PM Weekly Market Commentary – 1/18/2019

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  • Sat, Jan 19, 2019 - 11:01pm

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    davefairtex

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    PM Weekly Market Commentary – 1/18/2019

On Friday, gold plunged -10.29 [-0.79%] to 1286.41 on heavy volume, and silver plunged -0.20 [-1.25%] on moderately heavy volume. Some of the other metals were hit hard [PA:-1.52%, PL:-1.53%], while risk assets rose [SPX:+1.32%, JNK:+0.26%, CL:+2.85%].

The weekly metals sector map has a US-China trade deal top of mind – palladium and copper did best. At the same time, PM was hosed: juniors are leading seniors down, and silver is leading gold down, and the miners are leading the metals down. Everything PM has dropped below that 9 MA. That’s a clear sign of an impending correction in PM.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 4.41% 22.21% rising rising rising rising ema9 on 2018-12-26 2019-01-18
Copper $COPPER 2.05% -15.25% rising falling falling rising ma50 on 2019-01-18 2019-01-18
Gold/Euro $GOLD:$XEU 0.72% 3.74% falling rising rising rising ema9 on 2019-01-18 2019-01-18
Gold $GOLD -0.51% -3.45% falling rising falling rising ema9 on 2019-01-18 2019-01-18
Platinum $PLAT -1.61% -20.40% falling falling falling falling ema9 on 2019-01-11 2019-01-18
Silver $SILVER -1.79% -9.43% falling rising falling rising ma200 on 2019-01-18 2019-01-18
Senior Miners GDX -3.65% -13.98% falling rising falling rising ma200 on 2019-01-15 2019-01-18
Junior Miners GDXJ -4.43% -14.44% falling rising falling rising ma200 on 2019-01-18 2019-01-18
Silver Miners SIL -4.77% -24.47% falling rising falling rising ema9 on 2019-01-14 2019-01-18

Gold fell -6.20 [-0.48%] to 1286.41, with all of the losses happening on Friday. Friday’s move was enough to trigger sell signals on both the daily and weekly forecasters. That same pattern held true for gold/Euros also. While gold remains in an uptrend on the monthly timeframe, it is now in a downtrend on the daily and weekly. The pennant pattern is no longer in play.

The futures market is projecting a 6% chance of a Fed rate increase in March, and a 4% chance of a cut and a 32% chance of an increase in December. This move towards projecting an increase supports the risk on sentiment.

COMEX GC open interest rose +32,138 contracts. Shorts are loading up. Interestingly, on Friday OI actually declined -1,577, which suggests a minor amount of cash-register ringing.  I think the shorts have it right – gold will probably continue to drop as the US-China deal moves towards a conclusion.

No COT report this week because of the government shutdown.

Silver fell -0.28 [-1.79%] on the week, underperforming gold again. Daily forecaster issued a sell signal earlier in the week, and after Friday’s big plunge, the weekly forecaster was solidly in “sell” territory as well. Silver is now in a downtrend in both daily and weekly timeframes.

COMEX SI open interest rose +4,422 contracts this week. That’s a minor move compared to last week’s huge increase – only 9 days in global production in new paper.

Miners were hit hard; XAU fell -4.64%; unlike the metals, XAU had 3 bad days, dropping below the 9 MA on Monday, which was our first clue that things were amiss; Tuesday was actually the worst decline, with Friday being somewhat anticlimactic. Still, XAU forecaster is now in a downtrend in all 3 timeframes, and Friday’s long black candle was not a reversal bar.

GDX:$GOLD fell -3.19%, while the GDXJ:GDX ratio dropped -0.81%. That’s quite bearish.

USD

The buck rose +0.68 [+0.72%] to 95.78. The biggest move came on Tuesday, which also resulted in a buy signal on the daily. The weekly move also resulted in a buy signal in that timeframe too, which brings DX into an uptrend in both timeframes – although the uptrends are not particularly strong. The monthly is still pointing downhill. We’ve gone way beyond dead cat bounce for the buck.

Major moves in currency this week were: JPY [-1.22%], EUR [-0.83%], CHF [-1.19%]. GBP had a wide trading range, but ultimately didn’t move much [-0.26%]. CNY/USD is well down from the highs set back in December – 6.78 vs the high of 6.96. Money is no longer fleeing China. Stars and moons seem to be aligning on this trade deal.

US Equities/SPX

SPX climbed +74.45 [+2.87%] to 2670.71. On Thursday, SPX managed to close above the 50 MA, and Friday saw a new high. There are no bearish indicators that I can see; daily and weekly forecasters both look strong. It was a good week for equities – positive noises about US-China deal, the rally in crude, help from both copper and palladium, and selling pressure in US treasury bonds and gold.

The sector map shows financials and industrials leading, with utilities and homebuilders bringing up the rear. The rally in financials had to do with some good earnings reports from our friendly banksters; the safe havens were all losers this week.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Financials XLF 6.12% -11.35% rising falling falling falling ma50 on 2019-01-16 2019-01-18
Industrials XLI 3.42% -11.67% rising falling falling falling ma50 on 2019-01-17 2019-01-18
Defense ITA 3.06% -5.08% rising falling falling falling ma50 on 2019-01-17 2019-01-18
Energy XLE 2.95% -16.53% rising falling falling falling ma50 on 2019-01-18 2019-01-18
Technology XLK 2.85% -3.43% rising falling falling falling ma50 on 2019-01-18 2019-01-18
Healthcare XLV 2.59% 2.24% rising rising rising falling ma50 on 2019-01-18 2019-01-18
Materials XLB 2.37% -14.93% rising falling falling rising ema9 on 2019-01-17 2019-01-18
REIT RWR 2.25% 3.29% rising falling rising falling ma50 on 2019-01-18 2019-01-18
Cons Discretionary XLY 2.13% 2.03% rising falling rising falling ma50 on 2019-01-08 2019-01-18
Cons Staples XLP 1.59% -8.61% rising falling falling falling ema9 on 2019-01-04 2019-01-18
Telecom XTL 0.19% -2.57% rising falling falling falling ma50 on 2019-01-18 2019-01-18
Utilities XLU -0.17% 5.98% rising falling rising falling ema9 on 2019-01-16 2019-01-18
Homebuilders XHB -0.31% -23.42% rising falling falling rising ema9 on 2019-01-18 2019-01-18
Gold Miners GDX -3.65% -13.98% falling rising falling rising ma200 on 2019-01-15 2019-01-18

Globally, the US was at the top of the heap again this week.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
United States VTI 2.87% -4.56% rising falling rising falling ma50 on 2019-01-17 2019-01-18
Developed Asia VPL 2.34% -15.44% rising falling falling rising ma50 on 2019-01-16 2019-01-18
Emerging Asia GMF 2.17% -16.96% rising rising falling rising ma50 on 2019-01-16 2019-01-18
Latin America ILF 1.64% -7.01% rising rising falling rising ma200 on 2019-01-04 2019-01-18
Europe IEV 1.60% -17.07% rising falling falling rising ma50 on 2019-01-17 2019-01-18
Eurozone EZU 1.48% -20.30% rising falling falling rising ma50 on 2019-01-18 2019-01-18

VIX fell -0.39 to 17.80. That’s well down from the high of 36 set back on Dec 24th.

Rates & Commodities

TLT fell -1.13%, moving lower for 3 of 5 days this week, making a new low on Friday. TLT remains in a downtrend, but not a particularly strong one. The TY drop was -0.67%, a fairly large drop for the 10-year. TY is in a downtrend in both the daily and weekly timeframes, and the bearish harami on the monthly is starting to look like a reversal (54%). The 10-year yield rose +8.3 bp to 2.78%. I’d expect more losses if that US-China trade deal gets done.  You can see in the DGS10 (10-year yield) chart below – a swing low, and a strong uptrend.  If “risk on” continues I’d expect the 10-year yield to continue moving higher.

JNK rose +0.69%, managing to make a new high on Friday, but not a very emphatic one. JNK’s days of large moves may be behind it. If crude and SPX both rally strongly, and this is all JNK can do – we are probably approaching the upper limit of the JNK rally. Its still a sign of risk on, but not a very strong one, and a bit of a cautionary note to the risk on parade.

Crude rallied again this week, up +2.00 [+3.84%] to 54.14. There was a daily buy signal on Monday, then crude crossed the 50 MA on Wednesday, and broke out to a new high on Friday. The EIA report on Wednesday was bearish (crude: -2.7m, gasoline: +7.5m, distillates: +3.0m); as with last week, EIA showed more large builds in product inventories. And also like last week, the bearish news only resulted in a momentary sell-off, which is a very bullish indicator. Market rallies on bad news – exactly what the bulls want to see. Crude is now back in an uptrend in all 3 timeframes. The 3-week move in crude is definitely helping equities to rally.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +12.05 tons, with 810 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.42 -0.31% to NAV [increase]
 PSLV 5.56 -3.53% to NAV [increase]
 CEF 12.52 -3.71% to NAV [increase]

* Bullion Vault gold (https://www.bul lionvault.com/gold_market.do#!/orderboard) shows no premium for gold [New York] and a 5c discount for silver [London]. Calculation uses Kitco’s closing spot prices in New York, minus the mid-point of bullion vault’s current bid/ask on the metal in the stated city.

* Big bars premiums were: gold [1kg] 1.32% and silver [1000oz COMEX] 3.62%.

Grey Swans & Geopolitics

  • Ebola: total cases 663, with 407 deaths, an overall fatality ratio of 61%. There were 35 new cases. What appeared to be a decline last week was simply a delay in detecting and reporting cases. Right now it looks like things are just moving sideways rather than improving. https://www.who.int/csr/don/17-january-2019-ebola-drc/en/

  • Turkey: the 10-year yield ended the week at 15.51%, down -51 bp on the week, while USD/TRY closed at 5.36, a decline from last week. Turkey’s situation is now materially improving. This could be – probably is – related to the risk-on sentiment in US assets, and the overall rise in the price of junky debt.

  • Migration-EU: No news.

  • EU elections: Coming up on May 23-26; no news.

  • BRExit: I’m adding this to the list. While I don’t think it will be anything to substantially move the US markets, if you live in the UK, or you’re a German automaker, it could be really important, especially to currency holdings. What’s next? May is going to present a “Plan B” on Monday. What is it? Here is an article that asked the question of 8 different “experts”: I favor the last guy’s opinion, FWIW: She’ll try to get Parliament to first vote against a hard BRExit. With that off the table, she will then run out the clock, and when March 29th finally arrives, Unconditional Surrender will win the day by default. That would seem to be positive for GBP. http://https://www.vox.com/policy-and-politics/2019/1/18/18187236/brexit-theresa-may-plan-b-experts

  • China – Tariffs: China’s top economic negotiator Liu He will come to Washington at the end of January, which is a positive sign. The fundamental question is: just how successful will these negotiations be from the US viewpoint? Will we get a change in the structural issues (IP theft, and forced tech transfers) or will it be just an agreement to buy more soybeans? Regardless: notice how the spin has changed: from “Trump is a colossal idiot for doing this” and “tariffs don’t work”, to “We worry that Trump won’t get nearly enough in this trade deal.” https://www.axios.com/us-china-trade-war-talks-inching-toward-progress-a0652b42-8bd9-4806-b0a9-0850a8e18be4.html

  • Yield Curve Inversion: the 2-10 spread rose +2 bp to +18 bp.

  • North Korea: Trump and KJU are now scheduled to meet for a second time in late February. Hmm. That’s right around the time the 90 days are up for the US-China trade negotiations. I don’t think that’s an accident.

  • Mueller Investigation: Yet another “bombshell” that wasn’t: this time from BuzzFeed, which claimed that Mueller’s team had evidence that Trump ordered Cohen to lie to Congress. After a ratings-boosting “if-true” media feeding-frenzy that lasted most of a day, Mueller’s team issued a rare statement that said this story wasn’t true. Oops. Do the CNN viewers still salivate when the “bombshell” bell is rung? I bet they still do. Belief systems almost always triumph over evidence. https://www.washingtonpost.com/world/national-security/2019/01/18/b9c40d34-1b85-11e9-8813-cb9dec761e73_story.html

  • Government Shutdown: 28 days and counting. According to polls from CNN and ABC news – if-true – Trump is losing support among Americans for his approach. At the same time, support for a wall has increased from 34% to 42%, although support is quite clearly along party lines: 87 of Republicans support a wall, while only 10% of Democrats do. Thanks to Trump, we are actually having a national debate on a matter of at least some substance. Are walls immoral? Do they really not work? And the NYT weighed in: apparently “There’s nothing wrong with open borders.”  http://https://www.nytimes.com/2019/01/16/opinion/open-borders-immigration.html

Summary

This week was a lot like last week – crude and equities moved higher this week in a move of mutual support. There were more happy noises from the US-China trade negotiations, which also boosted prices of risk assets and industrial metals, and caused some more selling in the safe havens. PM miners suffered quite a bit of selling pressure. The futures market is slowly starting to price in a rate increase once more, albeit 11 months out.

Big bar gold premiums on gold and silver remain low, and discounts at the ETFs have started to move higher; there appears to be no shortage of physical metal at the moment.

No COT report due to the government shutdown.

Wolf Richter had a piece on margin debt: https://wolfstreet.com/2019/01/18/stock-market-margin-debt-plummets-most-since-q4-2008/

Turns out that margin debt has really plunged over the past 3 months – probably a product of equity market decline as well as a contributing factor. Red line below is the total margin debt (in $billions). Notice how it parallels the move down in equities. Its a real pity this information isn’t available in real time. Well, it IS available in real time to the insider-banksters, just not to the great unwashed like us. We get it with a one-month delay.  That tells you just how useful the data actually is.

On the “recession prediction” subject, Industrial production (released Friday) looked quite strong: forecaster for the quarterly INDPRO series has backed away from its sell signal and is now pointing higher. INDPRO is an important indicator. PPIACO is also doing better; it may be walking back last quarter’s sell signal too. That’s probably due to the rally in oil prices. Both of these indicators are suggesting “no recession ahead.” At least not in the US anyways, and at least not this quarter. There is plenty of bad news coming from China.

Weekly trends (in order of strength):

Uptrend: junky debt, DJIA, SPX, copper, crude, USD.

Downtrend: silver, miners, platinum, 10-year treasury, gold/Euros, gold.

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