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PM End of Week Market Commentary – 3/2/2018

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  • Mon, Mar 05, 2018 - 04:37pm

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    davefairtex

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    PM End of Week Market Commentary – 3/2/2018

On Friday gold rose +5.60 [+0.42%] to 1323.70 on moderate volume, while silver climbed +0.05 [+0.27%] to 16.54 also on moderate volume. The buck fell again on Friday, down -0.42%, which tells us that gold’s rally was just a currency effect.

This week the PM sector map looked a bit confused. The “other metals” (palladium/platinum/copper) group were hit hard, led lower by palladium, which dropped more than 5%. Silver and gold were the best performers in the group, with silver the only component that managed to move higher. Miners were in the middle, continuing to head lower.  All items are below their 50 MA lines, and all the mining share ETFs are below the 200. Only silver is above the 9, making silver’s recent out-performance fairly easy to spot.  This is a relatively bearish configuration, especially for risk assets, because of the plunge in palladium and copper.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver $SILVER 0.27% -7.05% falling rising falling rising ema9 on 2018-03-02 2018-03-02
Gold $GOLD -0.51% 7.23% falling rising rising rising ma50 on 2018-02-27 2018-03-02
Junior Miners GDXJ -0.56% -8.11% falling falling falling rising ema9 on 2018-03-02 2018-03-02
Silver Miners SIL -1.61% -13.21% falling falling falling falling ema9 on 2018-02-27 2018-03-02
Senior Miners GDX -2.18% -2.01% falling falling falling falling ema9 on 2018-02-20 2018-03-02
Copper $COPPER -2.29% 16.55% falling falling rising falling ema9 on 2018-02-27 2018-03-02
Platinum $PLAT -3.14% -2.25% falling rising rising rising ma50 on 2018-03-01 2018-03-02
Palladium $PALL -5.25% 28.58% falling falling rising falling ema9 on 2018-03-01 2018-03-02

Gold fell -6.80 [-0.51%], with all of the loss coming on Tuesday. Friday’s candle was a swing low, which had an 45% chance of being a reversal. Forecaster concurred, rallying +0.38 to +0.30, which is a buy signal for gold. The weekly gold forecaster remains in a downtrend.

The March rate-increase chances remains at 83%.

COMEX GC open interest fell by -18,711 contracts this week.  Commercials ringing the cash register.

Silver rose +0.05 [+0.27%] to 16.54, chopping sideways this week. Silver’s candle print on Friday was a neutral short white candle, while the forecaster rose just +0.01 to -0.03, which pretty much confirms the sideways chop. The weekly and monthly forecasters both remain in downtrends.

The gold/silver ratio fell -0.63 to 80.05, which is bullish.

COMEX SI open interest fell -5,653 contracts.

The miners dropped again this week, with XAU falling -2.21%, and this was after a fairly significant reversal on Thursday. On Friday, the miners gapped up at the open and then sold off all day long, failing to print a swing low which looked to be a sure thing at market open. In spite of the Friday sell-off, XAU forecaster jumped +0.41 to +0.06, which is a buy signal for the mining shares. Weekly and monthly forecasters are both in downtrends, although the weekly improved markedly this week, up +0.22 to -0.06.  XAU remains below its 9 MA.

The GDX:$GOLD ratio fell -1.60%, and the GDXJ:GDX ratio rose +1.66%. That’s neutral.

USD

The buck rose +0.05 [+0.06%] to 89.59. The buck tried to break above the previous high at 90.29, but only managed to do so intraday, ending the week more or less back where it started. The buck did issue a sell signal on Tuesday, and by Friday the forecaster remained in an uptrend at +0.30. The weekly forecaster improved to -0.13, but that’s still a downtrend, as is the monthly at -0.07.

It was a bit surprising that the Euro ended the week this strong; I would have thought the political uncertainty in Germany and Italy would have resulted in some selling pressure – but perhaps the well-connected big players already knew how it was going to turn out.  Certainly that’s what it looked like on Thursday.

US Equities/SPX

SPX fell this week, dropping -56.05 [-2.04%] to 2691.25. SPX printed a bearish engulfing on Tuesday, and then sold off for the next two days, finally recovering on Friday. The thrusting candle pattern was somewhat bullish (28% reversal) but the forecaster ended the week at -0.46, after issuing a sell signal on Thursday.

The sector map looks relatively bearish; homebuilders, materials and industrials did worst, while telecom was the sole sector in the green. Utilities had a bad week too.  It is possible that the homebuilders are giving us a hint about where the housing market might be headed.

VIX rallied +3.10 to 19.59.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Telecom XTL 0.63% -1.17% falling rising falling rising ema9 on 2018-03-02 2018-03-02
Technology XLK -0.89% 28.33% rising rising rising falling ema9 on 2018-03-01 2018-03-02
Cons Staples XLP -1.12% -2.91% falling falling falling falling ema9 on 2018-02-27 2018-03-02
REIT RWR -1.83% -11.82% falling falling falling falling ema9 on 2018-02-27 2018-03-02
Healthcare XLV -1.98% 10.78% falling falling rising falling ema9 on 2018-02-28 2018-03-02
Gold Miners GDX -2.18% -2.01% falling falling falling falling ema9 on 2018-02-20 2018-03-02
Financials XLF -2.34% 14.45% falling rising rising falling ma50 on 2018-03-01 2018-03-02
Energy XLE -2.69% -7.17% falling falling falling falling ema9 on 2018-02-28 2018-03-02
Cons Discretionary XLY -2.70% 18.27% falling rising rising rising ma50 on 2018-03-01 2018-03-02
Utilities XLU -2.80% -5.30% falling falling falling falling ema9 on 2018-02-27 2018-03-02
Industrials XLI -3.28% 13.40% falling rising rising falling ema9 on 2018-02-28 2018-03-02
Materials XLB -3.80% 11.88% falling falling rising falling ema9 on 2018-02-28 2018-03-02
Homebuilders XHB -5.23% 9.91% falling falling rising falling ma200 on 2018-02-28 2018-03-02

Gold in Other Currencies

Gold fell in most currencies, with gold in XDR falling -7.68.

Rates & Commodities

The long bond moved mostly sideways, up just +0.19%. Bonds did well on Thursday, but lost most of the gains on Friday. TY did even worse, falling -0.05%. TY forecaster issued a buy signal on Thursday, but Friday’s sell-off erased almost all of Thursday’s gains. TY remains in a daily uptrend, but the forecaster closed the week at just +0.05. Weekly TY forecaster improved (+0.29 to -0.17) but remains in a downtrend, while the monthly forecaster continues to look quite bearish.

JNK mostly tracked equities, falling -0.72%, and issuing a sell signal on Thursday.

CRB fell -0.96%, with 4 of 5 sectors moving lower, led lower by energy (-3.71%).

Crude fell -2.14 [-3.37%] to 61.43. The 3 days of selling in crude roughly paralleled the drop in equity prices. Certainly part of the problem involved a bearish-looking EIA report on Wednesday [crude +3m, gasoline +2.5m, distillates -1m]. Crude did seem to find support down at the 61 level, and the doji candle print on Friday was neutral. The forecaster wasn’t impressed either, falling -0.10, ending the week at -0.20. Crude remains in a downtrend.

Physical Supply Indicators

* Premium of SGE over COMEX was +8.12 vs COMEX.

* The GLD ETF tonnage on hand rose +4.72 tons, with 834 tons in inventory.

* ETF Premium/Discount to NAV:

 PHYS 10.77 -0.40% to NAV [down]
 PSLV 6.11 -1.88% to NAV [up]
 CEF 13.24 -3.12% to NAV [unch]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold and a 1% premium for silver.

* Big bars premiums were: gold [1kg] 1.01% and silver [1000oz] 2.56%.

Futures Positioning/COT

In gold, the commercial net position rose 15k, with 8.4k from short covering, and 6.6k of new long buying. This wasn’t a very substantial change. Managed money net fell by 25k contracts, evenly split between 13k longs sold, and 12.5k new shorts. Another 6 weeks of this and we might be nearing a COT low for gold.

In silver, the commercial net rose by 5k contracts, with 3.9k longs sold, and 8.9k shorts covered. The commercial net position is at its highest since mid-2015. Managed money net fell by 5.9k contracts, mostly it was about 6.4k new shorts, but also 476 new longs. Managed money net is now the most bearish on silver  ever in the history of the timeseries, which dates back to 2006.

A low for silver should be near.

Grey Swan Status

  • Italian Elections are this Sunday, with results known prior to the start of trading on Monday morning. The black swan outcome (courtesy of Mish): M5S and Lega Nord form a coalition to pull Italy from the Eurozone. Rumor has it that Italian polls are inaccurate; Lega Nord also suffers from “optics” problems, portrayed by the media as being just shy of Benito Mussolini in terms of political positioning, but given the 600,000 economic migrants and an unemployment rate north of 10%, people may well secretly vote for Lega Nord in private while decrying them in public.

  • The SPD announced the results of their election, approving the grand coalition with a surprisingly high 66% of the party members voting in favor. It looks like the currency markets were able to correctly sniff out the “Euro-positive” results of the SPD poll. This outcome takes the German grey swan off the table.

  • US Congressional Elections, 2018. The generic ballot shows Democrats 46.8% [+8.8%] Republicans 37.9%, a widening of 0.6% in the spread vs last week, entirely due to a decline for the Republicans.  A Democratic victory in 2018 would almost certainly lead to impeachment proceedings against Trump.  https://projects.fivethirtyeight.com/congress-generic-ballot-polls/

  • Mueller Investigation: no new developments, but a whole collection of rumors gleefully provided by the CNN/CNBC news axis, with the most interesting one being an investigation of Trump’s business dealings in Russia prior to the 2016 campaign which allegedly might have given the Russians compromising material on Trump.

Summary

Risk assets and crude fell this week, but bonds were able to gain no advantage from the plunge, and the commodity group and PM moved lower even though the buck was unable to break higher. The Euro did not look particularly worried about a bad political outcome in Europe; it seems that the “no-gro-ko” rebellion in Germany’s SPD was more hype than substance. Perhaps when their party moves into 5th place after the next election, they will see things differently. AfD will be leading the opposition.

Gold and silver big bar shortage indicators are showing no sign of shortage; premiums on big-bar gold and silver are normal, GLD tonnage rose slightly, while ETF discounts were mixed.

The gold COT report showed the start of a modest “COT rinse” cycle; commercials rang the cash register, while managed money dumped longs and went short, but at this rate it will take weeks for a low to form for gold. Silver shows managed money at the lowest net position ever in history, while the commercial net position is at multi-year highs. This indicates a low for silver should be upon us.

The fact that silver is performing the best of all the PM group supports the whole “buy silver at GSR > 80/COT low” thesis. In spite of the relatively ugly environment for PM, someone is out there accumulating silver – even if it is just paper silver at COMEX.

The positive aspect I see right now for PM is that the buck has failed to rally through 90.29. This is suggesting that Europe will avoid disaster one more time. The market could be wrong about this – we still have the Italian elections to go, but that’s the way things are shaping up at the moment. I’m not sure I’d run out and buy a big bunch of mining shares, but certainly silver seems to be popular among the bankster group at the moment.

Next week we have Nonfarm Payrolls on Friday – that’s about it for economic reports excitement.

Forecasting code – weekly – is pretty negative; virtually everything is being sold:

Uptrend: miners.

Downtrend: crude, copper, gold, silver, SPX, 10-year treasuries, BAA-grade debt, USD.

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