PM Daily Market Commentary - 7/21/2016

davefairtex
By davefairtex on Fri, Jul 22, 2016 - 3:18am

Gold rose +11.70 to 1331.00 on moderately heavy volume, while silver climbed +0.20 to 19.82 on moderate volume.  Both gold and silver made new lows in Asia trading, but buyers showed up in force, wiping out much of the losses from yesterday's fairly large move down.

On the chart, we can see that gold didn't even make it down to 1300 before the buyers showed up; I didn't consider the 1310 level to be strong support.  It appears that the buyers of paper gold just couldn't bear to wait for $1300 - they had to buy sooner.  The volume on the rally was decent also - larger than yesterday's volume on the sell-off.  The "bullish harami" candle print is about average - showing a 26-38% chance of marking a low.

Was this rally about nervous commercials wanting to get out while they still can?  Or just longs eager to get back in?  I had a friend ask me yesterday, "should I buy now?  Gold has really dropped..."  When the dips are shallow, this is the psychology of an uptrend.  Before today, I had no idea how large the BRexit premium was.  Now we can hazard a guess: perhaps it was around $40.   We do have the Italian banking crisis premium, but I'm not sure that's very big either.  $1310 could be a medium term low.  And those commercials still have a ton of covering to do.  Hundreds of tons, actually.

Gold's OI decreased by -3696 contracts, and GLD inventory fell by -2.08 tons.

Yesterday I asked for a big move down and a reversal bar, but all I got was this nondescript long white candle with some decent volume.  So I'm forced to guess.  Is this the low?  It could be.   Silver has worked off its overbought condition, and certainly the buyers did show up - the 60 cent trading range suggests we had a decently large day.  We need a confirmation to be sure; a close above that 9 EMA would be nice.

True to form, mining shares rallied after a one-day correction; GDX climbed +3.14% on moderately heavy volume, while GDXJ rose +5.44% on heavy volume.  Junior miners even managed to print a swing low on the day (40-60% chance of marking the low) while the seniors printed a bullish harami - only a 30-40% chance of a reversal there.  By the numbers, this is really only a 50/50 chance of marking the low, but my sense based on gold suggests the odds are probably somewhat better than that.  Then again, we could always dribble our way down to the 50 in fits and starts the way we did at the end of May.  I'd actually prefer that outcome; I'd feel more confident about buying.

Platinum rose +1.51%, palladium climbed +1.40% making yet another new high, and copper went up +0.20%.  Both industrial metals and PM are doing fairly well.

The ECB meeting caused the buck and the Euro to move a fair amount during the day, but when all was said and done, the buck ended down -0.22 to 97.05.  Chairman Draghi didn't end up doing anything, or really saying anything much more than "we should bail out those Italian banks with taxpayer money."  At least that's how I read it anyway.  Everyone in the EU in-group wants to keep Italian PM Renzi in power (http://www.bloomberg.com/news/articles/2016-07-21/risk-of-losing-renzi-may-sway-merkel-to-relent-on-italian-banks), and a bail-in could torpedo what remains of his political career and bring on the Five Star party, so given that, I'm fairly certain that some amount taxpayer money will be used in some way to address the issue.

WTIC fell -1.00 [-2.19%] to 44.75 - I'm using the CLU16 contract because contango confuses things too much sometimes.  While crude avoided making a new low, that's about the most bullish thing I could say; it managed to close near the lows for the day, and it also closed below the 200 MA, which is bearish.  Crude remains in a downtrend, and unless we stage a strong rally in the near future, I see oil dropping to 39-41 relatively soon.

SPX fell -7.85 to 2165.17.  Utilities led (XLU:+0.60%) while industrials trailed (XLI:-1.02%).  It was a very modest drop, but the drop in price got the attention of the put-buyers: VIX shot up +0.97 to 12.74.  While SPX candle print was a nondescript long black candle, the DJIA printed a two-candle swing high, but the code thinks this swing high is low percentage: 20-30% chance of marking a top.  It is in the bottom 10% of swing highs in terms of significance.

TLT was off early but rallied back, closing up +0.20% and printing a bullish engulfing/bullish belt hold candle pattern - a 40-50% chance of being a low.   Bonds may be on the way back up - it does line up with the rally in gold too.  That's risk off.

JNK fell -0.01%, a very mild move given the drop in oil.  It feels as though there is no fear in junk debt anymore.

CRB dropped again today, losing -0.77% and making a new low.  Commodity downtrend continues.

ECB meeting is over; next week we have an FOMC meeting which will spit out an announcement Wednesday at 14:00, press conference 14:30.   Do we imagine the Fed will do anything?  The FedWatch tool (based on futures prices) suggests a 1.2% chance of a rate rise this meeting.  http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html

We may have seen a near-term low for gold today.  That's not a sure thing, but I do think if gold prices drop, they probably won't drop too much further; TLT and gold seem to be moving more or less in sympathy, and TLT printed a fairly solid reversal bar today.   Oil and commodities still probably have further to fall.

I picked up some CEF early in the day; CEF looked good because it was selling at a bit of a discount to NAV, and I always like buying things on sale.  I prefer PHYS/PSLV, but was seduced by the 5% discount.  That said, I'm often early, YMMV, etc.

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