PM Monthly Market Commentary – March, 2019
On Friday, gold rose +2.10 [+0.16%] to 1297.19 on moderately heavy volume, while silver climbed +0.11 [+0.73%] to 15.10 on heavy volume. The other metals all rallied sharply, the buck was largely unchanged [+0.07%], crude moved higher [+1.07%] along with SPX [+0.67%], and bonds fell [10Y +2.5 bp].
The March metals sector map is showing more than a hint of trouble. Most items have fallen below both the 9 and 50 MA lines, but the longer term uptrend picture remains intact, at least for now. All items except silver are above the 200, and every item in the list has executed a golden cross. Is this dip just a blip in an uptrend? Senior miners actually did better than gold or silver, which is a bit of a bullish surprise. We also see gold/Euros in positive territory, while gold/USD is in the red. This suggests that the move in gold this month is just a currency effect. Copper looks to be doing best – perhaps that’s good news out of China.
|Name||Chart||Chg (M)||52w ch||MA9||MA50||MA200||50/200||Last Crossing||last|
|Senior Miners||GDX||0.81%||2.00%||rising||rising||falling||rising||ema9 on 2019-03-28||2019-03-31|
|Gold/Euro||$GOLD:$XEU||0.15%||7.14%||rising||rising||rising||rising||ema9 on 2019-03-28||2019-03-31|
|Copper||$COPPER||-0.56%||-3.03%||rising||rising||falling||rising||ema9 on 2019-03-29||2019-03-31|
|Gold||$GOLD||-1.59%||-2.45%||falling||falling||falling||rising||ma50 on 2019-03-28||2019-03-31|
|Silver Miners||SIL||-1.79%||-14.06%||falling||rising||falling||rising||ma50 on 2019-03-29||2019-03-31|
|Junior Miners||GDXJ||-2.10%||-1.31%||falling||rising||falling||rising||ema9 on 2019-03-28||2019-03-31|
|Platinum||$PLAT||-2.22%||-8.88%||rising||rising||falling||rising||ema9 on 2019-03-28||2019-03-31|
|Silver||$SILVER||-3.45%||-7.59%||falling||falling||falling||falling||ma200 on 2019-03-28||2019-03-31|
|Palladium||$PALL||-9.68%||42.81%||falling||rising||rising||falling||ma50 on 2019-03-27||2019-03-31|
Gold fell -20.93 [-1.59%] to 1297.19 for this month. The swing high was probably a reversal (76% bearish), but while forecaster dropped, it was not enough for a sell signal. Gold ended the month in a downtrend in both the daily and weekly timeframes. Gold/Euros looks substantially better; the monthly doji candle was a bullish continuation, and gold/Euros ended the month in an uptrend in both weekly and monthly timeframes. Across the pond, gold actually still looks pretty good – slowing, but not yet reversing.
COMEX GC open interest fell -43.9k contracts this month.
The monster volume in gold over the last week – what was that all about? KWN had an interview with Andrew “Whistleblower out of London” Maguire, who opined that that the plunge was all about hammering price prior to some important end-of-month options expirations, as well as the GC contract roll. (warning: AM interviews have a certain breathless quality to them; sometimes I have to play the podcast two or three times to get past all his enthusiasm). If he’s right, we are at or near a near-term low for gold, as the sell-side pressure will be off starting April 1. https://kingworldnews.com/whistleblower-andrew-maguire-deutsche-bank-has-been-accumulating-physical-gold-silver-for-18-months/
Silver plunged -0.54 [-3.45%] on the month. This resulted in a swing high candle pattern, as well as a monthly forecaster sell signal. This puts silver in a downtrend in all 3 timeframes. The previous low for silver is 13.85. That’s likely ultimate support. Will we get there? Most likely, it all depends on what happens to gold. Silver looks much weaker than gold.
The gold/silver ratio rose +1.40 to 85.68. Thats bearish.
COMEX SI open interest fell -1.5k contracts.
Miners managed to squeak out a gain, up +0.67% on the month, outperforming both of the metals. The high wave candle was a bullish continuation, and forecaster inched higher, remaining in an uptrend. XAU ended the month in an uptrend in the weekly and monthly timeframes. Since miners tend to lead, this would support Maguire’s case that this week’s gold smash was a near-term manipulation to hammer down options prices at or near expiration. [There is a fairly well-known theory, called “max pain” (http://maximum-pain.com/options/max-pain/) which suggests that in the days prior to expiration, the market will move prices of the underlying to cause the maximum number of options to expire worthless – inflicting maximum pain on the collection of option holders. I’ve always liked the theory myself, since it aligns with my belief that the market tries to hose as many people as possible.]
The GDX:$GOLD ratio rose +2.44% while the GDXJ:GDX ratio fell -2.88. Call that neutral. It does tell us that big money is preferring the safer larger miners vs the more risky juniors.
The buck rose +1.13 [+1.18%] to 96.75. The long white candle was a bullish continuation, and forecaster moved higher into an uptrend. DX ended the month in an uptrend in all 3 timeframes. The buck looks ready to break out to new highs – although I believe we only see that near term if we get a hard BRExit over in the UK.
This month, the big currency moves were: GBP [-2.08%], EUR [-1.73%], CAD [+1.51%]. Roughly speaking, CAD = oil, GBP and EUR are about BRExit.
SPX rallied +49.91 [+1.79%] to 2834.40. This month was a new high for SPX; the spinning top candle was a bullish continuation, and forecaster moved higher into a strong uptrend. SPX ended the month in an uptrend in all 3 timeframes. SPX continues to move relentlessly higher.
The sector map had tech in the lead along with consumer discretionary, while defense (Boeing!) and financials did worst. Financials don’t like inverting yield curves, because it compresses their margins, but tech did fairly well.
|Name||Chart||Chg (M)||52w ch||MA9||MA50||MA200||50/200||Last Crossing||last|
|Technology||XLK||4.43%||13.12%||rising||rising||rising||rising||ema9 on 2019-03-29||2019-03-31|
|Cons Discretionary||XLY||3.30%||12.40%||rising||rising||rising||rising||ema9 on 2019-03-12||2019-03-31|
|Cons Staples||XLP||3.26%||6.61%||rising||rising||rising||rising||ema9 on 2019-03-21||2019-03-31|
|REIT||RWR||2.23%||14.84%||rising||rising||rising||rising||ema9 on 2019-03-21||2019-03-31|
|Utilities||XLU||2.03%||15.12%||rising||rising||rising||rising||ema9 on 2019-03-29||2019-03-31|
|Energy||XLE||1.33%||-1.91%||falling||rising||falling||rising||ema9 on 2019-03-27||2019-03-31|
|Materials||XLB||0.82%||-2.53%||falling||rising||falling||rising||ema9 on 2019-03-28||2019-03-31|
|Gold Miners||GDX||0.81%||2.00%||rising||rising||falling||rising||ema9 on 2019-03-28||2019-03-31|
|Homebuilders||XHB||0.47%||-5.49%||rising||rising||falling||rising||ema9 on 2019-03-25||2019-03-31|
|Healthcare||XLV||0.11%||12.71%||falling||rising||rising||rising||ema9 on 2019-03-29||2019-03-31|
|Industrials||XLI||-1.72%||1.00%||rising||rising||falling||rising||ema9 on 2019-03-28||2019-03-31|
|Telecom||XTL||-2.12%||2.65%||falling||rising||falling||rising||ema9 on 2019-03-29||2019-03-31|
|Financials||XLF||-3.05%||-6.75%||falling||rising||falling||rising||ma50 on 2019-03-22||2019-03-31|
|Defense||ITA||-4.56%||0.82%||rising||rising||falling||rising||ma50 on 2019-03-29||2019-03-31|
On Friday, LYFT had its IPO; a WAPO analyst had this to say: “This is a company that doesn’t have to spend to produce a physical product yet has the gross margins of a clothing retailer.” That’s snarky for a financial analyst. While revenues doubled in 2018, LYFT has a -40% operating margin; that is, it loses 40 cents on each dollar of revenue. https://www.washingtonpost.com/business/lyft-confirms-what-we-know-and-what-we-dont/2019/03/01/7caea686-3c62-11e9-b10b-f05a22e75865_story.html
My cynical view: with the customer adoption rate slowing dramatically (from 21% Q/Q in Q1 2017 to 7% Q/Q in Q4 2018) LYFT insiders are seeing this environment as their very last moment to cash out. Peak Lyft Hype, as it were.
Internationally, the US equity market was in the middle of the pack; Emerging Asia did best.
|Name||Chart||Chg (M)||52w ch||MA9||MA50||MA200||50/200||Last Crossing||last|
|Emerging Asia||GMF||3.93%||-7.32%||falling||rising||falling||rising||ema9 on 2019-03-29||2019-03-31|
|Europe||IEV||1.07%||-6.95%||falling||rising||falling||rising||ma200 on 2019-03-26||2019-03-31|
|United States||VTI||0.87%||6.62%||falling||rising||rising||rising||ema9 on 2019-03-29||2019-03-31|
|Developed Asia||VPL||0.30%||-9.72%||falling||rising||falling||rising||ema9 on 2019-03-29||2019-03-31|
|Eurozone||EZU||0.21%||-10.96%||falling||rising||falling||rising||ema9 on 2019-03-22||2019-03-31|
|Latin America||ILF||-2.32%||-11.55%||falling||falling||rising||falling||ma50 on 2019-03-22||2019-03-31|
VIX ended the month at 13.71.
Rates & Commodities
The 10 year yield (DGS10) cratered this month, plunging -32 bp to 2.41%. The closing black marubozu/confirmed bearish NR7 was definitely bearish, and forecaster inched lower, remaining deep in a downtrend. Note: this month’s chart are rates, not prices, so a deep downtrend for rates = a strong rally for bonds. Example: TLT (20y+) rose +5.35%, and IEF (7-10y) climbed +2.46%. That really nice capital gain for longer term debt comes on top of the now-2.4% annual yield. With this month’s plunge in yields, the next stop for the 10-year yield could well be the previous low at 2.05%. That’s another chunk of capital gains for long term bondholders – assuming things play out this way.
Note: this drop in yields happened right alongside the move higher in equities. We also see a move out of very short term paper (i.e. the yields on 28-day and 3 month bills are rising, as yields on the longer term bonds plunges). This could mean that a large number of people who are in short-term treasury bonds (and/or money market funds) have pushed their money into the longer term bonds, to lock in rates for the recession that is presumably on the way. However, this move didn’t happen at the expense of equities. That’s unusual – usually when people get nervous, they dump equities for bonds, but that’s not what we see happening. So what is going on?
Martin Armstrong had this suggestion:
Currencies from South Africa’s rand to Brazil’s real are witnessing a spike in their expected volatility, signaling concern they may weaken the most along with the Turkish lira going into May. The price swings have evoked sudden deep-rooted fears that there may be an emerging market crash before the end of the year.
However, keep in mind that this Inverted Yield Curve is by no means reflecting a US recession. This is a global financial panic unfolding on a grand scale…. This is far more than just politics. This is beginning to evolve into a serious liquidity crisis where we may yet see more countries try capital controls to save the day.
Armstrong has an international/global view informed by his experience running money back in the 90s. He saw that international capital flows often caused effects in local markets that were misunderstood by the locally-focused participants. Could it be that the US doesn’t have a recession on the way after all?
BAA rates fell -0.29% this month, a large move down. We are now back to early-2018 for lower-quality debt yields. This is a strong contra-recession signal; would you load up on iffy-quality bonds right ahead of a recession, which usually ends up taking out heavily indebted, poorly run companies? No, you would not. I believe this lends some strong support to Armstrong’s theory that the US yield curve inversion is not signaling a US recession, but rather just represents international capital running into US safe haven bonds. And, as the BAA rate chart shows, money is flowing into lower quality debt also. Interestingly, the BAA.AAA differential also fell this month. This said that money rotated into crappier (BAA) debt more heavily than into the safer AAA-rated issues. That’s practically a risk on signal!
Crude rose +2.68 [+4.65%] to 60.33. This marks another new high for crude; the rally appears to be slowing, but not stopping. A close above round number 60 is a milestone – it was enough to get Trump to issue a tweet-plea to OPEC to pump more oil. “World markets are fragile”, he said. True, that. The tweet didn’t seem to have any effect on price. We are well past Peak Khashoggi. The closing white marubozu was somewhat bearish (40% reversal), and forecaster fell but remains in a reasonably strong uptrend. Crude ended the month in an uptrend in all 3 timeframes.
Physical Supply Indicators
* The GLD ETF tonnage on hand was unchanged, with 784 tons in inventory.
* ETF Discount to NAV:
PHYS 10.45 -0.70% to NAV
PSLV 5.54 -2.30% to NAV
CEF 12.40 -4.53% to NAV
* Big bars premiums were: gold [1kg] 1.33%, and silver [COMEX 1000 oz] 3.74%.
Grey Swans & Geopolitics
Ebola: from 10,000 miles away, this is starting to look like a dangerous and unpleasant game of whack-a-mole. Have I said that before? Two new outbreak areas (North Kivu, and Ituri provinces) caused the number of new cases to spike vs last week. Over a multi-month timescale the overall new case numbers are trending lower – at least for now – but it does not look like a sure thing that this will continue. https://www.who.int/csr/don/28-march-2019-ebola-drc/en/
Turkey: is back in the news. Erdogan basically instituted capital controls in order to avoid downward pressure on the Lira during an important regional election. This caused the Turkish 10-year bond yield to shoot up 240 bp in about a week. This could be a blip; we will have to wait and see if the move continues.
EU Migration: Early in March, the EU declared the migration crisis over (https://www.theguardian.com/world/2019/mar/06/eu-declares-migration-crisis-over-hits-out-fake-news-european-commission) and it released a factsheet attempting to debunk 15 “myths” about migration. Then at end of month, the EU agreed to extend its Mediterranean naval mission for six months, but only for air patrols and the training of the Libyan coast guard. Impact: no more EU-funded migrant sea taxis. All this is with an eye on the upcoming EU elections. Call it an in-kind campaign contribution by the bureaucrats in Brussels to the pro-EU centrist parties running for election in 2 months; Brussels is belatedly trying to defuse the populist bomb that may be about to explode. https://www.reuters.com/article/us-europe-migrants-sophia/rights-groups-lambast-eu-downscaling-of-mediterranean-migration-mission-idUSKCN1R827P
EU Elections – May 23rd: Will the UK participate? It will depend on the outcome of BRExit, which is very much up in the air right now.
China – Tariffs: more progress in the specifics of forced tech transfer and IP theft. “They’re talking about forced technology transfer in a way that they’ve never wanted to talk about before – both in terms of scope and specifics”, said one officer. Perhaps a bigger deal is that Trump now apparently has bipartisan support for his tough China stance. Did you get that? Trump. Bipartisan support. That’s a deadly combination. China has certainly noticed the shift, and is acting accordingly. https://www.cnbc.com/2019/03/28/china-makes-unprecedented-offers-to-us-on-tech-transfer-trade.html
BRExit: confusion reigns supreme. May submitted Unconditional Surrender to Parliament 3 times, and had it voted down 3 times, but with a rising amount of support each time. 4th time lucky? The currency market is still betting on a soft BRExit, but the chaos of the last week in March has caused traders to hedge their bets. New referendums, customs unions, hard Brexits – lots of possible outcomes and no certainty. And now the exit date is delayed, to either April 12th or May 22nd. This process is truly “sausage being made.”
Yield Curve Inversion: the 1-10 spread fell by -19 bp, ending the month just 1 bp above inversion. The 1-10 spread actually did invert several times during the last week of March.
North Korea: No news.
Mueller Investigation: ended this month with a finding of “no collusion with Russia.” While there was no immediate, explicit impact (except for a sudden plunge in ratings at certain cable news shows), my guess is that it restored some faith in the US as a safe haven internationally – so positive for DX and the US 10-year – it probably also helped convince China to start rethinking their stance on forced tech transfers. Let’s call this the Mueller Dividend.
The big news this month was the large rally in longer-term US bonds, and the inversion of the US treasury yield curve. Going along with that was the less-watched rally in BAA debt, which was arguably an even larger rally than the move into the 10-year. What does that mean? I think it means that money is flowing from outside the country into US debt assets in general. Armstrong tells us this is about a concern over emerging markets, driven currently by Turkey, but also South Africa, and Brazil. Now that Trump will be here for another 2 years and – at least according to Mueller – isn’t a stooge of the Kremlin, that will likely exaggerate the move.
Adding to this is the steady move higher in crude, which is pretty clearly helping SPX (correlation: SPX/Crude is about 0.85 right now), and you don’t have a picture of a country about to tip over into recession.
Falling: housing prices, producer prices.
Flat: Industrial production, “goods”, retail sales, headine employment.
Rising: CPI, GDP, credit growth, “services”
Currently there is no shortage of physical gold and silver, but the ETF discounts to NAV for the physical ETFs are shrinking. Traders are buying the dip in PHYS and PSLV.
And while gold/USD looks somewhat unhappy, that’s mostly just a currency effect. Gold/Euros is actually still doing just fine. Even with last week’s gold smash, gold/Euros is actually up for the month. Miners are reinforcing this message. Silver – well, silver looks pretty unfortunate. Its the poor stepchild of PM right now. I mean, you’re supposed to buy straw hats in the winter when there is blood in the streets, and that pretty well describes silver, here at gold/silver ratio 85. But who can do that, when it just might be going lower?
So – tentatively at least, we watch for the bid under gold to reappear next week as the “max pain” selling pressure will be past. Assuming that’s what was moving price lower. And, as Trump gains political capital following the end of the Mueller investigation, that should continue to reinforce the buck, and the 10-year, and US equities as a safe haven, especially as BRExit, the EU elections, and the issues in the emerging markets become more serious.
And we may even get a US-China trade deal that could possibly have bipartisan support. I think you can thank the Mueller Dividend (and a dose of rare common sense) for that one too.
Next week: Nonfarm Payrolls next Friday. That should help provide some more clues.
Current Trends – Monthly:
Uptrend: SPX, DJI, BAA bonds, USD, crude, 10-year treasury, gold/Euros, miners, gold, platinum, palladium, copper.
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I just snipped out some of the many points of agreement I have with him. I too thought Trump had zero chance of winning, for exactly the reason he states. I especially appreciated his own personal mea culpa for writing Trump off – and his compelling explanation of why the widespread, and poor political prognostication by the media itself led directly to the willingness of half the country to swallow whole the “Russiagate” conspiracy.
The 2016 campaign season brought to the surface awesome levels of political discontent. After the election, instead of wondering where that anger came from, most of the press quickly pivoted to a new tale about a Russian plot to attack our Democracy.
This narrative contradicted everything I’d seen traveling across America in my two years of covering the campaign. The overwhelming theme of that race, long before anyone even thought about Russia, was voter rage at the entire political system.
The anger wasn’t just on the Republican side, where Trump humiliated the Republicans’ chosen $150 million contender, Jeb Bush (who got three delegates, or $50 million per delegate). It was also evident on the Democratic side, where a self-proclaimed “Democratic Socialist” with little money and close to no institutional support became a surprise contender.
Russiagate became a convenient replacement explanation absolving an incompetent political establishment for its complicity in what happened in 2016, and not just the failure to see it coming. Because of the immediate arrival of the collusion theory, neither Wolf Blitzer nor any politician ever had to look into the camera and say, “I guess people hated us so much they were even willing to vote for Donald Trump.”
There is a lot more behind the link.