PM Daily Market Commentary – 10/26/2020

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  • Tue, Oct 27, 2020 - 06:14am

    #1

    davefairtex

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    PM Daily Market Commentary – 10/26/2020

Gold inched up +0.38 [+0.02%] to 1909.89 on moderately light volume, while silver fell -0.30 [-1.21%] to 24.48 on moderate volume. The buck jumped higher [+0.30%], SPX dropped hard [-1.86%], crude fell too [-2.86%], while bonds rallied [the 10-Year yield fell -5.0 bp].

Gold dipped in Asia, bounced back during London, then moved sideways for the rest of the day. The doji candle was a bearish continuation, forecaster fell, dropping into a downtrend. Gold is in a downtrend in all three timeframes.

Gold/euros climbed +4.31 [+0.27%] to 1616.53 on moderately light volume. The spinning top candle was unrated, forecaster climbed, but remains in a downtrend. Gold/euros is in an uptrend in the weekly timeframe.

COMEX GC open interest rose +178 contracts. Current open interest for GC: 52% of global annual production, up +0.02% today. 99 GC contracts stood for delivery at COMEX today.

Not much happened today for gold; given the dollar decline, that’s a mildly positive outcome.

Silver dropped early in Asia, and then chopped mostly sideways for the remainder of the day. The opening black marubozu candle was a bearish continuation, forecaster fell, dropping into a downtrend. Silver is in a downtrend in the daily timeframe.

COMEX SI open interest rose +953 contracts. Current open interest for SI: 92% of global annual production, up +0.55% today. 2 SI contracts stood for delivery at COMEX today.

The gold/silver ratio climbed +0.96 to 78.02. That’s bearish.

Silver didn’t do so well when compared with gold. It ended the day below the 9 MA; that’s not a great sign. Longer term trends remain mostly flat.

Miners gapped down slightly at the open, rallied in the first 30 minutes, then sold off through end of day, closing at the lows. GDX fell -1.57% on moderate volume, and GDXJ dropped -2.11% on moderate volume. XAU moved down -1.75%, the spinning top candle was a reasonably strong bullish reversal (41%), forecaster climbed, but remains in a downtrend. XAU is in an uptrend in the weekly and monthly timeframes.

The GDX:gold ratio dropped -1.62%, and the GDXJ:GDX ratio dropped -0.55%. That’s bearish.

My code liked today’s price action – I did not. I feel the miners look weak; they made a new 2-week low, and they closed at the lows too. Neither of those are a good sign. Medium-term trends are still modestly positive.

Platinum fell -34.80 [-3.98%], and palladium fell -34.87 [-1.47%]. Platinum really had a bad day, although the candle print was both bearish and bullish at the same time. Both platinum and palladium have fallen into downtrends, but not very severe ones.

Copper fell -0.05 [-1.59%] to 3.09 on moderate volume. The opening black marubozu candle was a bearish continuation, forecaster climbed, moving higher into its uptrend. Copper is in an uptrend in the daily and monthly timeframes.

Copper’s brisk move down took it below the 9 MA, which is a bearish sign. The move was bearish enough to yank the weekly into a downtrend. It is possible that copper really is starting to finally correct. Maybe.

The buck rose +0.28 [+0.30%] to 93.02 on moderately light volume. The opening white marubozu candle was unrated, forecaster climbed, moving higher into its uptrend. The buck is in a downtrend in both the weekly and monthly timeframes.

Major currency moves included: CAD [-0.50%].

Still no real clarity for the buck – it appears to be trying to put in a low here, but it is a slow process. Buck remains below all 3 moving averages, which is bearish. It really needs another close above the 50 MA to start looking a bit more healthy.

Crude plunged -1.14 [-2.86%] to 38.69 on moderate volume. The opening black marubozu candle was a bearish continuation, forecaster inched higher, but remains in a downtrend. Crude is in a downtrend in all three timeframes.

This was not a good day for crude at all; it did seem to find support at the 200 MA, but the trends are now all pointing lower.

SPX plunged -64.42 [-1.86%] to 3400.97 on moderate volume. The confirmed northern doji candle was a likely bearish reversal (62%), forecaster climbed, moving higher into its uptrend. SPX is in an uptrend in all three timeframes.

Energy [-3.72%] led the market lower, along with industrials [-2.57%], while utilities [-0.03%] and sickcare [-1.13%] did best. This was a bearish sector map.

The VIX screamed higher, up +4.91 to 32.46.

NYSE advance ratio was 12%. That’s really bearish. SPX was actually down really hard through mid-day, and managed to recover half of its losses by the close. So far forecaster hasn’t dropped into a downtrend yet, but we have a close below the 50 MA, which is a bearish sign.

TLT rallied +0.93%. The swing low2 candle was a probable bullish reversal (55%), forecaster climbed, rising into an uptrend. TLT is in an uptrend in the daily timeframe. The 30-Year yield fell -5.0 bp to +1.59%.

TY climbed +0.22%. The opening white marubozu candle was a bullish continuation, forecaster climbed, rising into an uptrend. TY is in a downtrend in both the weekly and monthly timeframes. The 10-Year yield fell -5.0 bp to +0.80%.

It was a strong day for bonds – the first in a while.

JNK dropped -0.80%. The swing high candle was a likely bearish reversal (63%), forecaster dropped, dropping into a downtrend. JNK is in a downtrend in both the daily and weekly timeframes.

Today JNK fell through both the 9 and 50 MA lines, printed an ugly reversal pattern, and plunged into a downtrend. This is a pretty clear bearish reversal for crappy debt.

Physical Supply

The GLD ETF tonnage on hand was unchanged at +0.00 tons, with 1264 tons remaining in inventory.

ETF Discount to NAV:
* CEF -2.76%
* PHYS -0.09%
* PSLV -2.86%
Gold dealer big bar premiums:
* gold [1kg]: +1.42%
* silver [100 oz]: +6.18%

While physical ETF discounts remain mostly unchanged, premiums on big bar gold at retail are rising. Silver big bar premiums remain relatively low.

Economic Reports

Median new home sales price: headline 327K, +4.4K (+1.35% m/m), SF new home sales: 959K, -35K (-3.65% m/m), monthly home supply: 3.60, +0.20 (+5.56% m/m).

Summary

Gold managed to stay even, but silver and the miners were hit fairly hard today. The miners looked to have been dragged down by the equity market plunge, while silver appears to have been connected to the buck, at least to some degree. The PM group overall is starting to look a bit more bearish.

Equities, crappy debt, copper, and crude all declined fairly substantially today, but the declines were not synchronized, i.e. the drops were not all triggered by one single event.

Bonds did quite well today. Perhaps the bond market isn’t dead just yet; money flowed into the buck also.

There will almost certainly be no stimulus agreement prior to the election.

https://www.marketwatch.com/story/its-about-midnight-for-stimulus-deal-key-gop-senator-says-11603737584

The CCP said it would impose sanctions on Lockheed Martin, Boeing, and Raytheon in response to the US selling a coastal defense weapons system to Taiwan.

That’s about it.

  • Tue, Oct 27, 2020 - 09:37am

    #2

    davefairtex

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    Q3 GDP Now forecast: +35% annualized (+8.82% Q/Q)

Q3 GDP is set to come out this coming Thursday.  Here’s what the chart of GDP Now (the Fed’s GDP forecast) looks like.

Note that the projected Q3 35% gain is annualized; this boils down to an +8.82% Q/Q increase in Q3, which neatly retraces the -8.02% drop in Q1/Q2.  It will certainly be the largest gain in history.  I’m guessing Trump might mention this at his rallies.

This puts the US flat for 2020.  Believe it or not.

This is what 3.4 trillion in deficit spending will get you.  Trump gets to talk about it, but we are paying for it.  One way or another.

Nothing free in this world.

  • Tue, Oct 27, 2020 - 10:01am

    #3

    Quercus bicolor

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    PM Daily Market Commentary – 10/26/2020

So GDP is about $5.4 trillion per quarter.  The Q3 increase of 8% of the pre-crisis value is $430 billion.  $0.43 trillion in GDP growth took  $3.25 trillion in deficit spending for about 13% efficiency.  To be really generous, let’s subtract out the $1 trillion deficit average over 2018-2019, there’s about $2.25 trillion in extra deficit spending, about 19% of which showed up in increased GDP.  That doesn’t sound very promising.  I doubt the increase has much staying power as little to none of it was real investment, just pulling spending forward.

  • Tue, Oct 27, 2020 - 10:49am

    #4

    davefairtex

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    who got the “inefficient” cash?

QB-

I agree with your GDP numbers.  The theory was, if we papered over the plunge with borrowed money, and “things got back to normal”, there would be no economic dislocation and things would resume where they left off.

That won’t happen with airlines, or with restaurants, or hotels – or anywhere in travel, really.  So that destruction will happen.  It will just happen a bit later on.

An interesting question to ask might be, why was this support so inefficient?  How come we couldn’t just replace GDP dollar for dollar with borrowed money?

Presumably someone got that extra inefficient cash, right?

Who?

Am I wrong here?

  • Tue, Oct 27, 2020 - 11:04am

    #5

    Quercus bicolor

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    Who got the cash

You are most definitely correct Dave.

Someone got it and did something non-productive like buying stocks or other equity, buying back their own company’s stock, paying down debt, buying real estate at inflated prices or socking it away as cash in bank accounts that was obviously not loaned back into the economy.

  • Tue, Oct 27, 2020 - 04:05pm

    #6
    Mohammed Mast

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    PM Daily Market Commentary – 10/26/2020

Ha Ha HA.

Gold inched up .38 WOW impressive.

Microstrategy’s treasury holdings in BTC went up over $100 million in the last three months.

What an idiot Mike Saylor is. His treasury could have gone up $100 if he had bought gold instead of  BTC. Oh well I am sure he will figure out his mistake. lol

Oh wait the internet is going to crash and we will get hit by an asteroid. I hope he has a garden.

 

  • Tue, Oct 27, 2020 - 08:35pm

    #7

    davefairtex

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    PM Daily Market Commentary – 10/26/2020

I get the sense you aren’t having a great time with life right now.  I hope it gets better for you soon.

  • Tue, Oct 27, 2020 - 10:24pm

    #8
    ao

    ao

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    Mohammed, you’re comparing watermelons to berries

You’re comparing a 3 month return on 425 million dollars of BTC versus a particularly weak one day return on gold.  However, if we look at the recent return on gold for a 3 month period from May 6 to August 6, it returned 22%.  Granted, it has lost some ground since then but BTC has also had periods where it has lost ground … sometimes lots of it.  The 1 year period from Dec. 17, 2017 to Dec. 15, 2018 when it plummeted from $19,166.98 all the way down to $3,194.91 comes to mind.  That was an 83.3% catastrophic plunge for anyone who bought at the high.  Yikes!  And they still haven’t recovered from that.

Conversely, looking at the recent 3 month period for gold noted above, if Saylor’s 425 million were in gold, he would have had a return of 93.5 million dollars, not a shabby figure when compared to the 100 million dollars from BTC.  And that is in an asset with a very long, solid, proven history of safety.

Personally, the impression I’m getting from seeing so many people talking up their BTC book online and in the news (including Saylor), is of a situation having many of the characteristics of the “pump” phase of a “pump and dump” scheme.  It’s just a little too “exuberant” for my tastes.  YMMV.

 

  • Tue, Oct 27, 2020 - 11:26pm

    #9

    davefairtex

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    gold monthly

Here’s a fun monthly chart I’ve been working on refining in the background.  I’ve greatly reduced the influence of more conventional ratios in the model, and I’ve added Armstrong’s cycle timing as a primary input.  You can see the influence of this in the blue forecaster line.

Curiously, Armstrong himself said that gold had a 5.6 frequency cycle timing, but when I used that as the frequency, things just didn’t work out as well.

Anyhow, it sure seems as though gold is in a fairly major down cycle right now in terms of the timing; we just have to wait for that to run its course.

I’m still experimenting.

 

  • Wed, Oct 28, 2020 - 06:14am

    #10
    VTGothic

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    Modeled Cyclical Highs and Lows in BTC

@ao,

I agree with your basic observation that time periods can be cherry-picked to show what someone wants to show, therefore I want to make three observations drawn from the now 11-year history of BTC.

The first is that in the period 2009 – 2020 BTC has significantly outperformed gold despite the high volatility of BTC.

The second is that there is no 4-year period in which a BTC stalwart has lost money. While it is true that BTC can gyrate wildly from high to low, it does so on a predictable 4-year cycle. That means the market could be timed for those who wish to do so.

The third is that despite the volatility, BTC always posts higher lows on the low extremes and settles into a midpoint that is higher than previous cycles.

Do investors and speculators play games with BTC’s price and flow? Of course. It turns out, though, that those games are just froth over the surface of a deep current that runs like clockwork – and that clockwork character of the current is why the committed core does not panic when the highs plunge, nor lose hope when during the 18 months just prior to a new halving when the coin trades inconclusively sideways.

Past history is no promise of future performance, of course. But even if Saylor is engaged in a pump and dump scheme (I don’t think he is, but I recognize he could be), that, too, would just be froth.

Additionally, given the rapidly increasing institutional and big money interest in BTC, if he does dump, there is every reason to expect a willing market of new institutional buyers who understand the cyclical nature of the BTC dynamic and the reason for its relentless asymmetrical upside trajectory will be happy to buy all the coin he chooses to shed – especially if they can pick it up during the next low. Heck, I’d try to get my pittance share, too.

Lyn Alden does a great job of explaining, here, in market analyst terms why she turned bullish on BTC in April this year, and plans to hold for at least a 2-year period (corresponding, I’ll note, to the current cycle’s uptrend). You might find it informative.

This chart by pseudonymous PlanB illustrates the history of BTC growth within its cyclical pattern in comparison to what his stock-to-flow cross-asset model predicts. (Posted October 21 on his Twitter feed.)

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