PM Daily Market Commentary - 7/11/2016

davefairtex
By davefairtex on Tue, Jul 12, 2016 - 5:27am

Gold fell -11.30 to 1356.10 on moderate volume, while silver closed up just +0.01 to 20.36.  Gold popped briefly higher at the open in Asia, and then sold off for the rest of the trading day.  Silver tried rallying too but largely failed.

Gold has been chopping sideways for the past four days, bounded on the top by 1375 which appears to be acting as resistance.  Gold remains above its 9 EMA which is positive, but it printed a simple "long black" candle today which is a mildly (15%) bearish print.  In addition, gold also printed a closing swing high - by 20 cents - which suggests we may have a correction in store.  Gold swing highs do often have follow-through.

So it may be time for gold to correct.  Of course - if the Italian banking crisis continues, that could keep any correction to a minimum.  Dropping for a couple of days to relieve gold's overbought condition might be all we end up seeing - kind of like what happened right before BRExit.  No doubt the commercials will want to "encourage" prices lower, but if there is a bid under gold, it won't matter.  OI shrank by 238 contracts today.

Silver continued to outperform gold today; it was able to print a doji candle while gold sold off.  This drove the gold/silver ratio to a new low of 66.61 - levels we haven't seen since 2014.  A falling GSR is bullish.  Silver printed a northern doji today, which is just mildly bearish, marking a top 20% of the time.  Longer term, sentiment is at "overly bullish" extremes that usually line up with tops, but until we cross that 9 EMA I'm not going to worry too much about it.

Like gold, GDX is now chopping sideways in a range, but the miner ETF managed to rise +0.20% on very light volume, while GDXJ climbed +0.65% on moderately light volume.  GDX managed to make a new high, which invalidates the swing high from three days ago.  Miners continue to look good.

Platinum rose +0.32% setting another new high, palladium climbed +1.18%, and copper rallied +1.08% and appears to be finding some support at its 50 MA.  If copper can stop dropping that should help commodities overall.

The buck climbed +0.26 to 96.59, climbing back above its 200 MA.  The buck looks to be setting up for a breakout - it was helped today by serious weakness in JPY, which fell -2.17% after Japan's PM Abe won a super-majority in the latest election in Japan, which allows him to change constitutions and generally cause mayhem if he so desires.  Given that's a stated goal of his party - constitutional change - well that's possibly why the Yen dropped.  The pound might be putting in a bottom around 1.30; it has been chopping sideways at that level for the past four days.  Now that Cameron is out and the UK has a new PM, at least some of the uncertainty is being sorted out.  May, the new PM, has stated firmly: "there will be no new referendum."  In addition, it does appear that negotiations with the EU are proceeding apace, with the UK leading off with a corporate tax cut proposal which is already annoying the French and the Germans.  Hmm, maybe the Brits still have some leverage after all...from beyond the grave...

WTIC fell again, dropping -0.57 to 44.55.  Crude tried rallying but the rally failed, and crude ended up making a new low, closing right at the lows of the day.  Tomorrow at 16:30 we have the API inventory report after market close, which usually moves prices around.  Right now the trend is clearly down, but a solid inventory draw could result in a strong rally.

SPX rallied today, up +7.26 to 2137.16 which is a new all time high and technically ending the downtrend we have been in since mid-2015.  The rally wasn't spectacular and SPX sold off towards end of day, printing a spinning top candle that is actually fairly benign (< 10% of it marking a top).   VIX rose +0.34 to 13.54.

TLT dropped -0.88%, printing a swing high for bonds.  Finally, we ran out of buyers for the 20 year Treasury at a 1.70% yield.  Incredible!  But I expect if the EU really does start to break up, we'll probably see rates move even lower, at least here in the US.  Yes, I want to loan money to Uncle Sam for 20 years and get paid 1.70%.  Where do I sign?

JNK climbed +0.17%, printing a bearish spinning top - fairly benign with a 15% chance of marking the top.  People still want junk - after all, it has a 6.29% yield.  (That's not a recommendation, unless you happen to be very nimble).  The JNK/oil linkage seems to have been turned off, at least for now.  JNK continues to rise even though crude is in a downtrend.

CRB fell -0.25%, moving lower along with energy.  CRB did not make a new low today but it is below its 9 EMA and its 50 MA too - CRB has moved into a short term downtrend.

The rush into US debt items may be nearing an end, although money continues to flow into the US.  SPX made a new high, but the breakout was fairly ho-hum.  UK (and the Pound) seems to be stabilizing under a new PM.  The Italian banking crisis is moving along in what I feel is the usual way: there is a lot of fuss until we move right to the brink, and then the EU politicians will somehow manage to spend a lot of taxpayer money to bail out the banks once again.  I think the current struggle is over which taxpayer foots the bill: Renzi wants the EU to pay, Merkel wants Italy to pay.  Meanwhile, they look like corrupt idiots, and as a result the 5-star movement gets stronger.  Renzi-Merkel will win this battle but ultimately they will lose the war.

When the Italian banking crisis gets settled, and I do believe it will be - eventually - its quite possible that will put a medium-term top in for gold, and a low in for DB.  That's my current thinking anyway.

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1 Comment

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5408
covering short

Nice call Chris in covering your short.  It appears that the market overall is buying the breakout.  We aren't overbought just yet, I think there is still some room to run.

With today's oil rally, energy equities have a bid - XLE is up a big +2.82%; copper is up big, +3.52% which pushes basic materials +2.35%, and our friendly bankers are up +1.89%.

Oh, and DB: +6.99%.  That's one train I didn't board.  My code told me to, but I didn't listen.

And TLT down -1.46%.

Here's one reason:

http://www.bloomberg.com/news/articles/2016-07-12/merkel-padoan-confident-italian-banking-crisis-can-be-averted

European leaders from German Chancellor Angela Merkel to Italian Finance Minister Pier Carlo Padoan signaled that a pragmatic solution to Italy’s banking woes can be found within the boundaries of current rules.

“Intensive talks” are under way between Prime Minister Matteo Renzi’s government and the European Commission, with European finance ministers also discussing the matter on Tuesday, Merkel told reporters in Berlin.

“I am very convinced that the questions that need to be decided there will be resolved in a good way,” Merkel said. “I don’t see any crisis-like development overall.” Her comments sent the shares of Italian lenders higher, with Banca Monte dei Pasci Siena SpA soaring as much as 6 percent in Milan trading.

They're haggling over who will pay.

Gold down -21.40.

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