PM Daily Market Commentary - 7/20/2016

davefairtex
By davefairtex on Thu, Jul 21, 2016 - 2:23am

Gold fell -16.40 to 1315.80 on moderate volume, while silver dropped -0.50 to 19.47 on moderate volume.  PM finally started sinking in earnest today; after months of trying, the commercials are finally having things their way.

The move lower in gold today was assisted by a number of down-spikes that happened starting after market close in Tokyo and into the London trading session.  Unlike in previous sessions, the down-spikes were not bought, suggesting that for now, buyers were waiting for lower prices before jumping back in.  Price rallied modestly after the US market opened, but then fell into the close, making a low at 1312.50 before bouncing back after hours.  It was a tough day for gold.

On the chart, we can see that 1320 support has failed, which is bearish.  (stockcharts shows a higher closing number from what my trading app shows; I am using the app's closing price)  Round number 1300 should provide support a bit further down, and there should be a decent support zone between 1300 and the 1316 level where we are right now.  We can also see that the down-day volume is exceeding the up-day volume over the past few weeks.  That's a bearish sign too.

Gold's OI increased by +1663 contracts, while GLD inventory was unchanged.

Silver's decline accelerated today, with price dropping convincingly below the 9 EMA as well as round number 20.  On the chart, we see that the next strong support level for silver is right around 18.  That doesn't mean price will drop this low, just that this is where I'd expect buyers to appear for certain.  Silver's RSI-7 is around 44 right now; when it drops below 30, that will be a sign that the correction might be nearing an end.  However, we are not there yet.

Buyers may show up anywhere between here and 18; I'd like to see a big move down intraday that gets bought, which ends up printing a strong reversal bar.  That way I don't have to guess where the low might be.

Miners had a bad day also, with GDX off -5.66% on very heavy volume, while GDXJ dropped -7.81% on extremely heavy volume.  On the chart, we see that the miners gapped down hard at the open, and spent the day falling further, closing at or near the lows.  The 50 MA is not so far away; we could expect some buyers to show up there, if gold can avoid correcting too much more.

That said, in recent months, often when the miners have sold off this strongly, buyers appeared the very next day and price eventually resumed its climb.  So, here's a thought.  My perfect buying opportunity would go something like this: gold drops further overnight, causing the miners to sell off tomorrow morning.  But once the first hour of selling is over, buyers show up, forming a low.  That's when I would buy too, placing a stop below the low just in case the decline continues.  Ideally GDX plummets down near the 50 MA before marking a low.  This is fairly high risk and I'd never attempt it during the 2013-2015 period, but during an uptrend, it has a higher chance of success.  Of course, gold needs to cooperate with this story too, and that may depend more on what the ECB says than on the gold price cycle.

Platinum fell -0.65%, palladium shot up +2.66% making another new high (palladium has been on a tear in the past month or so), while copper fell -0.40%.

The buck continued breaking higher, up +0.15 to 97.26 printing a new high for the cycle.   Buck is now well above the 200 MA.  Part of the reason was the falling yen (-1.00%) which has now dropped below its 50 MA.  That Abe-Bernanke helicopter conversation did a real number on the Yen, which is down almost 7% over the past two weeks.  Congratulations Mr Abe on a job well done.

WTIC climbed +0.30 [+0.66%] to 45.75.  I was worried yesterday about a big plunge through support, and that's what we got - only to see this reversed after the Petroleum Status report released at 10:30 showed a moderate inventory draw of -2.3 million barrels.  So instead of a big sell-off down to the low 40s/high 30s, we got a headfake resulting in a bullish-looking "high wave" candle print that just might mark the low for crude.  We need a confirmation tomorrow to be sure, but I'm cautiously positive at this point.  Oil was in a position to stage a huge sell-off and it didn't take it; traders bought and/or covered short instead.

SPX rose +9.24 [+0.43%] to 2173.02, rising to a new all time high.  Tech led (XLK:+1.31%), while utilities (XLU:-0.58%) trailed.  It is earnings season once again; the move in tech was all about MSFT - apparently they are doing well in cloud computing.  Apparently MSFT knows about servers!  Who knew?  But I digress.  VIX fell -.20 to 11.77.  That's really low.  Puts are in the bargain basement.

TLT fell -0.55%, apparently not liking the move higher in equities.  That's a risk on move.

JNK rose +0.25%, remaining within its recent trading range.  Mild risk on.

CRB continued falling, down -0.55%, making a new low.   Energy was the only positive group in the commodity space; everything else dropped.  Commodities remain in a downtrend.

ECB meets early this morning, with an announcement at 11:45 GMT (06:45 Eastern).  Maybe they'll say something about the Italian banks.  "We'll do whatever it takes?"  The gold and silver downtrend has become more serious, commodities continue to fall, oil may be putting in a low but that's still up in the air, and SPX continues to rise as does the buck.  With safety concerns receding and commodity prices falling, its a weak environment for gold and silver.  Perhaps the ECB can rescue PM with talk of a (pointless) deeper move into negative rates.  Hey, it could happen.

If you are looking to buy the dip in gold, silver, or the miners, its probably safest to wait for the market to show you a reversal bar before jumping in.  No such reversal occurred today.

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
ECB meeting: a nothing-burger

Old Clara Peller would be proud.  No beef.

Doesn't that just bring you back?

There was one fun question, which amounted to: "Would you like to throw DB under the bus?"

No thanks.

The latest meme making the rounds is, "our banks don't have a solvency problem, they have a profitability problem."  Not sure how the 360 billion euros in NPLs in the Italian banking system plays into that.  Nobody asked Mr. Draghi about the apparent conflict between his assertion and that reality.

As to how the Italian banking situation would be handled, Draghi hinted at some sort of bailout.  He also suggested that the real issue was that "there was no market for NPLs in Italy."  Gosh, there's just nobody willing to buy those bad loans - public sector has to come in and fix the problem, presumably.

I think what he means is, nobody is willing to overpay for the bad loans with the same level of enthusiasm that the public sector always seems to have.  "Oh those bad old hedge funds only want to pay 10 cents on the dollar.  Our bad bank, pockets full of taxpayer cash, is willing to pay 40 cents..." [*]

[*] and that's actually what happened in Spain

 

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5063
CEF on sale

During the recent PM selloff, CEF's discount to NAV dropped to a discount of -5.27% to NAV, down from a peak of -1% about two weeks ago.

http://stockcharts.com/h-sc/ui?s=%21CEFPREM&p=D&b=5&g=0&id=p72529480938

FD: I picked some up.  Not a recommendation as to timing - but if you bought some, you'd be helping out my trade.  :-)

I expect CEF to move to "no discount" in the next leg higher.  Whenever that happens.

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