PM End of Week Market Commentary – 11/19/2016
On Friday gold fell -8.70 to 1207.30 on moderately heavy volume, and silver dropped -0.01 to 16.65 on heavy volume. Gold and silver both sold off in Asia, and then traded more or less sideways into the close. Yet another dollar rally ensured that the buyers more or less stayed away.
On the week, gold fell -20.10 [-1.64%], silver dropped -0.71 [-4.12%], GDX rose +0.62%, and GDXJ moved up +0.82%. In addition, platinum dropped -2.41%, palladium rose +6.29%, while copper retreated -1.14%. There were some buyers for the miners, while gold and silver both made new lows.
What kept the buyers away? It was all about the dollar.
The USD climbed +2.22 [+2.24%] to 101.21, rising 5 days out of 5. On Monday, the buck staged a huge rally breaking above the high set before the election, and then on Thursday, it smashed through the previous high of 100.72 set back in 2015. This was caused by some large drops in other currencies: the Euro fell -2.16%, while the Yen dropped -3.34%. The buck is now very overbought: RSI7 = 89, which is nearing nosebleed territory.
Gold appeared as though it might have put in a low on Monday, and it staged a very modest rally on Tuesday, but that was it for the good news this week – the rally was just a dead cat bounce. On Friday, gold printed an “opening black marubozu” which the new candle code gives a 34% chance of being a low – probably because of a decent-sized lower shadow, and good volume. Also on Friday, gold spiked down making a new low of 1201.30. Since current support is at around 1200, we are more or less already there. A drop through 1200 would be very bad news for gold.
In truth, at least for this week, the ongoing bad news for gold was entirely a currency effect; gold fell -1.64%, while the buck rose +2.24%. So if we factor out currency, gold actually is stabilizing at these levels.
December rate-increase chances increased by 14% to 95% – and now the market assesses a 43% chance of another rate-increase by June 2017.
This week, gold open interest fell by -39,593 contracts. The sound you hear in the distance are the commercials, ringing the cash register.
Silver looked much worse than gold this week; the drop on Monday was more severe, the bounce on Tuesday not as strong, and the overall percentage move for on the week was quite a bit larger. This caused the gold/silver ratio to take a big jump, up +2.27 to 72.71. The next support for silver is around 16.
The miners looked substantially better than the metals this week; while GDX made a new low on Monday, both GDX and GDXJ printed swing low patterns on Tuesday, and managed to retain at least some of the gains by Friday. GDX printed a “doji star” (also “southern doji”) which the candle code says is just a 15% chance of a low. Hmm. At least the miners avoided making new lows – which also meant that the GDX:$GOLD ratio improved – good news after last week’s very bearish performance. For the miners to rise (albeit only slightly) this week with the buck rallying 2%, that tells me that traders really do want to buy at these levels.
If gold cracks 1200 in a big way, the miners will probably also sell off hard, but if gold can find support at 1200, I’d expect the miners to rally. Most likely, it depends on the dollar rally, which in turn, depends on the Euro finding support at the 105 level. All these things are tied together. If the Euro cracks 105 in a significant way, lots of things cascade from there.
The US equity market rallied +17.45 [+0.81%] to 2181.90, rising almost to the all time high at 2190. The pace of the move has slowed significantly; the overall market actually fell three days out of five, and it ended the week with a small 5 point drop on Friday – just a boring short black candle which doesn’t provide much help. VIX dropped -1.32 to 12.85.
Given the strong rally in the buck, the move in SPX was actually fairly feeble. Money flowing into the USD does not seem to be pouring wholesale into equities – except perhaps into small caps; RUT was up another 2.59% this week after rising more than 10% last week.
I don’t see much of a theme this week in the SPX sector map, except perhaps that financials continue to do well. Utilities and REITs are still bumping along the bottom, and sickcare has faltered somewhat after the initial big boost post-election. Reach for yield remains dead for now. You can see some sectors are attracting money (the “all greens”) while money is fleeing the others (“all reds”).
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Telecom||XTL||2.43%||18.41%||rising||rising||rising||falling||ma50 on 2016-11-08||2016-11-18|
|Energy||XLE||2.40%||5.19%||rising||rising||rising||falling||ema9 on 2016-11-14||2016-11-18|
|Homebuilders||XHB||2.33%||-5.76%||rising||falling||rising||falling||ma200 on 2016-11-17||2016-11-18|
|Financials||XLF||2.26%||10.80%||rising||rising||rising||rising||ema9 on 2016-11-07||2016-11-18|
|Cons Discretionary||XLY||1.86%||1.16%||rising||rising||rising||rising||ma50 on 2016-11-10||2016-11-18|
|Technology||XLK||1.35%||7.93%||rising||rising||rising||falling||ma50 on 2016-11-17||2016-11-18|
|Gold Miners||GDX||0.62%||50.68%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-18|
|Utilities||XLU||0.56%||7.13%||falling||falling||falling||falling||ema9 on 2016-11-09||2016-11-18|
|Industrials||XLI||0.41%||11.27%||rising||rising||rising||rising||ema9 on 2016-11-07||2016-11-18|
|Materials||XLB||0.35%||5.80%||rising||rising||rising||falling||ma50 on 2016-11-08||2016-11-18|
|REIT||RWR||0.19%||-0.60%||falling||falling||rising||falling||ema9 on 2016-11-16||2016-11-18|
|Cons Staples||XLP||-0.08%||2.17%||falling||falling||rising||falling||ema9 on 2016-11-09||2016-11-18|
|Healthcare||XLV||-1.12%||-1.71%||falling||falling||rising||falling||ema9 on 2016-11-18||2016-11-18|
Gold in Other Currencies
Gold was mixed on the week; in JPY and EUR it rose, while in most other places gold dropped. Gold fell in XDR by -7.70, a modest loss.
Rates & Commodities
TLT’s pattern looked fairly similar to gold – a low on Monday, a faint bounce on Tuesday and Wednesday, followed by a renewed descent on Thursday and a new low on Friday. Still, TLT ended up down just -0.98%, which is better than last week’s debacle. While TLT has yet to mark a low, the downside velocity has slowed, and the candle code says the “long black” candle print on Friday is a low 32% of the time. Sometimes things bounce just because the market runs out of sellers; it is at that point that the shorts cover, and that causes the reversal. Armstrong likes to say that the only people courageous enough to buy the lows are traders covering their short positions.
JNK rallied strongly on Monday and Tuesday, but faded for the rest of the week. Still, JNK ended +1.39% on the week, which is a better bounce than most other things had. In spite of the rally, JNK still isn’t back into an uptrend; the pattern of lower highs and lower lows remains intact.
CRB rose +1.33%, with a big swing low printed on Tuesday – which more or less was all about oil. While the short term commodity price chart looks distinctly confused, pulling back to the weekly provides a lot more clarity. About six months ago CRB rallied back above its 50-week MA, and has stayed above it since then, with the occasional plunges finding support on the 50 MA line. This is called “consolidating above the 50 MA” which is a sign that a long term trend is in the process of changing. The next step is a trend reversal – back to an uptrend. Step 1: rally above the 50. Step 2: 50 MA flattens. Step 3: 50 MA acts as support. Step 4: 50 MA starts rising. We haven’t hit step #4 yet – that’s perhaps 2-3 months in the future, but it will happen as long as CRB can remain above the 50. This will start to feed into the CPI, showing up as “inflation”; not the monetary kind, the commodity-price kind, which we haven’t seen for many years now.
Crude staged a strong rally this week, rising +2.71 [+6.28%] to 45.83. This was all because of OPEC emitting hopeful noises about a production freeze; it certainly had nothing to do with the numbers, given the EIA’s petroleum status report showed a bearish inventory build of 5.3 million barrels. On the chart, oil printed a strong swing low, retreated a few days, and ended the week with a relatively weak-but-positive bullish engulfing. Russian energy ministers, Saudi oil ministers, they all put their various oars in the water about freezing production; here’s an article with an overabundance of detail from oilprice.com, but their near-term projection is right up at the front. I include it because it says what I am thinking too:
In our view the cartel is slightly more likely to deliver a bullish surprise than a bearish one on November 30 due to the erosion of the previously iron-clad GCC members’ balance sheets. Given the massive fiscal damage that OPEC members have endured over the last two years we think it is likely they choose to ‘hang together’ via a watered down version of the Algiers plan rather than risk another painful trip below $40 and jeopardize their ability to inject headline risk into the market.
Physical Supply Indicators
* Shanghai has moved into a strong premium: +14.77 vs COMEX. Chinese are buying the dip.
* The GLD ETF tonnage on hand fell -19.27 tons, with 915 tons in inventory.
* ETF Premium/Discount to NAV; gold closing of 1207.30 and silver closing of 16.65:
PHYS 9.92 -0.14% to NAV [down]
PSLV 6.29 -0.81% to NAV [down]
CEF 12.06 -7.51% to NAV [down]
* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) showed no premiums for either gold or silver.
* Big bar premiums are higher for gold [2.24% for 100 oz bars in NYC], lower for silver [+2.45% for 1000 oz bars in NYC], and higher for silver eagles at +15.86% [NYC].
The COT is back! Coverage period is through Tuesday, Nov 15th.
Gold commercials closed a huge -45k shorts over the past week, while managed money bailed out of -34k longs. Those are big moves, but it only brings the commercials back to just a little below where they were after the $70 October gold plunge. Managed money looks slightly better, but both participants are only halfway back to where they were at the start of 2016. I can’t say this marks the low – although it could. How’s that for wishy-washy-weasel-speak? Its just not conclusive.
In silver, the commercials closed -6.2k shorts, while managed money bailed out of -8k longs. While the commercials remain overly short, managed money could be getting close to a low – all of what appear to be “hot money longs” (a phrase used over at KWN) have all sold, and we are moving back to the longer term open interest uptrend. Based on this, I’d say the low is getting nearer for silver, at least from the COT’s perspective.
The crude COT report is starting to show a large concentration of managed money shorts; this could well mark the low for crude; at the same time, the commercials have gone heavily long. This all lines up with this week marking a low for oil.
The copper COT report shows a really absurd level of commercial shorts; almost 45k new shorts were added by the commercials over the past two weeks. Likewise, managed money sold -40k shorts and bought 40k longs. These are the largest position changes I’ve seen in copper. Based on this, I wouldn’t be buying at this point. COT is very bearish for copper.
Moving Average Trends [9 EMA, 50 MA, 200 MA]
No material change this week. Everything in the PM space still looks unhappy, although there are hints of buyers appearing in the mining shares; miners typically lead metal, so these are modestly hopeful signs amongst a sea of red.
|Name||Chart||Chg (W)||52w ch||EMA9||MA50||MA200||50/200||Last Crossing||last|
|Junior Miners||GDXJ||0.82%||77.48%||falling||falling||rising||falling||ma200 on 2016-11-10||2016-11-18|
|Senior Miners||GDX||0.62%||50.68%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-18|
|Silver Miners||SIL||-1.37%||77.15%||falling||falling||rising||falling||ma200 on 2016-11-11||2016-11-18|
|Gold||$GOLD||-1.64%||11.65%||falling||falling||rising||falling||ma200 on 2016-11-08||2016-11-18|
|Platinum||$PLAT||-2.41%||7.79%||falling||falling||rising||falling||ema9 on 2016-11-10||2016-11-18|
|Silver||$SILVER||-4.12%||16.80%||falling||falling||rising||falling||ema9 on 2016-11-11||2016-11-18|
Gold Manipulation Report
There were no meaningful after-hours spikes for PM this week.
After a big move lower last week, gold made a dead cat bounce, and eventually printed a new low on Friday. Silver’s bounce was less cat and more dead, while the miners printed a swing low and have outperformed, providing hints of optimism. Perhaps the most bullish note came from the fact that the drop in gold was entirely a currency effect…although since the currency move was large, that made for a disagreeable experience for gold owners in the US.
The COT report has returned to a more or less neutral stance for gold, and is reasonably positive for silver.
Western gold and silver big bar shortage indicators show no signs of shortage; the ETF premiums were lower, and GLD’s tonnage dropped, and my window into retail isn’t showing much of a premium expansion either. However in China, gold buyers are apparently backing up the truck; premiums have sharply increased. India too, where they got rid of the large-denomination notes with about four hours notice. Couldn’t happen here, of course. http://time.com/money/4307717/getting-rid-of-cash/ [Takeaway: is for CRIMINALS]
“They came first for the 500 Euro note, and I didn’t care, because I don’t live in Europe. Then they came for the 1000 rupee note, and I didn’t care because I don’t live in India. And then they came for the $100 note…Doh!”
After thinking about this for a week, my advice is: if you want to keep cash on hand, swap your $100 bills for $20 bills. One pound of $20s = $9,080. They’ll be harder to store, but I do not think they’ll get rid of $20s. And nobody blinks if you pay for your groceries with a $20, while they still give you the fish-eye if you trot out a Benjamin.
Where gold goes from here is almost certainly up to the dollar – and the dollar’s move will be driven by weakness in the Euro and the Yen. The Euro is headed for a retest of 105; a drop through 105 will indicate a relatively severe loss of confidence in Europe – possibly triggered in the near term by the failure of the Italian referendum and the increased potential for an Italian Eurozone exit (“Quitaly!”).
So will 1200 gold support hold? Right now, its all about currency moves. USD is very overbought – it could top out at any day now. However if that dollar continues to rally over the next week, 1200 support probably gives way.
One more note: as the Italian referendum approaches, we might see more of a bid appear in gold independent of currency; certainly I’ll be looking for it. So far, I haven’t seen it except in Italian sovereign debt.
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So, first some stats. 98% of consumer payments in India are made in cash.
The 500 and 2000 notes, now demonetized, provided 87% of the available cash liquidity in the economy.
Eliminating liquidity = deflation, by definition, be it by demonetization, or bank failure and loss of deposits.
What Mr Modi has done is hit India with a massive tidal wave of government-manufactured by-choice deflation.
Rules say you can obtain 4000 rupees per day from the ATM. All of your 500 and 10000 rupee notes are now invalid. You cannot shop, or pay your maid (an expat-friend of mine who lived in Bangalore had a maid, a cook, a gardener, and a driver, I think because she could), or really do anything unless you stand in a 200-person line to get your 4000 rupees ($60 US). Per day.
And now people will hoard any remaining money they have, because getting new money (and or swapping out your demonetized notes) is so difficult and time-consuming. So that hit to confidence will double or triple the deflationary impact of the demonetization. Discretionary purchases will simply stop happening. Why spend your precious cash on something stupid?
And in this article, the author suggests it will take six months to restore the money supply back to where it was just last week.
So we have another 6 months of deflationary impact.
Prime Minister Narendra Modi’s administration may need until May 2017 to replenish the stock of now worthless bills, according to Saumitra Chaudhuri, an economist who advised Modi’s predecessor. The government on Nov. 8 banned 500 ($7.5) and 1,000 rupee notes in a surprise move against graft and tax evasion.
Delays in replacing the currency risk prolonging the pain in the $2 trillion economy, where about 98 percent of consumer payments are made in cash. Deutsche Bank AG predicts the crunch could easily shave off a half-point from India’s growth in October-December, which could imperil its position as the world’s fastest-growing major market.
So, wipe out 87% of the economy's liquidity, and then further smack confidence by taking 6 months to restore it. I think half a point of growth loss is wildly optimistic. I believe it could be 5%, maybe more, and in the lower classes, it might be triple that.
Who could be that dumb? India has some very good economists who understand such things…
I've been struggling to understand this move by India and I don't wonder if they aren't being "Cyprused" as in being the guinea pig for the cash-less experiment that the west is so eager to run (where Cyprus was the guinea pig for operating a bail-in procedure…lots of 'good' learnings from that that fed into subsequent G20 meetings and decisions).
If this isn't an experiment, then it's one of the dumbest moves in a very long while and should tank the Indian GDP by a massive amount, and pretty quickly.
Why would this be done?
This is a real head scracther…it cannot be as simple as the public pronouncement of 'fighting corruption.'
Not least of which because cash-based corruption in India is endemic which means it is an integral part of the 'keys to power' framework. Nobody shakes their power tree casually to 'fight corruption.'
Played like a fiddle? Perhaps Modi is on to something. Bail-in can take the guise of beneficence in any manner of forms. However, in this strategy, it is much more cost effective than chasing tax dodgers, money launderers, and off shore users. If you are poor, you probably won't notice the effect and Modi may look good to the populace. Very good article on the effects of this move:
Perhaps he's done the calculus, and he has figured out that his political opponents benefit more from the black money than his group does.
So maybe this is just a way for him to defund his competition.
That's what makes the most sense to me, after thinking about it.
After thinking about this for a week, my advice is: if you want to keep cash on hand, swap your $100 bills for $20 bills. One pound of $20s = $9,080. They'll be harder to store, but I do not think they'll get rid of $20s. And nobody blinks if you pay for your groceries with a $20, while they still give you the fish-eye if you trot out a Benjamin.
I'd go a bit further. If all you have is a $20 and you want to buy something when change may not be available, your choice is to pay $20 for the item (a loaf of bread …) or not buy it. I'd suggest having smaller bills as well as keeping change in a change jar for "emergencies."
If you succumb to the convenience of using a smarty phone or plastic to pay for your purchase, you strengthen the officials' arguments for banning cash – nobody uses it anymore. I try to use cash whenever I can to weaken this argument. Besides, it is harder to associate me with my purchases this way.
While India's move is almost certainly part of a long term plan for capital controls, it does seem perplexing to make such a large move so suddenly. IMO, it smacks of desperation and/or urgency as opposed to stifling one's political opponents (seems to me there's too much collateral damage involved to risk doing it for just that reason). That and perhaps, as Chris suggested, some people with the IMF or major financial institutions whispering in their ears and goading them along. This decision appears to have been implemented shortly BEFORE the election and the subsequent developments with the bond market and flight of money from emerging markets, so it wouldn't make sense that this is a reaction to that. So either the fear/desperation/urgency is coming from elsewhere, or they were banking on the current volatility and money flows being an imminent outcome regardless of election nonsense. Or maybe it's simple stupidity like Chris mused. But I'm doubtful.
Locally in Mongolia, the highest denomination note, the 20,000 tugrik note, only amounts to about $8.25 as of this time. It is somewhat inconvenient for making large purchases… I recall someone in my family carrying a 3 or 4cm-thick stack of bills to purchase a $900 refrigerator a few months ago. Now India's largest legally-exchangeable note is worth something like $1.46. Somebody in India purchasing the same fridge would now need to bring a small sack to carry the money. Doable, sure. But makes it pretty hard to be discrete when doing some major purchases.
First, a caveat: I'm not an India expert, having been there exactly once for about a week, visiting my friend in Bangalore.
So about the longer term cash use: the government is introducing a new 2000 rupee note – there just aren't many of them yet, and the ATMs can't spit them out either – that's about a month in the future. And you only get two of them for right now, per day.
Here's an article which supports the concept of "defunding your opposition" – I agree it does seem to be a very big move just to cement your grip on power. I can't judge the validity of the article, since I know zip about Indian politics.
Opposition politicians have united to decry it. "We will have to plan the entire election strategy all over again," said Pradeep Mathur, a senior Uttar Pradesh leader of the Congress party that was trounced by the BJP in 2014 elections.
His concerns reflect a view that the BJP, with more members than its rivals and close ties to big corporate donors, can survive the cash crunch better, helping Modi win Uttar Pradesh and four other territories heading to the polls early in 2017.
For Modi, winning India's main battleground state is vital to strengthen his party's position in the upper house of parliament, where it is still in the minority, before seeking a second term in the 2019 general election.
"Their calculation is that this is going to hurt everybody, but in relative terms the BJP is going to come out stronger," said Milan Vaishnav, a South Asia expert at the Carnegie Endowment for International Peace in Washington.
I have to say, before the "rules for rulers" video, I would have been completely puzzled about this move in India. Now, I have a new lens for viewing these sorts of things. I ask the question, "how would this apparently perplexing action help Modi stay in power?" Then I look for articles that seem to provide an answer. I look to see who is complaining; if they are his opponents, then I assume he's done the math, and so have they, and they don't like the answer.
So – ignore the ostensible reason, look for why it helps him stay in power, and be confident that this power-based explanation is really at the core of why the decision was made.
Am I losing the plot or do option expiry dates for silver futures contracts mark the lows;
The option expiry dates I have from here are as follows for 2016;
In most cases the following day marks the low for that period with the exception of the 26th April and the 27th June. 27th June was still a 'buy' though given the subsequent 5 day rally (+ Brexit).
Does that mark 23rd November for this period's low? Let's see if that prediction holds.
I did a study on "first notice day" for futures, but I haven't done one on option expiration for futures.
Ok, here's a chart marked up with the dates you gave me. I'm not sure it's a smoking gun, but its an interesting concept.
Could be useful to check during the previous downtrend (2013-2015). If you happen to have those dates handy…I'm happy to make a chart.