PM Daily Market Commentary – 6/12/2014
Gold closed up +12.30 to 1273.20 on moderate volume, while silver closed up +0.33 to 19.51 on heavy volume. Gold managed to push above its 20 EMA for the first time in three weeks, while silver was able to move through its 50 MA for the first time since March 17th. The metals started climbing during London trading, but really took off in NY slightly before 1030 EDT.
Silver looks particularly strong. It is outperforming gold (gold/silver ratio now 65.24, down from a high of 67.50), the volume on the breakout today was heavy, it closed near the highs of the day, it moved above its 50 MA, and it is not yet at an overbought level, unlike the mining shares. As much as we don't like the bad old bankers on the downside, they see it as their job to run the market in both directions – now I believe they're going to squeeze the record number shorts repeatedly on the way up. At least that's the setup I see in front of us.
The fact silver has done so well in the face of copper's decline (from 3.17 to 3.01 in 2 weeks), well that is just more bullish evidence to me. Last point – silver is just a few cents away from breaking out of a very long term trendline dating back to the top for silver back in April 2011. Its hard to put into words why I like the silver chart – perhaps the stars and moons are just properly aligned. Then again I also liked it three weeks ago back when price was higher than it is now. Lets just hope the price action is better this time than last.
The buck retreated today, dropping -0.25 to 80.57. It started falling at 0830, when a series of economic reports were released, including the Jobless Claims, Import/Export prices, and Retail Sales. Your guess as to which one caused the buck to drop. They all looked pretty neutral to me.
Once again the mining shares did well; GDX was up +2.65% on moderately heavy volume, while GDXJ was up a massive +5.78% on extremely heavy volume. GDX made it through the 50 MA and stopped at its 200 MA, while GDXJ broke clean through its 200 MA along with a couple of previous highs.
At this point GDXJ has gone vertical, which in general is not something that is usually sustainable for long. Currently the RSI-7 momentum indicator for GDXJ is at 87, which suggests GDXJ is quite overbought. If you are a shorter term trader, now would be the time you would be looking for a signal to take profits, rather than a time to jump on board the train. Things are moving up at this point most likely due to a short squeeze, which is fun if you're long, but substantially less fun if you are short. Short squeezes end when the shorts have all fled.
Will the remaining miner shorts want to go into the weekend with their positions intact, or will they reduce risk and cover on Friday? We have to let the market tell us tomorrow.
SPX dropped again today, closing down -14 to 1930 on increasing volume. VIX moved up to 12.56. If this is a "normal correction" within a bull market, SPX should find some support at round number support (and previous high) of 1900.
Bonds (TLT) did indeed find support on their 50 MA, with TLT rising +0.89% on the strength of a strong 30 year bond auction at 1300 EDT. Bonds took off like a rocket ship immediately after the auction and closed relatively strong. If the selloff in SPX accelerates, money will most likely rotate into bonds helping TLT to move higher. It's good to have the reserve currency.
Chart of the Day
And here's your chart of the day. US Monthly Treasury Statement came out yesterday. Monthly deficit continues dropping, but more slowly now.
Nooo, we're not monetizing the deficit…we're monetizing the deficit and THEN some!
WT, Coming from a different angle (vs. your chart analysis above) of Comex open interest analysis, Dave Kranzler comes to the same conclusion;
Historically, a high open interest in silver is associated with short term market tops because the hedge funds have gotten negligently long silver futures and the market manipulating big banks have taken the other side with extreme-sized short positions.
This time around the situation is the exact the opposite. The hedge funds are now historically short silver futures and the banks and silver producers (mining companies who hedge production using futures) are either net long silver or are sitting with historically low hedge positions.
I wrote an article for Seeking Alpha detailing the data showing the set-up as described and explaining why silver may be set up for a big short-squeeze move higher: Is Silver Set Up For A Short Squeeze?
Certainly makes my pattern chart look pretty good