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PM Daily Market Commentary – 12/5/2016

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  • Tue, Dec 06, 2016 - 01:12am

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    davefairtex

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    PM Daily Market Commentary – 12/5/2016

 

Gold fell -7.10 to 1172.10 on moderate volume, while silver rose +0.01 to 16.81 on moderate volume also. There were some large price movements on the first day of trading following the “NO” vote on PM Renzi’s referendum, as markets adjusted to the outcome. Gold, unfortunately, was not one of the winners.

At the open, the buck gapped up a full point (101.82) as the Euro tanked; Euro made a new low to 105.04 before rebounding. That low didn’t last long – the Euro spent the rest of the day rallying, having wiped out the post-referendum drop by the time the market opened in London. Gold gapped up also at the open, but sold off along with the buck, eventually bottoming out around 1158.60. Gold then bounced back, as the buck continued to plunge, but the rally wasn’t strong enough to move gold prices back into the green.

From what I saw, both gold and the buck had initial “flight to safety” moves higher which lasted just about an hour. Then it all came apart.

Gold’s candle print was a spinning top, which the candle code found quite bullish: a 53% chance of marking the low. That’s about as bullish as spinning tops get. We’ll have to wait for tomorrow to see if we get a confirmation. I’m a little less bullish; if the buck drops fairly dramatically and gold can’t even close green, that’s not a great sign.

Rate rise chances fell to 95%.

Gold open interest at COMEX rose 962 contracts.

Silver outperformed gold once more, managing to avoid a new low, as well as rebounding back into positive territory after the buck reversed and fell. The gold/silver ratio fell -0.46 to 69.73, a decent move. Silver remains above its 9 EMA, although it executed a “death cross” a few days back which is a bearish long term signal.

Miners gapped down and sold off at the open, but bounced back once gold started to recover. GDX ended the day down just -0.19% on moderate volume, while GDXJ rose +0.37% on moderate volume also. Candle print was a boring spinning top, which provides no indications of what happens next. In fact, the miners have been more or less side-tracking since the most recent low that occurred 15 trading days ago. GDX remains above its 9 EMA.

Platinum rose +0.83%, palladium climbed +0.07%, and copper shot up a huge +2.53%. Copper just refuses to correct; closing today at 2.69, it looks as though copper is set to test the recent high at 2.74. If the world is coming to an end, Dr. Copper is providing a “bullish” second opinion. So to speak.

The USD shot higher immediately after market open in Asia – the Euro plunged, eventually hitting a low of 105.04 before rebounding very strongly. Eventually the Euro closed up +0.97 to 107.62, a huge trading range on the day. The buck ended the day down -0.79 to 99.97.

So what’s the story with the Euro rallying on a day when Italy was seen to (more or less) cast a euro-skeptic vote that was widely heralded as a possible end of the Eurozone? Its called “sell-the-news”, or in this case, cover-your-short on the news. The election results were not a surprise, and it is usually a (negative) surprise that ends up moving markets down strongly. BRExit was one such negative surprise – GBP sank like a stone following. However this referendum outcome was no surprise. The shorts had their shot at moving prices through 105, they failed, and the resulting bounce back encouraged them all to cover. That’s my best guess. Its probably also the case that the unelected gang in Brussels have ordered the Italians (behind the scenes) to put in place a “technocrat” (i.e. unelected/undemocratic) government rather than call for a new election. That puts off Italy’s date with destiny a little while longer. To my mind, it just gives the people more time to become even more pissed off, but I don’t hear anyone asking for my opinion.

Anyhow – sell-the-news.  Dollar and gold negative.

Crude broke to new highs today, but ended up not being able to hang onto the gains, falling -0.73 [-1.41%] to 50.95. Candle print was a spinning top – almost a shooting star – which the candle code says is bearish, with a 31% chance of marking a high. In any event, oil tried and failed to close above the previous high; the resistance at 52 is proving to be relatively strong.

SPX rallied today, moving up +12.76 to 2204.71, led by financials (XLF:+1.19%) with sickcare (XLV:-0.18%) trailing. Today’s move brought SPX back above its 9 EMA. The VIX cratered, losing -1.98 to 12.14. I’m guessing the big move in the VIX was all about the Italian referendum.  No end-of-the-world meant a dramatic drop in the price of protection.

TLT fell -0.11%, chopping sideways after last Friday’s swing low print. TLT continues to struggle, and it remains below the 9 EMA.

JNK rallied, moving up +0.30% and managing to close conclusively above its 50 MA. A few more pennies, and JNK will have erased its downtrend/lower-highs pattern. A long JNK short IEF paired trade has been good for about 10% since July, and that doesn’t count the positive yield differential (6.12%-1.75%). This (hypothetical) trade allows you to factor out “duration risk” (both JNK and IEF contain medium-duration bonds) and instead just focus on credit quality. The success of this trade tells me that nobody is worried anymore about credit quality (i.e. defaults) – they are much more worried about duration (and/or rate increases).  Decreasing worry about credit quality is one type of “risk on.”

CRB jumped +0.93%, with 3 sectors (energy – natgas, industrial metals, and agriculture) moving higher. Natgas was very strong, rising +6.34% (+0.22) to 3.65. Natgas has climbed a full dollar since Trump’s election. I didn’t notice this until just today.  It has been a very large move.

The Italian referendum ended up with a sell-the-news Euro rally, a drop in VIX, and a drop (especially when adjusted for currency effects) in gold. World didn’t end, can will be kicked (again) and life continues.

In the meantime, gold continues to search for a low. It remains oversold, downside momentum has greatly slowed, but when a -0.79 drop in the buck can’t get gold back into the green, you just know gold is not yet ready to rally.

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