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PM Daily Market Commentary – 6/20/2019

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  • Fri, Jun 21, 2019 - 01:45am

    #1

    davefairtex

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    PM Daily Market Commentary – 6/20/2019

Gold broke out to new 5-year highs, jumping +27.89 [+2.04%] to 1396.12 on extremely heavy volume, while silver rallied +0.26 [+1.75%] to 15.41 on ridiculously high volume. The buck was hit hard again [-0.47%], while crude screamed higher [+5.09%], and SPX rallied to new all time highs [+0.95%] along with junky debt [+0.55%]. The 10-year yield fell -2.8 bp to 2.00%, a 2-year low.

Let me go through the details of the price moves first, and then I’ll see if I can untangle the reasons for all the activity. I don’t think there is just one simple explanation (i.e. “Iran shot down a drone”) for everything that happened today.

Gold spiked higher in early Asia trading, starting its move at around 8 pm, ending with a spike high around 9pm to 1397.70. Gold fell back, but then climbed slowly for the remainder of the day, ending up almost back at the highs of the day at the close. The long white candle was a bullish continuation, and forecaster moved higher, and is in a very strong uptrend. Gold is in an uptrend in all 3 timeframes. Gold’s close above 1382, the previous 5-year high, is an extremely bullish sign.  That said – gold’s RSI7 is at 90, which is very overbought.  It is a risky time to be buying.

COMEX GC open interest rose +43,170 contracts, or about 20 days of global production in new paper. It was an increase of 8% in the total open interest – a huge percentage increase. That’s a lot of new paper, almost a BRExit-sized quantity. Is this official intervention, or just the commercials just betting that this high won’t last? I could go either way here. Any way you slice it, without all this new paper, gold would have just gone nuts. Maybe $50? More?

Futures are projecting a 28% chance of a rate cut in July, a 100% chance of at least one rate-cut by December, a 94% chance of at least 2 rate cuts, and a 65% chance of at least 3 rate cuts. Not much change from yesterday.

Silver spiked higher along with gold, but the move wasn’t nearly as large – silver then spent the rest of the day slowly moving higher, ending the day well above the spike at 9pm, with the day high at 15.52. The intraday pattern for gold and silver were quite different, although both rallied strongly. The long white candle was a bullish continuation, and forecaster jumped higher, ending the day in a very strong uptrend.  Silver’s RSI-7 is 81, which is somewhat overbought – not nearly as badly as gold.

COMEX SI open interest fell -2,164 contracts. That’s short-covering. At last. This is a positive sign.

The gold/silver ratio rose +0.23 to 90.19. In spite of the strong rally in silver, and the short-covering, the underperformance of silver is a clue that the move in gold was a safe haven move.

The miners staged a large gap up open, and then moved a higher for most of the rest of the day. Most of the gains (at least for the ETFs) came at the open. GDX jumped +4.37% on incredibly high volume, and GDXJ rallied +5.88% on extremely high volume. XAU moved up +4.50%, the strong line/opening white marubozu was a bullish continuation, and forecaster moved higher into a very strong uptrend. XAU’s move today took it clean through the high set back in March. XAU remains in an uptrend in all 3 timeframes.  XAU’s RSI-7 is at 92, which is very overbought.  It would be reasonable to expect a reversal in the near future.  Now is probably not the time to go long.

The GDX:gold ratio rose +2.29%, and the GDXJ:GDX ratio climbed +1.44%. That’s very bullish.

Platinum fell -0.54%, palladium dropped -1.31%, and copper rose +0.52%. Today was a mixed bag; the declines in platinum and palladium also support the concept of the PM move being safe haven in nature.

The buck fell -0.45 [-0.47%] to 96.10. The buck fell for the first half of the day; it started slowly lower after the close in New York, then dropped faster after 8 pm – the mirror image of gold. The long black candle was a bearish continuation, and forecaster plunged, dropping the buck into a steep downtrend. If the buck drops through round number 96, next stop is probably around 95. The buck remains in a downtrend in all 3 timeframes.

Large currency moves included: GBP [+0.55%], EUR [+0.67%], AUD [+0.77%], CAD [+0.73%], CNY [-0.76%]. Safe haven CHF was also up +1.48%. We saw strong flight out of the buck today, and into the safe haven CHF.

Crude jumped +2.77 [+5.09%] to 57.18. Crude didn’t start its rally until about 2:20 am, but it moved higher through end of day. The opening white marubozu was bearish (41%), but forecaster jumped higher, ending the day in a very strong uptrend. Today’s rally pulled the weekly into an uptrend as well. Crude is now in an uptrend in both daily and weekly timeframes, and that monthly bullish harami looks even stronger (60%).

Was the crude rally about a drone? The intraday timing seems off – or at least very different from gold and silver. Perhaps announcements out of Iran (“We don’t have any intention to go [to] war with any country, but we are completely ready for war.”) was the driver for some of the oil price moves. Without a time-synchronized newsfeed (which I don’t have), its really hard to say.

Nick Cunningham thinks it is about the US-China trade talks, relatively dovishness from the Fed, in concert with the Iran situation. Regardless, if both gold and oil were solely about Iran and a drone, they should have moved in more or less lock step, and they did not.

https://oilprice.com/Energy/Oil-Prices/Oil-Shoots-Up-As-Iran-Says-Its-Ready-For-War.html

SPX rose +27.72 [+0.95%] to 2954.18. This is a new all time high for SPX. All of the gains came in the futures markets overnight – but then SPX sold off hard at the open through mid-day, and then bounced back into the close, regaining all those futures-market overnight gain by end of day. The high wave candle was a bullish continuation, and forecaster moved higher, moving SPX into a reasonably strong uptrend. SPX remains in an uptrend in all 3 timeframes.

Sector map showed energy leading (XLE:+2.22%) along with industrials (XLI:+1.67%), while sickcare (XLV:+0.44%) and financials (XLF:+0.44%) did worst. This was a mostly-bullish sector map, and it had more than a little hint of US-China trade talk improvement to it.

VIX rose +0.42 to 14.75.

TLT rose +0.26%, a new high. The northern doji was a bullish continuation, and forecaster moved higher into its reasonably-strong uptrend. However TY fell, losing -0.04%. The long black/high wave candle was a bullish continuation, but forecaster moved lower, and is right at the edge of a downtrend. TY remains in an uptrend in all 3 timeframes, but the daily is hanging by a thread. The 10-year yield fell -2.8 bp to 2.00%. This is another multi-year low for the 10-year yield.

JNK jumped +0.55%, which is another new high for JNK. Long white candle was a bullish continuation, and forecaster jumped higher into its strong uptrend. Junky debt is clearly signaling risk on. +0.51%, which is another new high for JNK. JNK remains in an uptrend. The BAA.AAA differential declined -1 bp to 1.05 yesterday – it liked the FOMC meeting outcome.

CRB jumped +1.82%, with 4 of 5 sectors rising, led by energy (+4.29%). PM also did extremely well (+3.57%), and it is the best performing commodity sector at this time.

Ok, so what does it all mean?

The problem is, we have a newly-semi-dovish Fed happening at the same time as renewed interest in a US-China trade deal, a possible impending lockup of China’s banking system (!), the Iranian shoot-down of a US drone (over either Iranian territory – or Iranian waters – or International Airspace, take your pick), while Draghi over in Europe has been accused of lying about the ECB’s renewed dovishness, for which there is apparently no consensus after all. And Draghi is almost out the door himself, so there’s that uncertainty too.  Who will replace him?  Will they still be as print-happy?  Italy may be about to pay its debts using a new currency (the mini-BOT) which may or may not be illegal, and the EU is looking to fine Italy for having a high debt/GDP. This, while Apple has apparently decided to diversify its globalized supply chain outside China. Oh yeah. Boris Johnson appears to be a shoo-in for UK PM.

Enough moving parts?

So the drone shoot-down took place at 7:35 pm, and about 30 minutes later, gold started moving higher (8 pm) right along with Treasury futures, with gold’s “real” spike waiting until 9:03 pm. So roughly speaking, we can claim that gold’s rally (along with the 30-year treasury move) was probably a drone-driven safe haven move. The buck started lower at roughly the same time – 8 pm.

But crude had quite a different pattern. It didn’t start its rally until much later. Was it about a drone shoot-down, or was it about statements from Iran? Its hard to say. The move was quite strong, but it was a set of several small spikes up, not one massive spike on some announcement at a specific time. Maybe part of crude’s move was aligned with equities – the US-China trade deal prospects having improved.

Meanwhile the Euro rally started prior to FOMC, and accelerated afterwards, and has continued ever since.    This may have been caused (in part) by the unraveling of Draghi’s “we’re gonna print” statements, in tandem with the Fed’s new apparent dovishness. 2 Fed rate cuts by end of year (according to the dot plots) seem to confirm the market’s projections of happy money printing in the future, which weakens the buck.

But equities? They moved steadily higher all night, topping out maybe an hour before the US market opened. A drone shoot-down didn’t drive equity prices, certainly. Perhaps that was delayed Fed dovishness, combined with positive expectations of the US-China trade situation. Copper staged a rally at roughly the same time. And the sector map for equities supports at least some China-driven bullishness (industrials and materials both did quite well).

And it also looks like the “China bank lockup” story isn’t as meaningful as the US-China trade story; CNY rallied significantly today. If money were fleeing China, that wouldn’t have happened.

So what can we expect going forward?

Well if peace breaks out, gold will probably retrace. Silver isn’t quite keeping up with gold, so it will probably retrace also.

This is the problem with safe haven moves. They spike higher, and then they deflate. And that history is why the commercials (I’m guessing here) play the odds and assume the world won’t end this time, and they go short into these big spikes. That, and there is probably some official intervention too.

Ultimately today’s breakout above 1382 is bullish.  Even if we do retrace the safe haven move, the 5-year resistance has been broken.  Although it appears as though it was the “Iran drone shootdown” snowflake that caused today’s gold buying avalanche, in truth it was probably a whole collection of snowflakes that led to an increase in overall uncertainty.  After all, gold has rallied for 4 weeks now.  The drone shootdown just pushed prices over the edge – turning it into a spike higher that even 134 “tons” of paper gold was unable to stop.  That’s my sense anyway.

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  • Fri, Jun 21, 2019 - 04:26am

    #2

    Eannao

    Status Bronze Member (Offline)

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    Interesting times

Dave,

There’s so much going on at the minute and finally some interesting action in gold and silver that I was waiting in anticipation for your commentary today to separate the wheat from the chaff!

Thanks as always for a great write-up!

Cheers, E.

  • Fri, Jun 21, 2019 - 05:05am

    #3

    lambertad

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    Northmen trader article

Northmen trader had a good article on Marketwatch – https://www.marketwatch.com/story/stocks-are-now-offering-the-best-selling-opportunity-in-10-years-thanks-to-the-fed-2019-06-20?mod=mw_theo_homepage

The chart demonstrating that every time the fed cuts rates with unemployment below 4%, a recession follows soon after. Did I mention every time? (one time unemployment was at 4% on the nose and they cut rates and recession didn’t ensue).

Interesting times, thanks for the great writeup, Dave.

  • Fri, Jun 21, 2019 - 12:21pm

    #4

    davefairtex

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    gold: surprising strength

Thanks guys.

I am more than a bit surprised that we didn’t retrace.  Gold is holding above 1400.  That feels like a reasonably good sign to me.  Miners too – some profit taking but not much.

Perhaps its all about ongoing worries about whether or not Trump will cave to Bolton’s desire to attack everyone.  They should send him off in a rubber boat with a 0.45 and let him have at it.  See how long he lasts.

Even Tucker Carlson has learned his lesson from the Iraq War.   He’s a peacenik now.  Amazing to behold.  It shows that least some people can learn from their mistakes.  “So has Iran killed any Americans recently?  No?  Then why do we care?”

People really are beginning to wake up, each in their own way.  Some people anyways.

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