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PM Daily Market Commentary – 12/15/2016

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  • Thu, Dec 15, 2016 - 09:42pm

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    davefairtex

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    PM Daily Market Commentary – 12/15/2016

 

Gold fell -14.30 [-1.25%] to 1130.30 on moderately heavy volume, while silver plunged -0.88 to 16.02 on extremely heavy volume. Gold’s move lower came as the buck broke out to new highs; the buck followed through strongly after yesterday’s FOMC surprise projection of three rate increases for 2017.

The buck raced higher, up +1.29 [+1.27%] to 103.01, a new multi-decade high for the dollar and a massive gain for just one day. Intraday, the buck actually hit 103.52 – today’s currency moves were huge, and the trading range was large. Candle print was a “long white” candle, which might mark the top (18% chance). On the other side of the fence, the Euro plummeted to a new low of 103.60, which fairly conclusively breaks the 105 support level. A drop down to “parity” probably takes gold down below 1100. The Euro needs to rally here and soon.

Gold’s drop today about equaled the move higher in the buck on a percentage basis; that says today’s plunge was just a currency effect. Candle print was a “long black” candle, which the code says is just an 11% chance of marking the low. Gold is oversold, with RSI-7=19, and remains below its 9 EMA, firmly in a downtrend. So far, at least, there is no sign of any sort of low being made.

On the weekly chart below, we can see that gold has dropped around $240 since the high set just after BRExit, with the decline greatly accelerating following the election of Trump on Nov 7th. I see support for gold at round number 1100, as well as the previous low at 1040. While we can hope it won’t drop that far, in truth gold is actually just a few days away from 1100 at its current pace. Gold is also oversold in the weekly timeframe too, with weekly RSI-7=18. Technically, gold could bounce at any moment, and today’s plunge was definitely “just” a currency effect, so its possible the selling may be burning itself out.  All we need now is for the currency to cooperate.

Rate rise chances (May 2017) are at 34%.

Gold open interest at COMEX rose +5,095 contracts.

Silver simply cratered today, selling off much harder than gold. Silver made a new low to 15.92, dropping briefly below round number 16.00 before bouncing weakly back. This was exactly the outcome I was concerned about: silver staging a modest rally over the course of a few weeks, only to sell off really hard in just one day, making a new low in the process. Still, on the longer term weekly chart, we can see that silver has some pretty strong support at 16, so we might not have the follow-through for silver that we did the last time we saw this sort of drop. Its probable that the commercials had something to do with the timing of the drop, but without the large move higher in the buck, it likely wouldn’t have happened.

Miners continued falling, with GDX losing -4.52% on very heavy volume, and GDXJ down -5.78% on heavy volume. Still, the disaster wasn’t as bad as I had feared – I was expecting another 8-10% drop and a big red candle, and that’s not what happened. Candle print was an “opening black marubozu”, which is not normally a bullish candle but in this case, the candle code gives it a 33% chance of marking a low – the most bullish rating it can assign to this normally-bearish candle. The narrow trading range and the huge volume tells me that there had to be some big buyers out there today. Almost all the losses came at the opening gap down, with the miners trading mostly sideways for the remainder of the day. I’m not exactly optimistic, but the news in the miners really isn’t all bad. Today’s price action could easily mark a low, if gold manages to rally tomorrow.

Platinum fell -3.12%, palladium dropped -3.67%, and copper rose -0.13%.  It was a bad day for PM.

Crude initially continued dropping, but then the buyers appeared just before the US market open, with crude eventually closing up +0.36 to 51.23. Candle print was a spinning top, which the candle code really liked: a 53% chance of marking a low, which is a very strong rating for the normally-boring spinning top.  Candle looked a lot like a takuri line – perhaps that’s why it got the bullish assessment. I think there’s a fairly strong bid under the oil market right now; for crude to do this well on a day when the dollar rallied more than a full point – that’s a bullish sign.  Crude is back above its 9 EMA.

SPX rallied +8.75 to 2262.03. Financials led (XLF:+0.85%), while cyclicals trailed (XLY:-0.24%). Utilities (XLU:+0.71%) rallied, making back some of yesterday’s smash; the utility chart actually looks reasonably positive. Perhaps the selling pressure on “stuff with a yield” is fading somewhat. Candle print was a “bullish harami”, with a 52% chance of SPX resuming its uptrend. That’s pretty bullish. VIX dropped -0.40 to 12.79.

TLT rallied +0.72%, recovering a chunk of yesterday’s big sell-off. TLT remains below its 9 EMA, but today’s move was actually decent. Utilities could be a tell that bonds might be ready to mark a low.

JNK rallied +0.11%, which was not enough to move JNK back above its 9 EMA.

CRB fell -0.68%, dropping below the 9 EMA. 4 of 5 sectors fell, led lower by the big drop in PM [Gold, silver, platinum, and palladium all fell, with gold falling the least].

The big question in my mind, at least for the near term, is how much more the dollar will rise (or the Euro will drop) before the move runs out of steam. The miners saw some stealth buying today (big volume, and a small trading range tells us that) but that won’t be enough to cause a reversal unless that dollar stops moving higher. Gold is oversold on both the daily and weekly timeframes, so it really could bounce any day now – it just needs a catalyst.

We are seeing hints that both bonds and utilities aren’t continuing to sell off; this suggests that the Fed’s 3-rate-rise surprise could play itself out relatively quickly, at least in some areas, rather than starting a big new leg down.

But at the moment, all gold traders are seeing is an ever-stronger dollar. As long as that continues, gold will – probably – continue to fall.

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