PM Daily Market Commentary – 12/6/2018
Gold rose +0.57 [+0.05% to 1243.94 on moderate heavy volume, while silver fell -0.03 [-0.21%] to 14.54 on moderate volume. SPX plunged hard but then rebounded almost as hard (-0.15%), bonds rallied (TLT +0.31%), crude fell (-2.29%), and the buck fell also (-0.24%). It was another exciting day.
Today’s big news: OPEC had a meeting, but couldn’t come to an agreement on the size and the allocation of production price cuts. It was a Little Red Hen sort of moment. Who will cut their production? “Not I”, said the goose. My sense is that Saudi Arabia isn’t stepping up to the plate nearly as enthusiastically as they usually do. Budgetary break even for them is $90/bbl, so you know $51 really hurts. And yet…for some reason, they aren’t acting like the swing producer of old. For some reason.
Gold made a new high to 1250.74, but wasn’t able to hold on to the rally, encountering a concerted amount of selling pressure that drove price back down to even. The doji candle was a bullish continuation, while forecaster fell -0.27 to +0.13. That’s still an uptrend, but today there was not enough enough buy-side enthusiasm to push prices through 1250 resistance. That said, gold did a lot better than the rest of the metals group. Gold remains in an uptrend in both the daily and weekly timeframes. Gold/Euros is in an uptrend in all 3 timeframes.
COMEX GC open interest rose +1,867 contracts.
Rate rise chances (December 2018) fell to 73%.
Silver sold off reasonably hard, but managed to come back; the hammer candle was bullish (42% reversal), but forecaster fell -0.26 to +0.13. Silver seemed to be dragged down by the big moves in the other metals. Still, silver remains above both 9 and 50 MA lines, and remains in an uptrend in both the daily and weekly timeframes. Compared to the other metals, silver actually did fairly well.
COMEX SI open interest fell -125 contracts. No heavy shorting activity in silver.
The gold/silver ratio rose +0.22 to 85.55. That’s somewhat bearish. The gold/silver ratio remains at multi-decade highs – that usually happens around a low for PM.
Miners moved up a bit, with GDX up +0.56% on heavy volume, while GDXJ rallied +0.225 on moderate volume. XAU rallied +0.29%; trading range was fairly narrow, and the high wave candle was a bullish continuation. Forecaster also rose +0.08 to +0.41, which looks like a reasonably strong uptrend. Today’s move managed to convince the weekly to issue a buy signal; this puts XAU in an uptrend in all 3 timeframes.
The GDX:$GOLD ratio rose +0.61%, while the GDXJ:GDX ratio fell -0.34%. That’s slightly bullish, but the juniors continue to underperform.
Platinum fell -1.31%, palladium dropped -2.18%, while copper moved down -0.83%. These closing prices include some substantial recovery off the lows, especially for copper, which was down as much as 2% intraday, and palladium which hit -4%. The metals rebounds coincided almost exactly with the intraday low in SPX.
The buck fell -0.23 [-0.24%] to 96.30. It was another wide trading range for the buck, which ended up closing in the lower third of the range today. The spinning top candle was a bearish continuation, and forecaster dropped -0.15 to -0.34. The buck remains in a downtrend in all 3 timeframes. The downtrends are starting to accelerate. My sense: the market believes that the Fed is unlikely to raise rates much beyond its December increase. This shows up in the dropping “rate increase” forecast derived from the futures markets; currently the market is predicting one (92%), and maybe two (56%) increases over the next 12 months. Rising rates attracts capital into the USD; the prospect of fewer rate increases presumably reverses that flow.
CNY fell over the last few days, gaining +4.5 vs the buck [+0.67%]; perhaps China is less convinced of the trade settlement. The US asked Canada to arrest the CFO of Huawei (who also happens to be the daughter of the founder), due to the company trading with Iran in violation of US sanctions. Will it affect trade negotiations? SCMP says no: https://www.scmp.com/economy/china-economy/article/2176878/beijing-declines-link-huawei-executive-sabrina-meng-wanzhous
Trump also tweeted, forwarding a positive comment from China and adding that he agrees with their positive sentiment:
“Statement from China: ‘The teams of both sides are now having smooth communications and good cooperation with each other. We are full of confidence that an agreement can be reached within the next 90 days.’ I agree!”
Crude fell -1.22 [-2.29%] to 51.98. Crude actually dropped as low as 50.35 before managing to recover. As mentioned, OPEC was not able to announce any production cuts today; my sense is if the meeting ends with no cuts, oil will trade down into the mid-40s. The long black candle was mildly bullish (38% reversal), but forecaster dropped -0.20 to -0.21. Oil really does look like it wants to rally. With Saudi Arabia at least partially sidelined as swing producer, any cut will depend on the politics of OPEC. I think downside risk remains substantial. Crude remains in a downtrend in all 3 timeframes.
SPX fell -4.11 [-0.15%] to 2695.95. There was a very large drop in the futures markets overnight, and some follow-on selling during the morning that had SPX down as much as 3% at one point. Prices reversed around 10:45 am, with a number of commodities (notably copper, palladium, and crude) reversing direction at the same time. The spinning top candle was mildly bullish (35% reversal), but forecaster only rose +0.01 to -0.38. Looks like we’ll need confirmation tomorrow before my code believes in today’s reversal. SPX remains in a downtrend in both the daily and weekly timeframes.
Sector map had REITs leading (XLRE:+2.74%), along with communications (XLC:+1.12%), while energy brought up the rear (XLE:-1.84%). This was a relatively bearish sector map.
VIX rose +0.45 to 21.19.
TLT rose +0.31%, making yet another new high. TY jumped higher also, up +0.22%, but it looked to be a bit of a failed rally: the shooting star candle was mildly bearish (33% reversal), but forecaster jumped +0.20 to +0.89. TY remains in an uptrend in all 3 timeframes. The 10-year yield fell -4.8 bp to 2.88%. The RSI-7 for the yield is down at 9. Based on this overextension, unless disaster strikes in the next few days, I’m guessing we are nearing the end of the recent bond rally/equity market correction. (This RSI level has happened only 70 times since 1962 – and the last time was in 2003; this tells you that this is an infrequent, and particularly violent move in the normally-boring 10-year treasury).
JNK fell -0.43%, making a new low by a penny. All of the damage to JNK happened at the gap down open, with JNK managing to recover some of its losses. The spinning top candle was mildly bullish (32% reversal), but forecaster remained in a downtrend; this is probably not a reversal bar for JNK. Unlike the dramatic reversal in SPX, JNK isn’t showing anything particularly positive.
CRB plunged -1.54%, with 4 of 5 sectors falling, led by energy (-3.14%). While SPX bounced back almost entirely, the industrial metals and energy were not as fortunate – they recovered only about half of their losses by end of day.
So do we have a low for SPX today? Commodities suggest no – the candle prints weren’t all that exciting, and neither (really) was the print for SPX. JNK agrees – unlike SPX, it didn’t rally much at all. That said, the overextension of the bond market hints that we might be getting close to some sort of near-term reversal. The bond market rally is really overextended at this point. The future for SPX might just depend on what OPEC does with their production cut.
We have nonfarm payrolls out tomorrow. That might also be a deciding factor. How the market reacts to the news is the important part; if the market sells off on good news, or rebounds on bad news, that would provide us some meaningful insight.
Meanwhile gold just keeps slowly moving higher.
Lastly – bitcoin. It hit $3370 trading intraday today. Is bitcoin a safe haven? I think the answer is: no, it isn’t. Gold, and treasury bonds: those are your safe havens. “Safe haven bitcoin” – an 83% drop from the highs in just one year.
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