PM Daily Market Commentary – 8/2/2016
Gold rose +10.50 to 1365.80 on moderately light volume, and silver rose +0.16 to 20.66 on moderately heavy volume. Another big drop in the buck provided most of the upward momentum for gold and silver today.
The buck was hit hard, which meant that gold’s move was mostly a currency effect, but even the chart of gold in Euros still looks constructive over the past few weeks – across the pond, gold is slowly moving higher in a gentle saucer formation.
In USD, gold made another new high today, and is approaching the previous high at 1377.50, which will act as resistance. High today was 1374.20, which means this resistance level is not very far away. I do have a concern, and that is the declining volume pattern that has been happening on this leg of the uptrend. In the short term, we might see a breakout that is then sold heavily by the commercials (with the attendant bearish candle print and reversal by the momentum traders) – or we might not see a breakout at all. Denouement could come today.
Rising volume on a set of rally days is bullish – declining volume is bearish.
All that said – if the buck continues to sell off hard, gold will probably be propelled through resistance without much of a fuss, and the dollar is not looking particularly healthy at the moment.
Gold open interest increased by +173 contracts today.
Silver made a new high again today – it was another nondescript spinning top candle print, but price keeps moving steadily higher. Silver’s volume looks a bit more healthy than gold, and the gold/silver ratio is remaining relatively subdued at 66.31, which is quite near to the recent lows in the ratio. That’s all bullish.
Silver’s previous high is 21.23, which at this point is about 50 cents away. Silver could easily do that in one day if the buyers decide to jump in.
The miners gapped up at the open, tried to rally, and then fell back, printing a doji candle pattern on the day. The two-day pattern was a “gap up doji” which can sometimes be bearish. This one looks to be fairly innocuous, at 10-15% chance of marking the top. GDX closed up +1.26% on moderate volume, while GDXJ actually fell, losing -0.16%. Given that gold was up fairly strongly today, the performance by the miners was a bit underwhelming – especially for GDXJ, which ended up actually in the red. Since GDXJ tends to lead, that’s a warning sign.
Platinum rose +0.76% making a new high, palladium climbed +0.20%, also a new high, and copper rose +0.43% – but the candle print looks more like a failed rally. In spite of today’s gain, copper remains weak.
The USD fell -0.76 to 94.99, another big down day that saw the buck smash through its 50 MA and make a new low. Today Yen rallied +1.53%, Pound +1.3%, and even the Euro rose +0.6%. The buck is moving rapidly lower; money is now apparently starting to flee US assets after that bad GDP report. It has been a while since an economic report has caused this sort of reaction. The falling dollar hasn’t helped commodities – except for PM of course which continues to look strong.
WTIC dropped -0.36 [-0.90%] to 39.72, making another new low for oil, closing below 40 for the first time since April. The candle print was a spinning top – a 16-30% chance of a low. I’m not too optimistic – but then again we have the petroleum status report tomorrow at 10:30 which could end up marking a low. Trend remains down, but oil is also fairly oversold. I more or less agree with that 16-30% chance my code gives the candle print.
SPX fell -13.81 to 2157.03, breaking down out of its recent sideways trading range. Candle print today was a somewhat alarming two-candle swing high, a 28-42% chance of marking the high. Today, cyclicals and industrials led prices lower. That’s bearish. VIX rose +0.93 to 13.37. Puts are still relatively cheap.
TLT fell -1.03%, another bad day for bonds. Probably foreigner capital flight; normally bonds don’t sell off alongside equities. Risk off.
JNK dropped -0.11%. It was a modest move, continuing the new JNK downtrend that started about a week or so ago with the break below the 9 EMA. It looks like JNK might have been the “tell” in this move.
CRB fell again today, dropping -0.50% and making a new low. Energy was the worst performer, PM the best.
The dollar looks to be driving PM at this point – bad US economic performance is driving the buck lower, which is spurring PM to move higher more rapidly than in other currencies. Money is also fleeing US assets, as evidenced by the drop in TLT alongside the drop in SPX today. Can gold pop through its 1377.50 resistance level? If the buck keeps dropping, it probably will.
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Might be a low in oil today; petroleum status report showed a (bearish) inventory build, but a relatively bullish drop in gasoline inventories. Most importantly, except for a brief spike lower, oil ended up rallying off the report. Lastly, it came at a time when price was relatively oversold – right around round number 40. Those are all positive things.
If you were waiting for your big moment to buy oil equities…now might not be a bad time. Its not a guaranteed low, but its a better looking event than I've seen for many weeks. If you buy, you won't be the only one. XLE printed a reversal bar yesterday and its confirming it today with a nice +1.14% rally.
Short term before the recession?
Whats your thoughts on this minnow…
I have no idea how I'd trade that one. Looks like there is lots of money pouring in, but the problem I always have with this sort of move is if you don't know the whys and wherefores, you are much more likely to be buying the top than otherwise. The old poker adage: if you look around the table and you can't spot the person about to be fleeced, then it is most probably you.
One way I sort out wheat from chaff is by looking at the insider activity, and I try to determine if the buyers have good timing or not, if they are spending real money (for them), and if the price they paid is relatively close to my possible buy point. Then again, my thing is to buy stuff that's cheap – while trying to avoid buying stuff that is likely to get a whole lot cheaper right before it dies.
Here's an example which has worked out so far.
Insider "Jeff Stevens" in WNR (a refiner I picked up a month ago) previously sold 100k shares on 5/19/2015 for about 4.5 million. He then turned around and bought 250k shares for about 6.2 million one year later, on 3/2 and 5/9. I interpret this to mean, Stevens likes the price drop, and he's putting up 6 million bucks of actual cash to increase his total position by 8%. That's real money, and his previous timing was pretty good. He'll make a double if price bounces back to its former level, and in the meantime, he gets paid the 7% dividend while he waits.
Not suggesting you should buy this one, just explaining my process. I don't know refining, but presumably CEO Stevens does. My code identified a "cheap stock near the lows" and I decided to take the ride alongside the CEO.
Ultimately, if the CEO spends $50k to buy a few thousand shares, I don't care so much – maybe he's just painting the tape. But when the insider seems to be a trader with his own company's shares, and does a decent job at it – that's a very different story.
There are other things I've bought that haven't worked out so well using the same process – its not perfect, and sometimes it takes a while for the egg to hatch, but at least if the insiders are buying and you are coming in at or near their price, it reduces the chance you're actively being fleeced.