PM Daily Market Commentary – 6/27/2019
Gold rose +0.30 [+0.02%] to 1418.12 on heavy volume, while silver fell -0.03 [-0.16%] to 15.29 on moderately heavy volume. Bonds moved higher [10Y yield -4.4 bp], but not much else happened today.
Gold fell in Asia, and then spiked down to the day low around 8:45 am, but then bounced back and then rallied for the remainder of the day. The doji/NR7 candle was unrated, and forecaster fell, moving into a slight downtrend. Gold remains in an uptrend in the weekly and monthly timeframes. Is this forecaster dip a real trend change for gold, or is it just a reaction move? So far – a reaction move is the most likely scenario, similar to what happened back in late May.
COMEX GC open interest rose +8,022 contracts.
Futures are projecting a 24% chance of a rate cut in July, a 100% chance of at least one rate-cut by December, a 91% chance of at least 2 rate cuts, and a 58% chance of at least 3 rate cuts. That’s virtually unchanged from yesterday.
Silver fell in Asia, and continued falling during the US session, bottoming out around noon, and then rebounding for the rest of the day. The short black/spinning top candle was bullish (52%), but forecaster fell, dropping into a slight downtrend. Silver remains in an uptrend in the weekly and monthly timeframes, and it also remains above all 3 moving averages.
COMEX SI open interest fell -2,193 contracts, or about 5 days of global production. That’s more short-covering for silver.
The gold/silver ratio rose +0.20 to 92.75. Silver underperformed gold once again. Ratio remains near 27-year highs.
The miners gapped down at the open, fell until about mid-day, and then recovered into the close. GDX lost -0.74% on moderately heavy volume, and GDXJ fell -0.52% on moderately heavy volume also. XAU dropped -0.39%, the short white/spinning top was unrated, and forecaster fell but remains in an uptrend, at least for now. XAU is in an uptrend in all 3 timeframes.
The GDX:gold ratio fell -0.77%, and the GDXJ:GDX ratio climbed +0.23%. That’s somewhat bearish.
Platinum fell -0.30%, palladium rallied +1.93%, and copper moved up +0.11%. Palladium is once again moving back to test the previous high.
The buck inched up +0.01 [+0.01%] to 95.68. Mostly, the buck tried to rally, but the rally failed. The short white/spinning top was somewhat bearish (36%), and forecaster moved higher, but remains in a strong downtrend. The buck remains in a downtrend in all 3 timeframes. This is looking more and more like a dead cat bounce for the buck.
There were no large currency moves today.
Crude inched up +0.08 [+0.14%] to 59.32. The doji candle was a bullish continuation, but forecaster dropped hard, moving crude into a slight downtrend. Forecaster thinks the recent rally has topped out Crude ended the day just above the 50 MA – bring it back above all 3 moving averages. Crude is now in a downtrend in both daily and monthly timeframes.
SPX rose +11.14 [+0.38%] to 2924.92. The bullish harami was neutral, and forecaster was unchanged, leaving SPX in a slight uptrend. The move today was not enough to pull SPX back above its 9 MA. SPX remains in an uptrend in all 3 timeframes.
Sector map had financials leading (XLF:+0.89%) along with REITs (XLRE:+0.83%), while energy (XLE:-0.74%) and industrials (XLI:+0.09%) trailed. This sector map was slightly bullish.
VIX fell -0.39 to 15.82.
TLT jumped +0.70%, wiping out yesterday’s losses. The long white candle was neutral, but forecaster jumped higher moving TLT back into an uptrend. TLT has been very indecisive over the past few weeks – it is making new highs, but the forecaster is having trouble sorting out direction. TY rose +0.19%, the spinning top candle was bullish (50%), and forecaster inched lower but remains in a modest uptrend. Today’s move was enough to pull TY back above the 9 MA. TY remains in an uptrend in all 3 timeframes. The 10-year yield fell -4.4 bp to 2.00%. On the daily chart I am getting conflicting signals – the weekly and monthly charts point to a continued rally in bonds.
JNK rose +0.25%, candle print was a short white/opening white marubozu (53% bearish), and forecaster rose, but not quite enough to move JNK back into an uptrend. and forecaster plunged further – JNK is now in a reasonably strong downtrend. The BAA.AAA differential rose +3 bp to 1.05%. BAA.AAA differential remains in an uptrend.
CRB rose +0.06%, with just 1 sector rising: livestock (+0.72%).
Not all that much happened today; gold and the miners appear to be holding steady after yesterday’s move down off the highs. The struggle between buyers and sellers appears relatively evenly matched at the moment.
Up this weekend: Trump and Xi will be meeting in Osaka, Japan, on the sidelines of the G-20. Will anything come of it? I think Trump has wanted a face-to-face with Xi for a while now, and now he has it. Both leaders are attending the G-20 “for other reasons” so the meeting doesn’t ostensibly have the drama of a “summit”, but that is really what it is. It could be a significant market-moving event – in either direction.
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How can this be traded?
ZH posts (yet again) about the increasing certainty of a recession and the equally increased certainty that the FED will drop interest rates to try and head this off.
How can this gap be traded? (Theoretically, as I know that PP does not offer investment advice…. )
…here is an anecdote from the Global Macro Investor and founder or Real Vision, Raoul Pal, which shows why any trader who correctly times the convergence between stocks and bonds, may just be able to retire afterwards.
From Raoul Pal’s twitter account on “the story of the greatest macro trade I’ve ever seen.”
Back in 2000, the macro backdrop was very similar to now and the forward looking data was suggesting a recession with the bond market was pricing in around 75bps of cuts but sell side analysts would hear none of it. They were sure the good times would continue to roll. But the macro guys, many of whom had been forced to close shop in 1999/2000, knew that the first recession in 10 years was imminent.
On January 3rd 2001, with the US economy still growing at 1.4%, the Fed surprised with a 50bps cut when many people hadn’t even returned back to work from the holidays. But one ex-GS prop trader, now at one of the worlds most famous hedge funds, drove to his half empty office and went limit long December 2001 Eurodollar interest rate futures.
Is there a trade that might position one to exploit the alligator jaws? Asking for a friend. Theoretically.
To figure this out, let’s first understand what was the trade to take advantage of the widening spread between yield and equities. Dropping yields = buy bonds. Rising equities: buy stocks. So “opening jaws” = long both stocks & bonds.
So, to bet on the closing jaws, you just reverse the trade, i.e., go short both stocks and bonds. You are betting on rising yields, or falling stocks, or both.