PM Daily Market Commentary - 7/7/2016

davefairtex
By davefairtex on Fri, Jul 8, 2016 - 2:36am

Gold fell -3.90 to 1361.80 on moderate volume, while silver plunged -0.41 to 19.75 on moderately heavy volume.  The buck staged a minor rally, while commodities had a really bad day, led lower by energy.

Given the rise in the buck today, gold's modest drop was more or less a currency effect.

Gold outperformed the vast majority of other commodities today, largely resisting the impulse to sell off that hit many other items I track.  While gold did not manage to make a new high today, the spinning top candle is not particular menacing.

Next resistance level for gold is 1392.60.  Gold is modestly overbought, with RSI-7 at 75.63.

Silver sold off fairly hard today, with a large 80 cent trading range.  Losses on a percentage basis [-2.03%] were not all that dreadful.  Oil had a far worse day, for instance.   Silver managed to avoid printing a "closing" swing high, which is the pattern I use to mark a top, but today's fall does appear to suggest momentum is reversing in silver.  Candle print was a "long black" candle, which is somewhat bearish.  As a result of silver's drop, the gold/silver ratio is starting to rise once again.  This makes sense - if commodities are now starting to correct in earnest, then gold should continue to perform relatively well (as the drivers for gold remain in place) while silver will start to feel pressure from the commodity market sell-off.

GDX fell -3.14% on moderately heavy volume, while GDXJ dropped -3.60% on heavy volume.  Both miner ETFs printed two-candle swing high patterns, which are bearish (26-40% chance of being the near-term top).  Of course, miners have done this a fairly large number of times during the six-month miner rally - this could be just one more correction.  Still, it it bears watching, as the miners had been moving into overbought territory.  Miners appear to be following silver right now rather than gold.

Miners remain above the 9 EMA - still in a solid uptrend.

Platinum rose +0.44% setting a new high, palladium climbed +0.63%, but copper dropped -1.53% and is now back resting on its 50 MA.   After three sharp down days in a row, copper is now in a downtrend.

The buck rose +0.25 to 96.38, erasing yesterday's losses and then some.  Most everything dropped against the buck, which is starting to carve out a small cup formation which could lead to a breakout in the next few days.  A dollar breakout (driven mostly by a falling Euro) would probably cause further trouble for commodities.  Just looking at the chart pattern, I'd say this one is more likely than not.  The Euro continues to look ill, and remains in a clear downtrend.  The small rally in the Euro after BRExit is looking more like a dead cat bounce.  Possibly the Italian banks are to blame?

WTIC fell hard today, dropping -2.70 [-5.64%] to 45.19.  If you liked today's "silver smash", you'll love what happened to oil since it was almost three times worse.  Crude was pounded lower immediately following the Petroleum Status report, released at 11:00, which showed an inventory draw of -2.1 million barrels.  One would think a draw is good news - but the market apparently had hopes for even better news (possibly due to a much more bullish API report from last night) and so crude basically had the crap kicked out of it right through end of day.  Every rally was sold, crude made a new low breaking below 46 support, and the candle print was a (bearish) long black candle.  Market sells off on what should be good news: its time to either be flat, or short.  When oil is looking like this, rallies should probably be sold.

SPX traded in a fairly narrow range, rallying early, selling off into the afternoon, only to return back to almost even by end of day, closing down just -1.83 to 2097.90.  Cyclicals did the best (XLY:+0.43%) while energy (XLE:-1.02%) and utiities (-1.85%) fell most.  That's a big move down for utilities, which printed a two-candle swing high today.  However like the miners, traders have bought dips in the utility shares - where else is a desperate pension fund going to get a 3.09% yield these days?  US 30 year treasury yields 2.14%.  If rates ever start to normalize, there will be some amazing losses in both of these areas.  VIX fell -0.20 to 14.76.

TLT was virtually flat today, making a new high but ending up falling -0.01%.  TLT appears to be consolidating once again.  Is it preparing for yet another move higher?  Everyone loves the long bond right now.  It remains in a strong uptrend.

JNK surprisingly rose +0.17%, making a new high - JNK rising on a day when oil gets slammed is a very unusual outcome.  It bears watching, and strongly suggests risk on.

CRB was crushed today, dropping -2.24%, smashing through its 50 MA and making a new low for this cycle.  The new low is the third "lower low" in CRB's relatively new downtrend.  The close below the 50 is a stronger signal; CRB has only been below the 50 once since the uptrend started in early March.  The commodity correction is getting more serious: all commodity sectors dropped today, but the largest hit was in energy.

The commodity downtrend is beginning to pick up steam, the dollar is hinting at a renewed move higher (the Euro is weakening and may fall through support), and all this is impacting silver a lot more than gold.

If the commodity downtrend continues, I'd expect the gold/silver ratio to continue moving higher, which is a nice way of saying I expect silver to get hit.

Until we start to see some selling pressure on gold, the uptrend continues.  Macro environment continues to be positive - although corrections can still appear in an uptrend even with a positive macro environment.  Sometimes you just run out of buyers.  That's what I believe happened with silver.  Sentiment in gold isn't excessively optimistic yet, but it is still relatively high.  That resistance point of 1392 is looking increasingly like an important level.

Still, its nicer to be talking about 1392 resistance instead of 1044 support...

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5694
NFP overview

Looks like we got a decent NFP report today.  More than decent, it was good, helped somewhat by revising the previous month down by about 20k jobs.

I'll let people with more attention to detail break out the finer points; for traders, its the market's reaction to the release that matters.

And the market's reaction was generally pretty positive.  There was the usual volatility around the time of the report - seemingly calculated to run stops in both directions on many different items: gold, silver, copper, bonds, the buck, and crude - but after things settled down, it ended up:

  • SPX +26
  • Crude +0.33
  • Gold -4
  • Silver +0.20
  • copper flat
  • miners +2.4%
  • energy +1.5%
  • banks +2.25%
  • TLT +0.60%
  • JNK +1.07% - big "risk on" move here

A good time was had by most. Except gold, and that wasn't really all that bad.  Silver had an especially big rebound off a low - like a 50 cent trading range.

Often, the first move is a headfake.  This was especially true in silver today.  It looks like "somebody" wanted silver prices to drop.  We know who this is, of course, but a good jobs number will end up being positive for silver.  Less pressure on banking means gold/silver ratio will drop, commodities will probably rise, and that will help silver move higher.  The immediate sell-off was a buying opportunity.

My worldview is, you can't control the outside world, all you can do is control your reaction to the situation. From my perspective, you can watch, you can buy the drop that makes no sense, or you can complain.  :-)

Me, I was writing code so I just watched.

One last point.  If your view is "the manipulators have complete control of the market" this might actually make you fearful to buy, even when your shot at making money is decent and the trade makes sense.  Fear isn't a good thing, it gets in the way.  Neither is greed.  Neutral is best, if you can pull it off.

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