PM Daily Market Commentary – 3/13/2019
Gold rose +7.71 [+0.59%] to 1314.22 on heavy volume, while silver climbed +0.01 [+0.03%] on moderate volume. The buck plunged -0.42%, crude jumped +2.15%, along with SPX [+0.69%] and junky debt [+0.28%]. It was another risk on day – with a boost from the falling dollar. What happened?
The UK Parliament voted down a hard BRExit, 312 to 278. GBP screamed higher, up +2.00%, and Euro climbed +0.32%. Tomorrow Parliament gets to vote on whether or not to request an extension to the BRExit date of 29 March. Brussels, of course, reminded the UK that there will be no renegotiation of the BRExit deal. Maximum chaos is unfolding exactly as planned. After this example, nobody will dare to leave the warm, kindly embrace of Mother EU. Not until it blows up, that is.
Gold moved steadily higher for most of the day, making another new high. The long white candle was a bullish continuation, and forecaster moved a bit higher into a somewhat stronger uptrend. Today’s move took gold back through the 50 MA, which puts gold back above all 3 moving averages. It also caused the weekly forecaster to issue a buy signal. This puts gold back in an uptrend in all 3 timeframes. Gold is looking a bit better, but much of gold’s move today was mostly a currency effect.
COMEX GC open interest rose +6,620 contracts today. There is a relentless, steady increase in open interest for gold.
Futures are showing a 1% chance of a rate cut in March, and a 23% chance of a rate-cut by December. The market continues to increase the odds of a rate-cut by December. How does that line up with an equity market rally? It really doesn’t.
Silver made a new high today, but its rally ultimately failed. Silver’s doji candle was mildly bearish (27% reversal), and forecaster moved little, but remains in a mild uptrend. Silver remains in a downtrend in the weekly and monthly timeframes. Silver’s performance overall is much weaker than gold – as a comparison, silver remains far below the 50 MA that gold crossed just today, and today’s failed rally looks really weak, especially with the buck down so strongly.
COMEX SI open interest fell -1,357 contracts. Even though silver isn’t seeing new open interest, it still can’t manage to sustain a rally. That’s not a great sign for silver.
The gold/silver ratio rose +0.50 to 84.95. That’s bearish.
Miners gapped up at the open, sold off in the morning, and then rallied through to the close. GDX climbed +0.79% on light volume, while GDXJ rose +0.95% on moderately light volume. XAU moved up +0.45%, the doji candle was a bullish continuation, while forecaster moved slightly lower but remains in a strong uptrend. XAU remains an uptrend in all 3 timeframes. Of the three (gold, silver, miners), the mining shares look the strongest.
The GDX:$GOLD ratio rose +0.20%, while the GDXJ:GDX ratio climbed +0.15%. That’s mildly bullish.
Platinum rose +0.97%, palladium climbed +1.08%, while copper inched up +0.03%. All three other metals are in uptrends, and palladium appears to be nearing yet another breakout to an all time high.
The buck plunged -0.40 [-0.42%] to 95.98. The move was mostly/all about BRExit. The opening black marubozu actually was fairly strong (42% bullish reversal), but forecaster moved a bit lower and remains in a strong downtrend. Todays move was enough to pull DX through its 9 MA, and also trigger a sell signal on the weekly forecaster. This puts DX in a downtrend in both the daily and weekly timeframes.
Will the UK Parliament request an extension from the EU? If they request it, will they get it? Its not clear what voting down both Unconditional Surrender AND hard BRExit means. Does it mean the UK defaults to Unconditional Surrender on exit, even though it was previously voted down? Clearly May scheduled these votes for a reason, but I’m not informed enough to suss out what the strategy actually is. Assuming there is a strategy.
The EU’s plan for punishment and maximum chaos is working out perfectly.
Crude rose +1.24 [+2.15%] to 58.80, breaking out to a new 4-month high. Crude rose all day long, assisted by a positive EIA report at 10:30 am (crude: -3.9m, gasoline: -4.6m, distillates: +0.4m). The move in oil seemed to be paralleled by a rise in equity prices – but I suspect it was crude that influenced equities. The opening white marubozu was a bullish continuation, and forecaster edged higher into its already-strong uptrend. Crude remains in an uptrend in all 3 timeframes. There seems to be a consistent bid underneath crude oil prices right now – the dips are shallow and the breakouts keep coming.
SPX climbed +19.40 [+0.69%] to 2810.92. Equities climbed in the futures markets overnight, and just kept moving higher during the trading day, making a new high to 2826.50 before falling into the close. So much for my comment yesterday about the move “petering out!” The opening white marubozu was a bullish continuation, and forecaster jumped strongly higher, and is now in a very strong uptrend. Today’s move was enough to unwind the sell signal on the weekly timeframe. This puts SPX back in an uptrend in all 3 timeframes.
Sickcare led again today (XLV:+1.08%) along with energy (XLE:+1.01%), while utilities (XLU:+0.10%) did worst. Tech and financials were near the top – this looks like a bullish sector map.
VIX fell -0.36 to 13.41.
TLT moved lower, dropping -0.19%. which is not much damage considering the strong move in equities. TLT forecaster issued a sell signal, however. TY also fell, moving down -0.12%, the short black/NR7 candle was unrated (although I find these NR7 candles a bit alarming sometimes), and forecaster moved lower but remains in an uptrend. TY remains in an uptrend in all 3 timeframes. The 10-year treasury yield rose +0.6 bp to 2.61%. The 10-year remains quite close to a breakout point even though equities moved higher. What does this mean? Bonds and equities can’t both be right – not when the dollar is falling anyway.
JNK climbed +0.28%, the closing white marubozu was a bullish continuation, and forecaster jumped higher into an uptrend. JNK may be about to break out to new highs – this is probably tied to the rising oil price which helps all those horribly indebted shale drillers live another day.
CRB jumped +1.16%, with all 5 sectors rising, led by energy (+1.71%).
Today’s equity market rally seemed to be caused – or at least encouraged – by the breakout in crude oil prices. There wasn’t a direct cause and effect, certainly, but the two charts looked pretty similar intraday.
And there is some interesting news out of the oil patch, a bit more long-term than the weekly EIA report. Namely – one writer is now projecting a decline in US shale production by 2020. And its not a small decline. https://oilprice.com/Energy/Crude-Oil/US-Oil-Production-Is-Headed-For-A-Quick-Decline.html. Here is the key quote, for you busy executives:
Data on the issuance of debt and equity by shale firms and their positions in futures markets thus provide an indicator of their future production. These data today point to a large decline in output.
Wow. Now that’s a big deal. But wait, there’s more.
A February 24 Wall Street Journal article by Bradley Olson and Rebecca Elliott should warn everyone of the impending slowdown. A key graph presented there shows that debt and equity issued by US shale producers declined to $22 billion in 2018, which is less than half the amount raised in 2016 and one-third the amount raised in 2012.
When one compares the total debt and equity issuance to Lower-48 onshore production lagged two years, one finds a close relationship. Lower-48 onshore output rose from three million barrels per day to 8.5 million barrels per day in 2018. However, the drop in the issuance of equity and borrowing suggests this production could fall by a third to six million barrels per day by the end of 2020 if the relationship holds.
The plunge in prices in 2018 might have just been a massive headfake. Of course, a recession could also derail any oil rally, but a 2.5 mbpd decline in US oil production, in a market with 1 mbpd surplus, coming after a 4-year drought in discoveries, could well lead to shortages even if a recession occurs.
Takeaway: easy money drives shale, with a 2-year lag. And the easy money has now faded.
Never a dull moment.
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I feel like I must be missing out on some good Brexit memes. Must be expensive to ship those things across the pond.
Dave, sometimes — today at 10:30 in palladium is an example —
I see a huge spike downward followed by an equal return upward. Is it known what typically causes that? A mis-trade? Or a big-money investor testing the market with paired Short/long? Or a computer glitch? or something else?
Maybe some sort of ITV series like “Victoria” or a soap opera. Could be a good couple years of episodes, IMO.
Britain faces TWO YEARS of Brexit limbo: Tusk opens the door to a lengthy delay if May loses a third time – but hardcore Brexiteers refuse to budge and their ringleader says: ‘I was in the Army, I wasn’t trained to lose’
I have no idea about that particular spike. It didn’t appear in the futures contract (PA).
suppose somehow a high-level-access trader is able to complete a trade at a very low dollar level, thus eliminate certain taxes, and then return the price to the high level, negating the trade, and thus hide certain of his assets from taxation? Or to show that he indeed sold or bought at a certain level, while hiding other trades from the tax man?
Or suppose assets could be laundered in this way, party A selling to party B at a very off price, when in fact party A is an illegal fiction of party B?
I’m trying to think what would generate these wierd spikes.