euro (-0.60%).  The dollar is still range-bound and remains below its recent high.  It does not appear to be certain if it wants to break out or not.  How to interpret this?  Big money hasn't yet decided that Europe is a goner.  That's what I conclude.

WTIC suffered a large loss, dropping -2.42 [-4.91%] to 46.86, closing well below its 50 MA and printing an unpleasant bearish-looking long black candle.  Perhaps this time it really means business.  Oil has printed a lower low and a lower high, and this latest move conforms to that pattern.  Unless we get some geopolitical oil-based excitement, it would appear that oil is headed lower - perhaps in the low 40s it might find some support.  If you look at the chart more broadly, it appears that 50 is the line in the sand for oil right now.  Perhaps that's the price level at which the shale companies all decided to start hedging once again.  The Petroleum Status report will be a day late this week because of the holiday.  Until then, we probably continue moving lower.

SPX fell, dropping -14.40 to 2088.55, led lower by energy (XLE:-2.01%), materials (XLB:-1.81%), and financials (XLF:-1.50%).  However, it was banking that had a particularly bad day (KBE:-3.02%) and as I said before, if you were looking for something to short last Friday, that would have been it.  "Sell the rallies", or so the saying goes.  The bank charts look terrible - compare them to energy and you'll see what I mean.  Rallies are sharp, but the drops are sharper.  SPX did print a swing high today, but my code was unimpressed, assigning just a 15-26% chance of this being a top.  Its in the bottom 15% of swing highs.  VIX rose +0.81 to 15.58.

TLT shot higher, up +1.25% making a new high, totally supporting the impression of a flight to safety.  20 Year treasury is now at 1.72%, which is an all-time low.  Some people are calling this the blow-off top in sovereign bonds.  Risk off.

JNK fell, but not by all that much - down just -0.48%.  Given the large drop in oil, it sure could have been worse.  I guess traders still want to buy even the crappy stuff.  JNK remains in its uptrend, above its 9 EMA, although it did print a swing high today (20-35% bearish).

CRB was hammered, down -2.37% and is now below its 9 EMA.  Energy led, followed by industrial metals and agriculture.  Natgas dropped a semi-catastrophic -7.33%, printing a two-candle swing high pattern with a 55-66% chance of marking the stop.  Commodities are having problems once again.

While commodities still appear to be looking for direction (and may be starting to move bearish), the US equity market is holding up relatively well - all except for banking which is looking ill.   This last item brings back a reminder of 2008.  We can speculate why - the obvious answer is "no rate rise happening" and in fact we're now hinting at a possible rate cut, according to our friends at FedWatch.  Sucks to be a bank at the zero bound.  But other problems might be happening under the covers.  The news tells you what Wall Street wants you to hear, but if you watch the prices, that's the actual assessment from big money as to what is really going on, and right now, its not good.  Ignore the Fed Stress Test.  Something is amiss.  And notice I'm talking here about US domestic banks, not the deathly ill Italian banks.

Will those Italian banks get rescued?  Story goes that Renzi's friends have big bond holdings and would be badly hurt by a bail-in.  That's certainly a motivation to use 40 billion euros in taxpayer funds.  Merkel says "no taxpayer bailout."  Who will win out?

Gold of course is doing great.  Whether its BRExit, possible rate cuts everywhere, currency volatility, a possible banking crisis in Italy, or a more general issue for banks globally, the worse the news, the more gold loves it.  What can our central planners do to fix it all?  Do you see it?  I don't - and more importantly, neither does big money.  The western gold buyer is back.  Silver will depend more on commodities.  If commodities continue to tumble, I could see the current 67.90 gold/silver ratio marking the low for a while.

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