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PM Daily Market Commentary – 10/11/2018

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  • Thu, Oct 11, 2018 - 11:59pm

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    davefairtex

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    PM Daily Market Commentary – 10/11/2018

Gold shot up +30.21 [+2.51%] to 1231.90 on extremely heavy volume, while silver rose +0.29 [+2.06%] to 14.61 on very heavy volume. The buck fell -0.49%, which contributed to the metals rally, but today’s move was all about money fleeing risk assets for the safety of gold and US treasury bonds. SPX plunged -2.06%, crude dropped -2.25%, and TLT rose +1.22%. It was a mostly-classic safe haven day.

Contributing to the gold rally was the CPI report that came out at 8:30 am, which showed that government-measured inflation came in at the very low end of expectations: headline was 2.3% y/y, 0.1% m/m, and “core” 2.2% y/y.  This release helped gold, since theoretically a low inflation rating means less of a reason for the Fed to continue raising rates.

Gold chopped sideways in Asia, then at 3:05 am it took off, rallying steadily throughout the day, with the high at 2 pm. Candle print was a strong line/confirmed bullish NR7, which was a 74% bullish reversal. That’s as highly rated as it gets. Forecaster shot up +0.97 to +0.82, which is a buy signal for gold. Gold is now above both the 9 and 50 MA lines. Gold weekly also issued a buy signal because of today’s move, moving gold into an uptrend in both daily and weekly timeframes. Gold/Euros is in an uptrend in all 3 timeframes.

COMEX GC open interest rose 27,691 contracts, or 86 tons of paper gold. Holy crap, the shorts are really loading up. That – or this was official intervention designed to keep gold from moving even more rapidly higher. As a point of reference, the OI increase on the day of BRExit was 50,000 contracts.  And consider this: if managed money covered today, which they normally would on a move of this size, this would result in declining OI.  That suggests the size of the official intervention was even larger.

Rate rise chances (December 2018) rose to 78%.

Silver followed gold, jumping higher at 3:15 am, moving higher in fits and starts, topping out at 14.65 just after noon. Silver’s candle print was a swing low (64% bullish), and forecaster jumped +0.59 to +0.53, which is a buy signal for silver. Unlike gold, silver did not manage to break out of its recent trading zone, and the rally stopped right at the 50 MA. Today’s move erased the weekly sell signal; silver is now in an uptrend in both the daily and weekly timeframes.

COMEX SI open interest rose 1,100 contracts.

The gold/silver ratio climbed +0.41 to 84.03. That’s bearish – it suggests today’s move was a safe haven move rather than a more typical PM bull market. Still, the current level for the ratio suggests PM could be at or near a long term low.

Miners staged a huge rally today, with GDX up +6.66% on extremely heavy volume, while GDXJ climbed +6.46% on extremely heavy volume also. XAU rose +6.81%. The miners gapped up at the open, and rallied all day long, closing near the highs. XAU candle print was a swing low (49% bullish), forecaster jumped +0.74 to +0.79, which is a strong uptrend. On the chart, you can see that XAU broke out of its recent trading range, closing above the previous high set back in September. That’s bullish. XAU is also back above the 50 MA for the first time since June. XAU is now in an uptrend in all 3 timeframes.

The GDX:$GOLD ratio rose +4.04%, while the GDXJ:GDX ratio dropped -0.18%. That’s very bullish.

Platinum climbed +2.09%, palladium rose +1.16%, and copper moved up +0.71%. Gold outperformed all the other metals, which underscores the “safe haven” nature of today’s move.

The buck fell -0.47 [-0.49%] to 94.58. The long black candle was a bearish continuation, and the move took the buck back below its 50 MA. Forecaster dropped -0.21 to -0.31, which tells us the pace of the downtrend is increasing. The buck remains in a downtrend in both the daily and weekly timeframes. Money is starting to flee US assets.

Crude fell -1.63 [-2.25%] to 70.81. Crude was already down a buck at the time of the EIA report; it was slightly less bearish than yesterday’s API report (crude: +6m, gasoline: +1m, distillates: -2.7m), but the bounce lasted less than 30 minutes, after which crude continued to plunge. The opening black marubozu was a bearish continuation, forecaster dropped -0.59 to -0.68, which is a strong downtrend. That said, crude remains above its 50 MA, and in an uptrend in both the weekly and monthly timeframes. This is still only a daily correction for oil – the longer term trend remains intact.

SPX fell -57.31 [-2.06%] to 2728.37. SPX tried to rally early, failed, and then the real selling pressure occurred in the afternoon, pushing SPX down more than 70 points. SPX managed to bounce back somewhat by the close, but the long black candle was a bearish continuation. SPX ended the day well below the 200 MA. Forecaster dropped -0.17 to -1.16, which is a very strong downtrend. Today’s move caused the monthly forecaster to issue a sell signal: SPX is now in a downtrend in all 3 timeframes, assuming we close here by end of month. Monthly candle patterns are extremely bearish – but again, that assumes we close here at end of month. Daily RSI-7 for SPX is 6; it is extremely oversold.

What does “extremely oversold” mean?  Since 1962, over 14,287 trading days, SPX has only been this oversold 5 other times in history: 1962, 1966, 1987, and twice in 1970.  It doesn’t happen very often.  I interpret this to mean that a bounce is probably coming up in the very near future.  The few, excited shorts are going to be ringing the cash register with real enthusiasm.

Sector map has energy leading lower (XLE:-3.38%) along with financials (XLF:-2.98%), while the new communications sector (XLC:-0.85%) did best. This was a relatively bearish sector map.

VIX jumped +2.02 to 24.98. I wouldn’t be buying puts right now; they’re pretty expensive.

TLT rallied +1.22%, finally managing to attract money after some pretty poor performance during the recent move down by SPX. TY didn’t do as well, moving up just +0.05%. The 10-year yield fell a dramatic -9.2 bp to 3.13%. Now there’s a safe haven move for you.  Finally.  I suspect someone out there is selling a whole lot of longer-dated treasury bond, perhaps even a central bank or two, concerned about the breakout above 3.12% last week.

JNK rallied +0.26%, with all of its gains coming from a gap up open. Perhaps yesterday’s selling was overdone. JNK’s spinning top candle was unrated (it was an inside day), but forecaster jumped up +0.71 to -0.37, which is a big improvement. That suggests JNK’s downtrend could be nearing an end. Is this a tell for equities? Certainly by rallying today, JNK is diverging from SPX.  If JNK is a leading indicator, this suggests we might see a bounce tomorrow in risk assets.

CRB fell -0.75%, with 3 of 5 sectors dropping, led by energy (-3.13%).

So the star of the show today was gold. In spite of 86 tons of paper-gold selling pressure from “someone”, gold shot up $30, breaking clean out of its recent trading range, on massive volume.  Silver was the poor stepchild, but it managed to do well also, along with platinum.

We also saw a very strong move by the US 10-year treasury, which plunged 9 basis points – given the drop in the buck, that’s probably domestic money fleeing equities for debt.

However there are hints of good news; our coalmine canary – JNK – is showing signs of waking up. Eyelids are fluttering, there might be life in the old bird yet.  We could see a low tomorrow in SPX.

What then for gold?  If SPX bounces, that might cap gold’s gains, but SPX is not out of the woods yet.  Unless the bounce turns into a meaningful rally, there has been a fair amount of technical damage done to the uptrend.   We will have to see how it plays out.  The market is quite sensitive to bad news right now; more revelations about Chinese chip-infections, bad economic news, political instability, could all push equity prices lower still.  While the RSI-7 is quite low, I believe it is a news-driven market more than anything else.

And here’s a bit of good news – possibly encouraged by the market correction – Trump and Xi are going to meet during the G-20 meeting coming up next month, encouraged by Kudlow and Mnuchin.  (If you didn’t like today’s -2.06% drop in SPX, then you REALLY didn’t like the -5.22% drop in the Chinese SSEC, which is a 4-year low, and a 28% drop from the high set in 2018).   https://www.marketwatch.com/story/trump-plans-to-meet-chinas-xi-as-trade-tensions-rise-2018-10-11

The formerly-sleepy gold market is now wide awake.  The tell for today’s big move?  XAU’s forecaster buy signal yesterday.  I have no idea how it sniffed out the move, but it managed to do just that.

In spite of what I believe to be very strong official intervention, the market is telling us that gold remains the safe haven.  Not bitcoin – which dropped 5% yesterday.  Gold.

Of course if calm returns, then gold will probably go right back to sleep.  That’s just how things go.  Gold is not a speculation, it is an insurance policy.  If you don’t have a fire, a flood, or…a hurricane, then you don’t need insurance.

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