PM Daily Market Commentary - 7/14/2016

davefairtex
By davefairtex on Fri, Jul 15, 2016 - 5:22am

Gold fell -7.70 to 1335.60 on moderately heavy volume, while silver dropped -0.05 to 20.36 on moderate volume.

Gold was driven lower during the Asia trading session, but managed to find support at 1320, when the buyers appeared and pushed prices back up.  The candle print today was a spinning top, which in this situation is about evenly split between bullish and bearish.  That suggests to me that the current downtrend likely continues, although gold does not look to be in any hurry about moving lower.

As a matter of my belief - I believe that in the normal course of events, the commercials just try to ride the cycle, selling the tops and buying the lows, as any good trader would try to do.  However during extraordinary times, that's when I think official intervention can occur.  The addition of 50k contracts in one day immediately post-BRExit looked to me like it was an official act.

Today, the gold open interest declined by -9884 contracts.  I'd guess our commercials continue to cover.  My sense is that the commercials understand they are on the wrong side of the trend right now - of the 100k contracts added post-BRexit, the commercials have covered about 50k.  How much of that is owned by the Fed?  Most of it perhaps?  If the Fed instructs the commercials to go short in order to mute any massive spikes higher in gold during times of crisis, at some point they need to liquidate those shorts, presumably once things have settled down, in order to preserve their firepower for the next event that comes along.  That short-liquidation will act to cushion the subsequent downtrend, and that's what I believe is happening now.

Silver's move lower today was very minimal, and the trading range was relatively narrow.  Momentum is slowing for silver (you can see the MACD indicator has topped out and is hinting at rolling over), but silver remains above its 9 EMA, which tells us that the uptrend is intact. 

Miners sold off slightly, with GDX down -0.53% on light volume, while GDXJ fell just -0.30% on light volume also.  Miners gapped lower at the open briefly dropping below the 9 EMA, but quickly rallied as gold recovered.   Miners remain within their recent trading range.  The longer they consolidate here, the more exciting the breakout - or breakdown - will be.  This type of pattern indicates a struggle between the shorts and the longs, with the current result being an impasse.  Given that gold has been dropping during this sideways-movement period, I'd give the edge to the longs.

Platinum rose +0.54%, palladium was up +0.82% - another new high - and copper climbed just +0.18%.  Metals continue to do well.

The buck fell -0.11 to 96.10, dropping below the 9 EMA, driven lower by a modest Euro rally (XEU:+0.22%) as well as a big move in the Pound (XBP:+1.51%).  BOE decided not to lower rates at today's meeting; this was a surprise to the market, which apparently expected BOE to drop rates because of BRExit concerns.  The rally pulls the pound back up to 1.33, perhaps 5% above the BRExit lows.  Sometimes doing nothing helps confidence more than doing something.  Interesting that the scary talk from the BOE preceding BRExit didn't result in a rate increase after the event itself.  Could it be the scary talk was just propaganda?

WTIC staged a modest rebound after yesterday's big move lower, climbing +0.39 to 45.50.  The rebound was a relatively feeble affair, and was not enough to pull WTIC back above the declining 9 EMA.  Oil remains in a downtrend.

SPX rallied for the fifth straight day, up +11.32 to 2163.75.  The move higher after the breakout has not been explosive, but with no overhead resistance to contend with and a bunch of desperate pension funds who are terrified of missing out on any rally, prices move higher.  Financials led (XLF:+0.94%) while utilities trailed (XLU:-0.65%).  Our favorite bank-to-hate DB is up 16% off the lows.  This also suggests risk on, and/or that the Italian banking crisis isn't currently expected to get out of hand.  I'm not sure how Renzi wins here, unless he can get the EU to pay for a bailout.  VIX dropped -0.22 to 12.82.

TLT fell heavily today, down -1.45% making a new low and dropping back below the 9 EMA.  TLT (a "safe haven" assets) is now pretty clearly in a downtrend, although bonds remain quite near their all time highs.

JNK rose just +0.08% today, more or less moving sideways.  JNK remains in an uptrend, and has risen 18% off the lows set in mid-February.  Gotta love the 6.29% yield.

CRB rose +0.80%, moving back above its 9 EMA.  Commodities are trying to recover from their oil-led plunge.  Industrial metals are performing best, while livestock and energy are pulling in the other direction.

So at this point, oil is dropping along with gold and bonds, silver and the industrial metals are rising, the pound is rebounding from BRExit uncertainty, and SPX is continuing to move higher after a strong recovery from the brief BRExit-led selloff. JNK credit continues to rise.

Looks like mostly-risk-on, with an asterisk in there for oil.  Gold is in a shallow downtrend but retains a fairly strong bid, possibly because of the need for the commercials to cover their large short positions.

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2 Comments

Penny551's picture
Penny551
Status: Silver Member (Offline)
Joined: Nov 8 2012
Posts: 154
TA Question

This type of pattern indicates a struggle between the shorts and the longs, with the current result being an impasse.  Given that gold has been dropping during this sideways-movement period, I'd give the edge to the longs.

So, if a sideways consolidation has a slight slope, it tends to resolve in the opposite direction?

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5459
consolidation

So, if a sideways consolidation has a slight slope, it tends to resolve in the opposite direction?

Well I don't know about that - I just meant that if the miners are chopping sideways and at the same time the underlying metal price is dropping, that feels generally bullish to me.

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