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PM Daily Market Commentary – 12/21/2015

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  • Tue, Dec 22, 2015 - 08:17am



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    PM Daily Market Commentary – 12/21/2015

Gold rose +12.10 to 1077.70 on moderate volume, and silver rallied +0.16 to 14.24 on moderate volume as well.  PM rose steadily starting in Asia through the close in NY.  Dips were bought.  The falling dollar appears to have helped, as did a modest rally in commodities.

Buyers are back at COMEX; that, and perhaps the shorts are ringing the cash register before end of year.  Gold broke its short term downtrend line, which means momentum is now leaning a bit more towards the "double bottom" outcome I talked about last week.  We are entering the holiday trading season where volumes tend to be much lighter, as many market participants are going on holiday.  In the old days not much happened during this period, but with all the computers out there…fewer participants makes the market even easier to push around for those that remain.  Fortunately for goldbugs, the commercials will not profit greatly from further price declines at least in gold, so I'm hoping that if manipulation takes place, it will be to the upside.

Silver managed to close over the Thursday high, which knocks out the "bearish engulfing" pattern which had me worried about silver.  Was the rally due to the falling dollar, the modest improvement in commodity prices, end of year position squaring – you got me, I don't know.  There has been so much chop lately in silver that it is hard to sort out directionality.  Right now, it looks like silver is poised to break out, but it looked that way last Wednesday too right after FOMC.  Still if I just forget about the last three days of back-and-forth drama, I'm cautiously bullish.

GDX closed up +1.78% on moderately heavy volume, while GDXJ was up +1.14% on light volume.  Miners are showing just modest enthusiasm; you can tell this just by looking at the chart.  GDX has yet to break its downtrend line, for instance, while gold has already done so.  Today's rally was better than a poke in the eye with a sharp stick, but not so long ago a $12 rally in gold would have had the miners up 3-4%.  Perhaps I've become spoiled.  GDX did close above its 9 EMA, which is positive, but I still feel miners have selling pressure they didn't have earlier.

Platinum rose +1.70% on heavy volume, while palladium fell -0.99% on light volume.

The buck's post-FOMC rally has faded; USD dropped -0.27 to 98.46, with the dollar coming to rest on its 9 EMA.  The buck appears to be continuing to head lower after the FOMC-driven rally – the ECB's not-nearly-enough Euro rally appears to be beating the FOMC's quarter point raise.  My sense: the market  expected more out of both Draghi and the FOMC than it actually got.

SPX rallied today, climbing +15.60 to 2021.15, regaining about 40% of the losses suffered on Friday.  While buy-the-dip is alive and well, we are starting to see a pattern of more dipping, and less buying.  VIX fell -2.00 to 18.70.  SPX needs a close above 2080 to get the shorts nervous.  I'd expect reasonably strong selling pressure to emerge as price rises up to that level, and right now the sellers appear to have the upper hand.

JNK fell -0.09%; the JNK chart continues to signal risk off, remaining below all 3 moving averages.

Bond ETF TLT fell -0.02%, virtually unchanged on the day.  After a whole lot of chop due to the ECB and the FOMC, bonds appear to have decided direction – they are slowly moving higher.  A short term pattern of higher highs and higher lows confirms this.

CRB rose for the second day in a row (omg!) climbing +0.15%.  Ok, so it's still below all 3 moving averages and its less than one percentage point away from its all time low, but – two up days in a row!

WTIC fell -0.05 to 35.78, printing a doji on the day.  Given oil's recent performance, that's almost the same thing as a rally!  Brent looks worse, dropping -0.36 [-0.98%] to 36.24 – the $0.46 spread between Brent and WTIC is the smallest I've seen in a couple of years.  My computer says "buy oil" – not because of the Brent-WTIC spread, but because it saw something it liked in today's price action.

US Natural gas ($NATGAS) shot dramatically higher today, climbing an incredible +0.17 [+9.75%] to 1.94.  That's a swing low, of course, and it is also a close above the 9 EMA.  It is probably also short covering, which has me wondering how far this will end up going.  If it is "THE low" in natgas, it could go for a while.  If not, it will be a one-day wonder.  Contango right now for natgas is about 7 cents, meaning February natgas sells for $2.01 while January natgas sells for $1.94.  The side effect of this is if you buy "UNG" to try and play the natgas rebound, you have a headwind of a 3.6% loss per month to overcome.  Same thing with crude and "USO"; Feb crude is 36.04, while March crude is 37.06, a 2.8% contango which eats away at your money every single month the contango is happening.

Buying "oil in the ground" is the other option, in the form of your favorite oil E&P company.  No contango, plus you get paid dividends in many cases.  This attractive option is why the IEO:$WTIC ratio has doubled during this recent collapse in oil prices, meaning oil companies got a lot more expensive relative to the price of oil.  "Its more fun to get paid a dividend than fight contango", the unspoken hope being that this whole oil trouble will all blow over in a year or two.

But I digress.

Now that FOMC is in the rear-view mirror, it appears that the usual suspects are back in play.  Rising commodity prices and a falling dollar appear to be helping PM to rally.  Given that commodities are dreadfully oversold, and the buck appears to have been disappointed by both Draghi and the FOMC, that should help encourage the buyers at the COMEX.  From what that COT report tells me, gold really does want to rally, and silver will probably follow along behind.  We are starting to see hints of that in prices now too.

Miners are the only fly in the ointment; traders don't seem that interested in them right now, not like they were a few weeks back anyway.  Perhaps its tax loss selling, like last year.  If we have a repeat of that, the last few days of December should see some pretty strong buying in the miners.

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