PM Daily Market Commentary – 11/16/2015
Gold fell -1.80 to 1081.60 on moderately heavy volume, while silver dropped -0.03 to 14.20 on moderately heavy volume also. Gold opened higher and then continued to rally into mid-day in Asia. After peaking at 1097.40, it sold off during London and NY, a failed rally for gold.
Since the high in mid-October, gold has dropped 20 out of 23 days. This is a pretty appalling record, and gold remains unable to move higher even though it is now quite oversold. It closed today slightly above support at 1080. This is a dangerous place for gold to be.
Today marks the 13th red day for silver. Traders are in a sell-the-rally mode, and they'll continue to do this until enough buyers show up to force them to cover. So far that hasn't happened. At least the rate of descent is slower – that's about the only positive thing I can say for silver.
Miners once again confounded expectation and rallied; GDX closed up +0.89% on light volume, and GDXJ rose +0.57% on very light volume. The volume suggests to me that traders simply aren't selling the mining shares right now. Not much buying is taking place – but buyers outnumber sellers.
The buck rallied strongly today, up +0.44 to 99.54, which is a new closing high for the dollar for this cycle. Buck remains above the 9 EMA and thus remains in its strong uptrend. This is not helping gold.
Equities reversed strongly today, with SPX climbing +30.15 to 2053.19. The rally started prior to market open at 08:30 – the only report at that time was the Empire State Mfg report. To me, the report looked negative, but the market rallied. Bad news is good news? Money fleeing Europe? Who knows. If we put in another strong equity day tomorrow, I believe the market will rally to new highs from here. VIX fell -1.92 to 18.16.
JNK rallied strongly too, up +0.37%. Likely JNK enjoyed the oil market's rebound.
Bond ETF TLT dropped -0.09%; money moving from bonds to equities. TLT is struggling to break above its 9 EMA. Bonds continue to look weak.
The CRB rose +0.35%, printing a bullish-looking hammer candle on the day. This could mark a low in commodity prices, if it can confirm tomorrow with another rally.
After finding support just above 40, oil rallied strongly today, with WTIC up +1.31 to 42.04. A close above today's high of 42.25 will mark a swing low for oil. Brent printed a bullish-looking doji/reversal bar on high volume. If all I had to look at was Brent, I'd say the low is in, more likely than not.
Has the trend changed for oil, or is this just one of the periodic short-covering events on the way to 37? Computer is still short oil, although another positive day will probably change its mind. Computer is now long oil equities. Traders have been buying oil equities in preference to oil since October – we can see this in the XLE:$WTIC ratio. Perhaps we could think of this as "buying oil in the ground."
COT report came in one day late because of Veterans Day.
Gold commercial shorts covered a massive 43.5k shorts this past week – apparently they are the only ones buying on the way down. Managed Money sold 25k longs, and added 26k shorts. It was a really large change. Commercials are clearly ringing the cash register as price continues to descend, while Managed Money is loading up short. In the chart below, we can see that the commercials have some more shorts left to cover, and then we will be in the happy "reversal zone" where downtrends reverse and the buyers at COMEX reappear. Since the COT is 3 days delayed, we could be closer than what we see today. I'd say we'll arrive by end of this week, if not before.
In silver, commercials covered 10k shorts, while Managed Money added 17k shorts and bailed out of 5.6k longs. Although the change is relatively large, Managed Money is still largely refusing to dump the bulk of its long contracts. Either we have a lot further to fall in silver, or something fundamental has changed at COMEX. I wish I knew which one it was.
The COT report suggests we're finally approaching a reversal point for gold. In the past few years, once the commercials have covered their shorts, that's when more sustained rallies occur. Recent price action says we're not there yet. My only question is, do we need one more move down before this happens? As I write this, gold has dropped down to 1077 in trading in Asia. That's very close to the previous low at 1072. My guess is, at some point soon gold will be smashed (briefly) through 1072, giving the commercials one last flurry of short covering before the rebound happens. I know I've said this for many days now, but its still how I feel. Risks to this projection: if commodities start to rebound more seriously in the next few days, then gold might rebound on its own.
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Gold broke below the previous low of 1072.30 just now. Because of the relatively slow-moving nature of the price drop, to me it appears that the Managed Money shorts are pushing prices lower, while the commercials continue to cover. The rebound is just a matter of time, but there may be a substantial drop in price before that happens due to stops just underneath the 1072.30 price triggered by the drop.
Gold's breakdown is causing some serious selling in the miners, (GDX down -4.08%) who are now close to breaking to new lows of their own.
Since the uptrend is dead, gone, and buried, there's no point in trying to fish for the bottom on this, unless you're a real gambler or you just want to buy some little gold bars "for later." If you want to try it anyway, its probably best to wait for the buyers at COMEX to show up first – a nice reversal bar plus confirmation next day – so that you can have a better chance of having it be the actual low rather than red candle #21, or #22, or whatever.
It seems to me that breaking the previous low didn't have the dramatic sell-off that most feared (in comparison to the $50 down spike we saw last time). My guess is that people saw this coming and closed out days before support broke – perhaps the failed rally allowed them a second chance cash out as well.
Anyway, let's see how the rest of the week plays out before I go jumping to conclusions.
Regardless, I thoroughly appreciate the analysis even if it's not the news I want to hear.