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PM Daily Market Commentary – 12/26/2018

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  • Thu, Dec 27, 2018 - 12:57am

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    davefairtex

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    PM Daily Market Commentary – 12/26/2018

On Friday, gold fell -2.55 [-0.20%] to 1272.60 on moderate volume, while silver jumped +0.26 [+1.79%] on heavy volume. The buck rallied [+0.57%], and SPX [+4.96%] and crude [+9.20%] shot higher, as did most everything else I track.

So WTF caused all the fuss? Well, Trump certainly helped by encouraging everyone to buy the dip, expressed confidence in Mnuchin, and seemed to suggest he also had confidence that the Fed would stop raising rates in the near future. Was the rally really all about buying by the celebrated plunge protection team? My guess: these guys might start rallies, but for every single sector I track to rally, there had to be broad-based participation from a wide variety of traders. That – and the market had fallen for quite a while; this also felt like a great deal of short-covering.

Again, read through the report and see what moved higher. When all risk assets rally, most likely its not “the plunge protection team” doing the heavy lifting. Most likely, its real money moving from safety into beaten-down risk assets after being reassured that Trump won’t run off and try to fire the Fed Chairman. That’s my guess anyway.

Gold rallied strongly in Asia, making a new high to 1285.10, but then fell as risk assets all rallied in unison. The shooting star candle was just slightly bearish (26% reversal), and forecaster actually moved higher (+0.25 to +0.30) – perhaps that was because gold’s drop overall wasn’t as strong as the dollar’s rise. Gold remains in an uptrend in all 3 timeframes.  My sense: today was not a reversal for gold.

COMEX GC open interest fell -3 contracts. This suggests to me that the drop in gold was “natural” rather than pushed lower by official intervention.

Rate rise chances fell to 10% in the near term (March 2019), and rose to 33% by end of next year (Dec 2019). That suggests the Fed is done – more likely than not.

Silver rallied along with gold, breaking out to a new high of 15.25; it retreated somewhat as equities rallied, but was able to hang on to most of its gains. The close above 15 took silver above its 4-month trading range – it was the long-awaited, bona-fide breakout. Forecaster issued a buy signal, which puts silver in an uptrend in all 3 timeframes.  This looks pretty exciting, right at year end.

COMEX SI open interest jumped +3,184 contracts – about 7 days of global production in new paper.

The gold/silver ratio plunged -1.64 to 84.17. That’s very bullish. With a move like this, it is possible we are seeing a transition from a safe-haven move into a more general PM market rally. The gold/silver ratio remains near multi-decade highs – that usually happens around a low for PM.

After rallying early, miners were under selling pressure; GDX fell -2.23% on very heavy volume, while GDXJ dropped -2.07% on very heavy volume also. XAU did much better, dropping only -0.81%. While the mining ETFs printed a variety of highly-rated bearish candle patterns (bearish engulfing, bearish belt hold, etc), XAU’s long black candle was only mildly bearish (32% reversal), and XAU forecaster actually moved higher. XAU remains above both the 9 and 50 MA lines, and is in an uptrend in all 3 timeframes. So – anything to worry about in the miners? My sense is – no, not yet, at least based on what I see with XAU.

The GDX:$GOLD ratio fell -2.03%, while the GDXJ:GDX ratio rose +0.16%. That’s bearish.

Platinum shot up +1.93%, palladium rose +1.25%, while copper jumped +1.65%. The other metals all rose; perhaps that’s why silver did so well also.

The buck rose +0.55 [+0.57]% to 96.49, making back all of the Christmas Eve losses and then some. After 4 days of high volatility back-and-forth, the buck might have decided on a direction. Today’s move unwound the weekly sell signal, and the daily issued a buy signal, putting the buck in an uptrend in the daily and weekly timeframes. It also pulled the buck back above the 9 MA. I’m not sure this is the “real” direction but – we will have to see.

Major moves today were: CAD [+2.87%], CHF [-0.74%], JPY [-0.52%], GBP [-0.59%]. That move in the CAD was all about oil.

Crude shot up +3.95 [+9.20%], a massive rally that no doubt caused a great deal of consternation (and short-covering) in the oil bears. Candle print was highly-rated swing low (62% reversal), and forecaster jumped +0.71 to +0.07, which is just enough for a buy signal on the daily. Crude remains in a downtrend in the weekly and monthly timeframes. This looks cautiously positive – but I’m not yet certain that the trend has really reversed. Momentum on the longer term timeframes remains pointing lower.

SPX jumped +116.60 [+4.96%] to 2467.70. While there was a move higher overnight in the futures markets, most of the rally took place during the trading day. The closing white marubozu was bullish (51% reversal), but today’s move was not enough to cause the forecaster to issue a buy signal, although it did improve (+0.58 to -0.30). SPX remains in a downtrend in all 3 timeframes, and below all 3 moving averages. Today’s rally erased the previous two days of losses – but the trend has yet to actually reverse.  At a minimum we need a close above the 9 MA – but that’s actually not too far away.

Sector map had energy doing best (XLE:+6.22%) along with tech (XLK:+6.04%), while utilities (XLU:+1.36%) and staples (XLP:+2.79%) brought up the rear. This was a largely bullish sector map.

VIX fell -5.66 to 30.41. Market remains worried.

TLT plunged -1.07%, forecaster issued a sell signal, and the confirmed bearish NR7 was also negative (49% reversal). TY confirmed, dropping -0.48%, the bearish engulfing looked unpleasant (40% reversal), and forecaster moved lower – but TY remains in an uptrend in all 3 timeframes. The 10-year yield rose +4.8 bp to 2.80%. In spite of today’s losses, TY remains above all 3 moving averages.

JNK shot up +1.70%, a strong relief rally that echoed the move in equities. The closing white marubozu was quite strong (51% reversal), but while forecaster improved (+0.75 to -0.19) it wasn’t enough for a buy signal. JNK looks a whole lot like equities at this point.

CRB jumped +2.72%, with 3 of 5 sectors rising, led by energy (+6.40%). Energy recovered all of its losses from Christmas Eve.

While today’s rally in risk assets was quite strong, it wasn’t enough to reverse trend in either equities, or junky debt.

PM’s move was more interesting – silver’s close above the 15 is giving us a possibility: just maybe, PM is about to transition from a gold-focused “safe haven” move into a more general PM rally. For that to happen, the gold/silver ratio has to decline, and that means silver rallies strongly and gold doesn’t do much, until the ratio catches up. Miners will have to participate too. We’ll have to see how that unfolds. If silver continues moving higher and the gold/silver ratio continues to plunge, this could be quite exciting for the PM sector overall. We’ll just have to see.

Crude’s rally is the big question mark. Today’s rally was a massive move, and short term there’s a buy signal, but it has yet to reverse direction on the longer term charts. My guess is, a continued move higher in equities and junky debt depend on a recovery in oil prices. For me, the jury remains out on where oil prices go next.

The VIX is also saying that things haven’t moved back to “all is well” territory just yet.

The market is fairly certain that the Fed won’t be raising rates at the next few meetings. That’s positive for gold, certainly; today’s sprint higher in risk assets didn’t take very much off the gold price. In fact, gold actually rallied in Euro terms.

Will risk assets continue to rally? My guess is prices will probably move higher through the early part of 2019; that January effect is fairly strong. Tomorrow we will have some idea if there is any follow-through. I think crude remains the key.

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