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PM Daily Market Commentary – 02/25/2020

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  • Wed, Feb 26, 2020 - 03:08am

    #1
    davefairtex

    davefairtex

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    PM Daily Market Commentary – 02/25/2020

Gold plunged -24.51 [-1.47%] to 1639.84 on extremely heavy volume, and silver plunged -0.66 [-3.53%] to 18.02 on extremely heavy volume also. The buck fell hard [-0.38%], SPX fell even harder [-3.03%], crude fell too [-2.39%], while bonds rose [the 10-Year yield fell -3.0 bp].

Gold chopped lower for most of the day, ending the day near the lows. The swing high candle was a likely bearish reversal (62%), forecaster dropped, falling into a downtrend. Gold is in an uptrend in the weekly and monthly timeframes.

Gold/euros plunged -24.01 [-1.57%] to 1506.98 on extremely heavy volume. The confirmed shooting star candle was a likely bearish reversal (66%), and forecaster fell, but it remains in an uptrend. Gold/euros is in an uptrend in the daily and weekly timeframes.

COMEX GC open interest rose +2.4K contracts. Current open interest for GC: 68% of global annual production, up +0.23% today.

Futures markets are projecting a 27.7% percent chance of a rate cut at the next FOMC meeting. That’s a big increase over yesterday.

 

Silver sold off all day long, plunging 30 cents right near end of day. The swing high2 candle was a probable bearish reversal (59%), forecaster fell hard, dropping into a downtrend. Even with today’s drop, silver remains in an uptrend in the weekly and monthly timeframes.

COMEX SI open interest fell -5.1K contracts. That was -10 days of global annual production in paper removed from the market. Current open interest for SI: 137% of global annual production, down -2.91% today. It sure looks like register-ringing on today’s decline, and I think that’s a positive sign.

The gold/silver ratio climbed +1.90 to 91.00. That’s quite bearish.

 

The miners gapped down at the open, tried to rally in the AM but the rally failed, and the miners sold off for the remainder of the day, closing at the lows. GDX dropped -3.48% on extremely heavy volume, and GDXJ cratered, falling -5.03% on extremely heavy volume also. XAU plunged -3.61%, the swing high candle was a likely bearish reversal (62%), forecaster dropped, falling into a downtrend. XAU still remains in an uptrend in the weekly and monthly timeframes.

The GDX:gold ratio dropped -2.08%, and the GDXJ:GDX ratio dropped -1.64%. That’s very bearish.

 

Platinum fell -39.40 [-4.24%], palladium rose +76.19 [+2.93%], and copper was unchanged. Platinum really fell off a cliff today – downtrend in all 3 timeframes. Contrast with palladium, which remains in an uptrend — above all 3 moving averages.

Copper edged slightly higher [+0.16%] to 2.57 on moderately heavy volume. The long black candle was a bearish continuation, and while forecaster climbed, it remains in a downtrend. Copper is in an uptrend in the weekly and monthly timeframes, but the uptrends are fairly weak.

 

The buck fell -0.38 [-0.38%] to 98.60 on heavy volume. The long black candle was a bearish continuation, and forecaster dropped, moving deeper into its downtrend. The buck remains in an uptrend in the weekly and monthly timeframes.

Major currency moves included: GBP [+0.57%], JPY [+0.46%]. The Yen’s recovery continues – it has regained most of the losses from last week.

 

Crude plunged -1.23 [-2.39%] to 50.23 on moderate volume. The long black candle was a bearish continuation, forecaster dropped, moving deeper into its downtrend. Crude is in a downtrend in all three timeframes.

Crude’s two-week bounce has been almost entirely unwound in just 2 days.

 

SPX plunged -97.68 [-3.03%] to 3128.21 on heavy volume. The strong line candle was a bearish continuation, and forecaster fell, moving deeper into its downtrend. SPX is in a downtrend in both the daily and weekly timeframes, with the monthly on the verge of tipping over as well.

How often does SPX drop this much? After sorting the 24,228 ticks in my database by percent move, this is #215 from the bottom. So – less than 1% of days are worse than today. It is a relatively rare event, but not an unheard of event.

Energy [-4.62%] led the market lower, along with materials [-4.51%], while staples [-1.84%] and utilities [-2.15%] did best. This was a bearish sector map.

The VIX rose +2.82 to 27.85. Fire insurance is always expensive in the middle of a firestorm. This VIX level is expensive, but the top VIX value during 2008 was 79, and the top VIX value 14 months ago was 36.

 

TLT climbed +0.53%. The opening white marubozu candle was a bullish continuation, forecaster climbed, moving higher into its uptrend. TLT is in an uptrend in the daily and weekly timeframes. The 30-Year yield fell -3.0 bp to +1.81%. This was yet another all time low for the 30-year yield.

TY moved up +0.10%. The high wave candle was a bullish continuation, forecaster dropped, but remains in an uptrend. TY remains in a very strong uptrend in all three timeframes. The 10-Year yield fell -3.0 bp to +1.35%. That’s a new all time low for the 10-year yield.

 

JNK cratered along with SPX, falling -0.79%. The strong line candle was a bearish continuation, and forecaster fell, moving deeper into its downtrend. JNK is now in a strong downtrend in both the daily and weekly timeframes. Money is fleeing crappy debt.

 

Economic Reports

Yield Curve Inversion: the 1-10 spread fell -1 bp to +2 bp today. 1Y: 1.33% (-2 bp), 10Y: 1.35% (-3 bp). Inversion inches closer.

Summary

Well, yesterday I had some concern we might see a bounce. We did – several times, intraday, but each bounce ended up being sold. Traders wanted out. If the plunge protection team is on the job, the amount of money they are able to commit is being swamped by the much larger chunk of real money that is just looking to get out.

As a result, risk assets were sold today – equities, and crappy debt, along with crude.

Copper, unaccountably, managed to avoid plunging.

Money poured into long-dated treasury bonds, driving yields to all-time lows – the 10-year yield series goes back to 1962!

PM sold off hard too, as did the miners. What on earth is going on? Isn’t gold a safe haven? Oddly, bitcoin sold off also, as did USD.

Why? I wish I knew the reason. Here are two possibilities that come to mind:

1) Deleveraging. Participants who have leveraged long positions (say a combination of equities, crappy debt, and gold) got margin calls on their crappy debt and equity positions, and had to sell their gold (futures) in order to raise cash.

This is what happened in 2008. During the 2008 crash, at first gold rallied, but then it sold off hard along with everything else, as market participants sold whatever they had on hand in order to repay margin debt. This could be happening again during today’s big, surprising drop.

2) It could also be official intervention; while the gold OI numbers aren’t showing any large increase in gold futures contracts, they could have found another way to intervene that isn’t as easy to spot. Since gold is heavily inversely correlated to SPX, (and most likely, algorithms act on this correlation), that makes smashing gold a back-door way to support equity prices.

And we all know just how enthusiastic Trump is about keeping SPX at all time highs.

The daily forecaster map paints the picture of where money is going. Note that gold/Euros remains in positive territory, right alongside long-dated US debt.

item period trend strength change
TLT.N day strong up +0.93 +0.01
TY.CW day strong up +0.50 +0.12
GC.EUR day up +0.27 -0.42
HG.CW day slight down -0.03 +0.35
GC.CW day down -0.13 -1.00
BTC.USD day down -0.26 -0.19
$XAU.N day strong down -0.40 -1.11
DX.CW day strong down -0.42 -0.33
SI.CW day strong down -0.48 -1.04
CL.CW day strong down -0.70 -0.47
JNK.N day strong down -0.93 -0.57
$SPX.N day strong down -1.01 -0.52
PL.V day strong down -1.18 -0.56

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  • Wed, Feb 26, 2020 - 06:15am

    #2

    Cold Rain

    Status Gold Member (Offline)

    Joined: Jul 26 2016

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    PM Daily

It is a shame that these massive overhangs in OI never lead to those $1 up days in silver.  Instead it seems to get smashed 95% of the time.  I keep watching the contracts increase as the price steadily rises and keep thinking that at some point, a short squeeze will provide that explosive action, like what happens with virtually every other item.  But not gold or silver.  Still, it’s been a pretty good run, especially for gold lately.

  • Wed, Feb 26, 2020 - 07:07am

    #3

    JAG

    Status Gold Member (Offline)

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    Posts: 314

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    Money on the Move

Hey DF,

I really hate your report today, lol, just joking. (sorry I couldn’t resist).

So a great deal of money just got pulled out of the market the last two days. Where is it going next?

I’m thinking it’s going into energy (oil and gas) because that makes no sense from a virus-trade perspective, and they have been playing the inverse of the momentum trade from even before the virus was on the radar.

I really have no clue about the technical signals that you use in your analysis (candles). What kind of candle pattern would indicate a bottom formation in the energy sector?

Thanks brother….J

  • Wed, Feb 26, 2020 - 09:39am

    #4
    davefairtex

    davefairtex

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    candles, energy, silver

JAG-

Candle patterns: they are mostly a relatively short-term indicator; reversal is good for 8 days, meaning, the top tick marks the top for the next 8 days.  The model is complicated – moving averages, RSI values, trading range sizes, nearby support & resistance levels, 52w high/lows, and some patterns too.  Each pattern is trained up on a few thousand instruments, but not too many samples from any given day.  (I.e. if SPX shows a “swing high”, then all the instruments will probably show a swing high on that same day – I pick a few at random to use in training the model).

I use the same model for all items – theory is, crude follows the same price movement rules as IBM.  And I can’t tell a priori what pattern will result in a high quality reversal.  The model is too complicated.  I wait until end of day + 6 hours, and then I find out right along with you.

The reversals sure did look ugly today for PM.  Sure enough, they remain under pressure today.

I agree that energy is going to be super dirt cheap when this is all over.  I was long energy until this virus thing came along, with just that idea in mind.  I’m just not sure it will be buying time within the next week or so.  Patience may be required.  If this virus is really serious, it could be months before we get a resolution.

And the junky debt bonds of the energy companies might be a better idea than equity.  If the company goes tits up between now and … a year from now, at least bondholders get something.  Equity gets zip.

Equity-wise, my friends like OXY.  It has a ridiculously high dividend, but it is losing money this quarter.  OXY is trading at 25 year lows.  Not financial advice, and I don’t have any right now.  (I sold mine a month or so ago).

CR-

I agree, waiting on this silver situation is annoying.  I wish I had an answer for you.  It has awesome promise, but for years now – it has just been a lot of promise, and not very much execution.

  • Wed, Feb 26, 2020 - 10:53am

    #5

    JAG

    Status Gold Member (Offline)

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    Posts: 314

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    re: Candles, Energy, Silver….and Bitcoin

Thank you Sir.

I agree with you that a bottom in energy is still probably a ways off, but I assume that sector rotation after this current “liquidity event” will front-run into energy.

Buying good energy companies with great dividends would be a good way to wait out the bottom consolidation process, which could take a good while. I like OXY and the AMLP ETF (which is currently paying 10% dividend) as possible plays.

I wanted to thank you for your post on trading against your emotions. I used it to buy some put options (really just a hedge) on GDXJ (April) the other day when everything was going my way. So far so good.

Yesterday I bought some OTM call options on SILJ for August. Taking a beating on those right now but time will tell.

One last thing, can you give us some input on bitcoin tomorrow? My small position has just gone negative on me today. I told myself I would supersize my position if it got under 9k, but now I’m thinking 8k, lol.

Bitcoin puts inverse-emotion trading to the test!

Thanks again for everything…J

  • Wed, Feb 26, 2020 - 11:35am

    #6
    davefairtex

    davefairtex

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    PM Daily Market Commentary – 02/25/2020

JAG-

I just want to caution you again about options.  This is the first time I’ve used them in 8 years.  And only long-dated ones, and only because of the “black swan” potential.  So far so good, but the volatility…I’m not used to seeing my portfolio change by 10% per day.  In both directions.

I’m much more (emotionally) suited to your oil strategy – buying stuff for the long haul after it gets the crap kicked out of it.  And the sector rotation thing will be a clue too.  Sometimes you can do a ratio analysis also.  As in, OXY:$WTIC, to see how the stock is holding up vs its commodity.    If OXY stays steady, while crude continues falling, the ratio will rise, and that’s a sign that big money is piling in.  It may not be the low, but its a sign that at least someone else is interested, and that should stop at least some of the bleeding.  You don’t want to be the only buyer on a long downhill slide.

Instructive: OIH:$WTIC, XLE:$WTIC.  Ouch.  It was all fun & games until about Feb 9th.  Not something I saw, btw, until I looked today.  I forget when I sold my oil things.  Around that time, maybe a bit after.

As for bitcoin – I don’t really track it much.  I don’t like that its falling as COVID becomes more of an issue.  If the story is, “safe haven”, and/or “an escape hatch”, its not showing the signs.  Technically, on the weekly, I see a 3-candle swing high, and its not showing any signs of a bullish reversal on the daily.

While you can buy the big black candles and roll the dice to get the cheapest price, there’s also no guarantee that you aren’t in this horrid downtrend that will last for another 4 weeks.  What’s your timeframe? Is your trade for a day, or for 3 months?

Day trade – not my thing.  A trend trade – you might want to wait for an actual reversal signal.  Which isn’t in evidence.  🙂

  • Thu, Feb 27, 2020 - 06:02am

    #7

    JAG

    Status Gold Member (Offline)

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    PM Daily Market Commentary – 02/25/2020

DF,

Thanks. I really like the ratio analysis that you described and I will look into it more this weekend.

For me, bitcoin is a buy and hold for a decade+ play. And in my opinion, Elliot wave analysis was predicting this pull back in bitcoin a month ago. I don’t believe virus concerns has played a huge role in this decline.

It’s interesting, I dismissed Elliot Wave as too wishy-washy for me in 2009, but it really seems effective for bitcoin analysis.

As for options, I’m definitely a newby but I like them, especially the long dated ones that I don’t have to worry about theta burn on. That UAL put option was up 330% by close yesterday, a big hat-tip to you!

I really appreciate all your time and effort in answering my questions. I promise to give you a break now. All the best….J

 

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