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PM Daily Market Commentary – 12/27/2018

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  • Fri, Dec 28, 2018 - 01:27am

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    davefairtex

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    PM Daily Market Commentary – 12/27/2018

Gold rose +8.54 [+0.67%] to 1281.14 on moderately heavy volume, and silver jumped +0.19 [+1.26%] to 15.29 on heavy volume. The buck fell -0.59%, erasing yesterday’s rally, crude dropped -2.62%, while SPX managed to move up +0.86%. It was a day of some contradictions. I’ll explain further below.

Gold staged a reasonably strong rally for much of the day, dropping back somewhat as SPX rallied in the afternoon in New York. While gold did not make a new high, it did make a new closing high, which was a positive sign. The long white candle was unrated, while forecaster tells us that gold’s uptrend is strengthening. Gold remains in an uptrend in all 3 timeframes.

COMEX GC open interest rose +5,626 contracts.

Rate rise chances fell to 5% in the near term (March 2019), and is at 26% by end of next year (Dec 2019). The market is starting to price in the potential for a 25 bp rate cut by December: currently at 8%.

Silver rallied along with gold, but didn’t fade very much as SPX rallied – silver made a new high today to 15.33, and its long white candle was a bullish continuation. Silver’s forecaster also moved into a stronger uptrend, and silver is approaching its 200 MA. Silver remains in an uptrend in all 3 timeframes.

COMEX SI open interest fell -2,613 contracts – hmm that smells a little like short-covering.

The gold/silver ratio fell -0.54 to 83.63. That’s bullish. The continuing drop in the gold/silver ratio is suggesting a more general PM rally is starting to unfold.

Miners moved higher today, with GDX up +1.70% on heavy volume while GDXJ climbed +1.64% on moderately heavy volume. XAU rose +1.14%, erasing the losses from yesterday’s plunge, but failing to make a new high. XAU remains close to a larger breakout. The daily uptrend remains, but it isn’t particularly strong.  However, the longer XAU stays at these levels, the more likely a breakout will occur. XAU remains in an uptrend in all 3 timeframes.

The GDX:$GOLD ratio rose +1.02%, while the GDXJ:GDX ratio fell -0.06%. That’s relatively bullish.

Platinum fell -0.29%, palladium climbed +0.83%, while copper dropped -1.18%. Copper looks relatively weak, palladium appears ready to break out to new highs, while platinum is somewhere in the middle.

The buck fell -0.57 [-0.59%] to 95.92. The plunge wiped out yesterday’s rally – this is the 5th straight day of strong reversals in the dollar – it is chopping sideways with very high volatility. Today’s drop was enough to cause the forecaster to issue a sell signal, which puts the buck in a downtrend in both the daily and monthly timeframe, and the weekly is looking awfully close to a reversal too. My sense is the buck moves lower from here. Unless of course something bad happens in Europe.

Major moves today were: EUR [+0.68%], CHF [+0.77%], AUD [-0.50%], CAD [-0.45%]. That’s a bunch of mixed signals if there ever was one; normally a drop in AUD would signal risk off, as would a rise in CHF.

Crude fell -1.23 [-2.62%], losing a fair amount of yesterday’s huge rally. The API report was bearish (crude: +6.9m, gasoline: +3.7m, distillates: -0.6m), while the EIA’s weekly crude production data had the US production unchanged at 11.6 mbpd. Crude’s bearish harami candle was actually a bullish continuation, while forecaster moved higher into an uptrend. Crude remains in a downtrend in the weekly and monthly timeframes. Its not too surprising to have a sell-off following such a large rally; forecaster is telling us that the selling was no big deal. Crude has yet to reverse direction in the longer timeframes, so we are not yet out of “dead cat bounce” territory for crude.

SPX rose +21.13 [+0.86%] to 2488.83. SPX had an eventful day; it sold off overnight, and continued lower at the open, dropping down to 2400 before bouncing back very strongly (a 90 point rally!) in the last hour and a half. The rally was singular, in that it didn’t seem to affect gold much, nor did crude recover all that strongly, and the VIX didn’t recover much, but it did seem to take the long bond down. When things recover without apparent reason like this, and without the usual suspects moving in synchrony, it feels a bit suspicious, at least to me anyway. Forecaster moved higher, but it has yet to signal a buy. The swing low candle print had a lukewarm rating, as swing lows go (52% reversal).

Sector map had materials leading (XLB:+1.84%) along with industrials (XLI:+1.25%), while REITs did worst (XLRE: +0.23%). Call today’s sector map neutral. Its not really what you’d expect if traders were buying the dip.

VIX fell -0.45 to 29.96. Market remains worried.

TLT rose +0.02%, but the day’s candle was a large, long black candle – TLT gapped up at the open, but sold off hard (losing maybe 1% off its highs) once SPX started to rally in earnest. TLT remains in a downtrend. TY actually rallied, up +0.36%, ignoring what happened to TLT for the most part. TY remains in an uptrend in all 3 timeframes. The 10-year yield fell -5.4 bp to 2.74%, which is not what you’d expect on a “strong SPX rally/rebound day.”

JNK fell -0.06%; it had been off more strongly during the day, but bounced back as equities rallied. This caused the forecaster to issue a buy signal – but only by a slim margin. JNK is not signaling risk on – it’s looking more dead-cat-bounce, at least so far anyway.

CRB fell -1.42%; 3 of 5 sectors fell, led by energy (-2.72%). PM is the best performing commodity group by far, with energy and industrial metals looking quite weak.

To put it bluntly, the rally in SPX today didn’t feel real. It happened over a short timeframe, it was a very strong move, JNK didn’t confirm, neither did the 10-year treasury, and neither did crude, and neither did the VIX – not really. Gold didn’t sell off either, and that’s with 5.6k contracts (17 “paper tons”) hitting the gold market. We’ll have to see if there is any SPX follow-through today, and what the other sectors end up doing.

PM remains strong, with miners a bit less so. I still want to see those miners break out and confirm that double bottom. Silver is emerging as a surprise winner. Who would have thought?  Likewise, the drop in silver’s OI suggests short-covering; probably the last few managed money shorts are bailing out.

Crude didn’t correct all that much, so we may have a low for crude at 42, at least for now.  This probably helps equities, since energy stocks have been beaten like a rented mule over the past few months.

Up until that surprisingly strong rally happened in the afternoon in SPX, things were looking fairly grim for equities. It will be interesting to see what happens on Friday.  Will traders want to hold SPX over the weekend?

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