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PM End of Week Market Commentary – 2/19/2016

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  • Sat, Feb 20, 2016 - 12:52am

    #1

    davefairtex

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    PM End of Week Market Commentary – 2/19/2016

On Friday, gold fell -4.70 to 1226.60 on moderately heavy volume, and silver dropped -0.07 to 15.35 on heavy volume.  PM basically went nowhere, a very quiet end to an eventful week.

On the week, gold fell -11.90 [-0.96%], silver dropped -0.44 [-2.75%], GDX lost -2.44%, and GDXJ dropped -0.88%.  Platinum was down -1.79% and palladium fell -4.55% while copper rose +2.29%.  It was a week of retracement for PM.

Gold made no progress this week, and in fact spent much of the week recovering from a sell-off.  In looking at the weekly chart, I was struck by a similarity in a topping pattern that occurrred last year around the same time.  A high, followed by a red hammer candle, which led to a six week sell-off.  Last week we saw the top, this week the red hammer candle.  Will next week bring the large sell-off?  Its a real risk, especially given the extended weekly RSI-7 value of 76.

Like everything else, gold moves in cycles.  I wouldn’t be going long here.  I’m sure there are a hundred reasons why we’re just about to run out of gold (it’s moving from west to east, you know, and there are only fifteen ounces left at COMEX, etc) but when I look at the chart, it just looks toppy.  If we close our ears and ignore “mainstream goldbug news” with all the emotion they bring and instead we just look at prices, doesn’t it look toppy to you?

No progress for silver this week either; in fact, silver has fallen substantially from its high.  Still, silver is clinging to a spot just above its 9 EMA, so it still remains in a nominally bullish position.  However the chart just does not look as though it is setting up for anything positive.  In looking at how the previous rally collapsed, the signal was a close below the 9 EMA.  The first drop below 9 EMA was a warning, and the next led to a seven-week selloff.  Since silver has been unable to make a new high during the course of this rally, I suspect it will lead us lower this time around.  Silver has yet to change trend, unlike gold.

Miners

As fantastically as the miners have done over the past five weeks, the momentum in the mining shares appears to be fading.  This week there was a whole lot of volume and some big price moves, but by end of week, the miners closed lower than they did last week.  The RSI is telling us a story: even though we had a higher close this week, the momentum has definitely slowed way down, and this “bearish divergence” sometimes appears at a top.

The 9 EMA has provided support all during the strongly-trending five week miner rally.  I’m guessing that a close below the 9 will signal a miner correction.  This is not to be confused with a minor correction.

The USD

The buck rose +0.62 to 96.60, but it was unable to move back above any of its moving averages, and on Friday it dropped -0.36 and printed an inverted hammer candle after making a new high.  This looks relatively disagreeable if you are long the buck.  Longer term, the trend for the buck is down.  If it continues lower, that should help gold.

For those that imagine the dollar/yen rate determines the price of gold, note that the Yen climbed +0.57% this week, while gold fell -0.96%.  The correlation is there sometimes, and its not there other times.

US Equities/SPX

US equities did well this week, rising +53.00 [+2.84%] to 1917.78 and printing a weekly swing low.  The equity market could be in the process of forming a double bottom; to confirm, it needs a close above the previous high of 1947.20.  The close on Friday was relatively bullish; SPX sold off early, rallying back within a few hours and retaining those gains into the close, printing a bullish-looking dragonfly doji.  The bank stock index actually closed green.

VIX fell -4.87 to 20.53.

What are the sectors telling us?  If you look at the sort order, it looks like somewhat of a return to risk.  Financials are still lagging, but homebuilders and discretionary are near the top of the list.  But from the standpoint of the moving averages, it looks like a rally during a downtrend.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Telecom XTL 6.12% -12.81% rising falling falling falling ema9 on 2016-02-12 2016-02-19
REIT RWR 4.47% -8.06% rising falling falling falling ema9 on 2016-02-17 2016-02-19
Cons Discretionary XLY 4.23% -2.57% rising falling falling falling ema9 on 2016-02-16 2016-02-19
Homebuilders XHB 4.18% -17.80% rising falling falling falling ema9 on 2016-02-16 2016-02-19
Technology XLK 3.54% -4.76% rising falling falling falling ema9 on 2016-02-16 2016-02-19
Industrials XLI 3.32% -10.61% rising falling falling falling ma50 on 2016-02-17 2016-02-19
Energy XLE 2.77% -29.32% rising falling falling rising ema9 on 2016-02-12 2016-02-19
Healthcare XLV 2.42% -7.44% rising falling falling falling ema9 on 2016-02-16 2016-02-19
Financials XLF 2.39% -13.20% rising falling falling falling ema9 on 2016-02-16 2016-02-19
Materials XLB 2.03% -21.00% rising falling falling falling ma50 on 2016-02-19 2016-02-19
Cons Staples XLP 1.54% 3.42% rising rising rising falling ema9 on 2016-02-12 2016-02-19
Utilities XLU 1.40% 1.94% rising rising rising rising ema9 on 2016-02-18 2016-02-19
Gold Miners GDX -2.44% -10.52% rising rising falling rising ma200 on 2016-02-04 2016-02-19

Gold in Other Currencies

Gold retreated slightly in most currencies this week, but the move lower was quite modest.  Gold in XDR fell just -2.53.

Rates & Commodities

Bonds (TLT) fell this week, down -0.38%, a relatively modest loss given the sharp rise in equity prices.  That’s because TLT executed a reversal on Thursday, rallying sharply.  Still, the future of bond prices probably depends on that possible double bottom in SPX.  Right now, I’d rate TLT as giving off “no signal” in terms of risk.

JNK rose +1.19% this week and printed a weekly swing low. JNK is signaling risk on, at least right now, however I do not take the swing low very seriously.  JNK has printed one perhaps five or six times in the past year which has led to nothing.  I need to see a close above the weekly 9 EMA before I start to think about a rebound in junk bonds.

The CRB (commodity index) fell -0.45% on the week; commodities are more or less bouncing along the bottom, and they remain in a downtrend.

WTIC continued moving higher this week, rising +2.94 [+10.13%] to 31.96.  That sounds pretty exciting, except that $2.20 of that gain came from the monthly contract roll from March futures to April.  With futures in steep contango, its a little harder to determine just how much price moves in the week that a roll occurs.  To fix this, I’ll show a chart of March crude rather than $WTIC, which is stockcharts symbol ^CLH16: CL = “WTIC light sweet crude oil future”, H16 = “contract expires in March, 2016.”  You can see that march oil has yet to break above its downtrend line, but it is seeing a “bullish divergence” in the RSI, which means downside momentum has slowed substantially, and that sometimes happens at the lows.   You can also see that volume in CLH16 has almost vanished; that’s why the contract roll happened.  Open interest and most of the active trading has moved to April.  March (CLH16): $29.72.  April (CLJ16): $31.96.

As always, if oil can put in a low – or even chop sideways – SPX will probably continue moving higher, so will JNK, and that will probably hurt PM.

The oil low depends on a political decision by Saudi Arabia.  You may imagine that “price charts can’t predict political decisions” but that is only true if the information doesn’t leak out.  If you had foreknowledge of such a decision, you – or your deep state organization – could make a killing if you bought the right things in advance of such a decision.  And those pre-decision buys show up in price charts.

The short term open interest in crude – just for the WTIC contract – is a billion barrels.  Thats a billion dollars per $1 move.  That’s a fair amount of money, but it is dwarfed by the oil major equities, which are maybe another couple trillion dollars in market cap.  That’s where the real money is.  Scoop up 10% of these equities, and you make 50-100 billion in gains if you get the timing right.

Actions of the deep state show up in price charts.  At least that’s my belief anyway.

Physical Supply Indicators

* Shanghai is back, and gold is at a premium there: +2.79 over COMEX. 

* The GLD ETF tonnage on hand rose a big +22.01 tons, with 732.96 tons remaining.

* Gold remains in backwardation, with the spread in the first two contracts at -0.10.

* ETF Premium/Discount to NAV; gold closing of 1238.50 and silver 15.75.

 PHYS 10.125 -0.26% to NAV [down]
 PSLV 6.04 +2.24% to NAV [up]
 CEF 11.96 -6.87% to NAV [unch]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no particular premiums for gold, but a 2% premium for silver in Toronto.

* HAA big bar premiums are lower for gold [2.02% for 100 oz bars in NYC], lower for silver [3.59% for 1000 oz bars in NYC].  Silver Eagle premiums rose [19.77% in NYC].

Futures Positioning

COT report covers trading up through February 16th.

During the coverage period, the gold commercials added +33.5k shorts and also added +6.4k longs.  Based on this rate of accumulation, we have another week or two until the commercials are fully loaded short. Managed money dropped -15k shorts and added +5.1k longs; the big $50 rally last week was mostly short covering by managed money.  Managed money is not quite in their danger zone either; they are probably a week and/or one more short-covering burst away.

In silver, commercials added +8.6k shorts, putting silver commercial well within the danger zone.  Sell!!!  Seriously, this current positioning of the commercials in silver looks quite ominous.  We can talk about “costs of production” until we’re blue in the face, but if those commercials load up short, that’s historically a terrible sign for price over the next few months.  And remember, some chunk of the “commercials” are actually mining companies hedging production.

Managed Money closed -6.1k shorts, and added +1.8k longs.  This brings managed money positions into their danger zone for silver also.

Moving Average Trends [9 EMA, 50 MA, 200 MA]

Moving averages show a happy picture.  Silver still lagging, but what’s up with platinum?  It has been unable to rise above its 200 MA – and looking at its chart, it looks ready to correct.  On the positive side, a golden cross for gold is just a few weeks away.

Name Chart Chg (W) 52w ch EMA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 2.98% -21.32% rising rising falling rising ma200 on 2016-02-17 2016-02-19
Gold COMEX.Gold -0.70% 1.93% rising rising rising rising ma200 on 2016-02-03 2016-02-19
Junior Miners GDXJ -0.88% -5.94% rising rising falling rising ma200 on 2016-02-05 2016-02-19
Platinum COMEX.Platinum -1.33% -19.63% rising rising falling rising ema9 on 2016-02-03 2016-02-19
Senior Miners GDX -2.44% -10.52% rising rising falling rising ma200 on 2016-02-04 2016-02-19
Silver COMEX.Silver -2.64% -6.15% rising rising falling rising ma200 on 2016-02-08 2016-02-19

Gold Manipulation Report

There were no meaningful “after-hours” spikes to report.

Summary

The reversals in many risk assets last Friday had some decent follow through all this week.  Oil struggled higher, SPX had less of a struggle and it too moved higher, junk debt staged a small recovery, and PM suffered.  SPX now looks poised to confirm a double bottom reversal pattern, which would be bullish for US equities.  It currently still looks like a bear market bounce, but if the market confirms the double bottom, that will look substantially better.

The gold/silver ratio rose again, closing up +1.45 to 79.88, the highest weekly close since the 2008 crash.     GDX:$GOLD faded a bit but still looks bullish.  GDXJ:GDX rose, and now looks a bit less bearish.  Overall the miners show slowing momentum, which is not ideal.

COT report shows that gold is perhaps a week away from an outright danger zone, while silver is there right now.  If things work out to the advantage of the commercials, then we should see one or two choppy weeks, with a final set of spikes higher to really hose the gold managed money shorts, followed by a decline thereafter.  Based on the COT picture, silver leads gold lower.  One confirmation of this story: last week’s big gold rally was all about managed money short covering rather than managed money going long.

Gold and silver big-bar physical shortage indicators show a mixed bag again; in the west, ETF premiums were mixed, GLD tonnage rose, and gold remained backwardation at COMEX.  Big bar premiums for gold at HAA were lower.  Premiums were observed in Shanghai; about $3.  Overall, big bar gold does not look to be in short supply – at its current price anyway.

Here are the pressures I see:

  • COT report projects a top for PM in the near future; left to its own devices, the gold cycle tops out soon.
  • Oil low is inevitable, probably happens in the relatively near term,  but the timing is unpredictable.  A low in oil will cause an equity market rally, a junk bond rally, relief in the banking system, and it would reinforce a cycle top in PM.
  • European banking system is fragile, and the price signals we are getting from some bank equities are not at all reassuring.  If serious trouble occurs – and they may depend more on NPL-related issues – gold screams higher regardless of COT or oil.  “Bad Bank ECB” may ride to the rescue there.

And just for fun, I’ll add in the end-of-week advice from my computer: long gold, short silver, long copper, long USD, long SPX/DJIA, long crude, short miners.

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  • Sun, Feb 21, 2016 - 03:09am

    #2

    Arthur Robey

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    The Origins of an Obsession.

Tellinger tells the tale.

 

http://www.gaia.com/seeking-truth#topic2

  • Sun, Feb 21, 2016 - 07:01am

    #3

    davefairtex

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    armstrong: near term gold

Armstrong is predicting the following:

https://www.armstrongeconomics.com/markets-by-sector/precious-metals/gold/gold-update-february-16th-2016/

Gold appears to be setting up to extend the counter-trend reaction into the first week of March. With back-to-back Directional Changes for the weeks of 02/08 and 02/15, the typical outcome is one of a choppy trend. Last week we got the high and this week may produce the reaction low. [It did.]  If this proves to be the case, then we should extend the rally into the week of the 29th. Overall, volatility should begin to rise over the next three weeks. So stay nimble and objective. If we rally into the end of the month, then we can still see a test of the 1309 area.

Put more simply – Armstrong says there is further upside for gold in the current move.

Woohoo!  🙂

But he also said that none of the price action so far has negated his call for one last move for gold sub $1000 before the eventual rocketship move happens in gold.

In other words, he sees the current rally in gold as a "counter trend rally" rather than a true change in trend.  Basically its a head-fake.  That's somewhat less of a woo-hoo.  I'm not sure what to think.  If its a head-fake, its a really big one.  But it certainly would serve the purpose of demoralizing almost everyone – first, the gold shorts, and then the gold longs – which is something the market seems to delight in doing.

  • Sun, Feb 21, 2016 - 08:12am

    #4
    Peak Prosperity Admin

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    Seems counterintuitive to me

I'm no  expert on chart voodoo, but it seems like the recent gold moves are pretty strongly correlated to the risk/volatility of late, and It doesn't appear to me that trend is likely to reverse given the direction things are headed.  Hard to imagine a near term scenario, where gold dips that far back down.

mememonkey

  • Sun, Feb 21, 2016 - 12:21pm

    #5

    thc0655

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    Itchy trigger finger

I'm lurking in the high grass waiting for gold at $1,020 and silver at $13.25. Never thought I'd be rooting for low prices in gold/silver. Also never thought I would've been able to accumulate so much before TSHTF.

  • Sun, Feb 21, 2016 - 06:29pm

    #6

    davefairtex

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    how about this scenario

Step 1) Saudis and Russians get together and each cut 5% from oil production.  This happens immediately after CHK declares bankruptcy.

Step 2) ECB steps up to the plate and decides to act as a "bad bank"; Germans decide its a good idea to go along – to the shock of literally everyone – because it turns out, DB really, really needs a bad bank.

What do you think happens to gold?  It sure ain't gold positive, that much I know.  I could see gold 1100 about fifteen seconds after those two announcements.

Certainly its a temporary fix – we still have way too much debt, and China's big KaBoom is waiting to happen, but if both those things happen, the can will have been kicked quite a ways down the road.

CHS and I both like to quote Star Wars – in this case, Yoda:

  • "Do NOT underestimate the power of the Emperor, or suffer your father's fate, you will!"

We might imagine they have no bullets left.  I say, don't underestimate their creativity and willingness to double-down.

  • Sun, Feb 21, 2016 - 08:00pm

    #7
    Peak Prosperity Admin

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    Thoughts on your scenario

Dave

Your overall point of not discounting the power of the 'emperor' is  of course a good one.  I've been re learning that lesson each year for the last eight years!   

That said, I would be very surprised to see a coordinated oil cut back 'rapprochement' between Saudi's and Russia given the existential stakes in the ME for the Saudi's around the Russian/, Shia alliance.  and the general Prisoner's dilemma that defines the  equation there.     More likely scenario for OIl to go higher, would be further war escalation, which would probably be net positive for gold on the risk factor.

As for step 2,  It feels like Central authorities  acknowledging the problem  with dramatic remedies  will do more to heighten angst around the viability of the system than it would  assuage fears.  Certainly it would make the problems more visible to the public at large, which largely seem somewhat oblivious still.

On a side note,  your scenario illustrates for me the problem I have integrating technical analysis as a predictive pricing tool other than within a narrow band of 'normalcy;  as the exogenous, political factors seem inherently unpredictable and outsized in their influence.

 

mememonkey

 

  • Sun, Feb 21, 2016 - 08:45pm

    #8

    davefairtex

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    problems at different levels

If I had to guess, I'd guess that Russia's economy was more diverse than Saudi.  Which is to say, Saudi's influence and power stems almost exclusively from its oil.  A higher oil price is a bigger force multiplier for Saudi than it is for Russia.

So while they are currently at odds right now, I'd say that oil income trumps the scrap in Syria for them.  The stake in the struggle that Saudi has in Syria isn't existential, while continued low oil revenue is.

Again, its just a political decision.  Oil prices will jump higher, its just a matter of time.  And when it does, the pressure on the US banking system will be relaxed.  If the event happens at a time and place of the Saudi's choosing, they can make a whole lot more money off their side bets than if they simply let events take their natural course.

As for the second part, prices tell me that faith in central banking still exists in Europe.  (Its a bit wobbly in Japan).  You are only guessing that monetizing NPLs would heighten angst.  If you are wrong, gold tumbles.  It all depends on confidence.  Look at the Euro right now: its in a rough, medium term uptrend.  If the confidence issue was ECB-related, people would be fleeing the Euro, rather than just selling bank stocks and buying Bunds.  Price evidence is on my side on this one, I believe.

The scenario is a real one, and I actually give it relatively high odds of something like it happening.  We here at PP have a terrible record for assuming "the end is nigh" – me included – so now I'm trying to see what the guys on the other side of the hill are doing.  In a change from my analysis in prior years, I no longer assume things will simply proceed to their inevitable (and near term) doom without effective counter-measure attempts by our friends at Central Planning.

I think we have a big countermeasure spike on the way; it won't be helicopter money, but it will be something between standard QE and helicopter money.  Something that puts teeth in "Do everything it takes" – as long as DB benefits, the Germans will (probably) be behind it.

I just don't know the timing of when it will happen.  The more trouble DB gets in, the sooner it will take place – my guess anyway.

  • Sun, Feb 21, 2016 - 09:26pm

    #9
    Peak Prosperity Admin

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    existential timing

[quote=davefairtex]

If I had to guess, I'd guess that Russia's economy was more diverse than Saudi.  Which is to say, Saudi's influence and power stems almost exclusively from its oil.  A higher oil price is a bigger force multiplier for Saudi than it is for Russia.

So while they are currently at odds right now, I'd say that oil income trumps the scrap in Syria for them.  The stake in the struggle that Saudi has in Syria isn't existential, while continued low oil revenue is.

[/quote]

Dave,

I agree with your analytical philosophy here not discounting counter measures under the assumption things proceed unchecked.   And of course everything is about timing.  Malthus had the basic equation right but the timing wrong.

I disagree, that the issue for the Saudi's is not existential, You are correct, that they don't face imminent implosion but the 'scrap' in Syria with Russia,  is a key milestone, in the realignment of Shia and Sunni power. 

Last time I checked most of the Saudi Oil is in areas dominated by Shia populations.  The Saudi's are now actively fighting a two front war in Yemen and Syria, to control Iranian influence of Saudi based Shiadom. 

They are vulnerable to revolution, even more so as a consequence of  low revenues

I don't think you can discount the near term importance of a Shia ascent in the region   Russia is making this possible.

 

mememonkey

  • Sun, Feb 21, 2016 - 11:33pm

    #10

    Mark Cochrane

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    Low gold scenario

I though the standard last spike lower on gold scenario was when the system implodes again, say if DB or the Italian banks go under or any of a number of other financial disasters set off the derivatives bomb. Suddenly there is the mother of all margin calls and gold gets sold, not because banks and such don't want it but because they need capital 'now'. Price spikes down and then rockets higher because the fear factor really kicks in and everyone buys gold. Good luck trying to get any physical at those prices without paying a massive premium (though I would be trying!). Does Armstrong say it will go low gently or for a significant period of time?

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