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PM Weekly Market Commentary – 11/17/2018

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  • Sat, Nov 17, 2018 - 12:45pm

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    davefairtex

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    PM Weekly Market Commentary – 11/17/2018

On Friday, gold rose +8.60 [+0.71%] to 1227.64 on very heavy volume, while silver climbed +0.12 [+0.84%] to 14.39 on very heavy volume also. All the metals actually did quite well, and on top of that, the buck declined -0.49%. We appear to be back in “anticipated tariff relief” mode once again.

An FT article suggested that, while no actual progress had been made, a possibility is that Trump and Xi will reach a “handshake agreement” at the G-20 that will put the next round of tariffs (the 25% tariff level) on hold, but without resolving the underlying issues. This is the same technique Trump used on both North Korea, and Europe.  There were other indications in the article that negotiations are back on once more.

https://www.ft.com/content/a6a3cb08-e887-11e8-8a85-04b8afea6ea3

Armstrong suggests that the UK should employ Trump to execute a BRExit agreement. He thinks it would be both more entertaining, and it would probably yield much better results.

The weekly metals sector map saw the metals recover from last week’s sell-off. Silver led gold, with the miners somewhere in the middle.  Palladium and copper did best overall; this definitely looks like a tariff relief rally to me. Almost all items are back above the 9, and more than half are back above the 50.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 5.39% 17.29% rising rising rising rising ema9 on 2018-11-14 2018-11-16
Copper $COPPER 4.18% -8.58% rising rising falling rising ema9 on 2018-11-15 2018-11-16
Silver Miners SIL 2.36% -21.87% falling rising falling rising ema9 on 2018-11-15 2018-11-16
Silver $SILVER 1.84% -15.75% falling rising falling rising ema9 on 2018-11-16 2018-11-16
Senior Miners GDX 1.79% -14.25% falling rising falling rising ema9 on 2018-11-15 2018-11-16
Junior Miners GDXJ 1.40% -13.79% falling rising falling rising ema9 on 2018-11-16 2018-11-16
Gold $GOLD 0.97% -4.42% falling rising falling rising ema9 on 2018-11-16 2018-11-16
Gold/Euro $GOLD:$XEU 0.49% -1.22% falling rising falling rising ema9 on 2018-11-15 2018-11-16
Platinum $PLAT -0.89% -9.24% falling rising falling rising ema9 on 2018-11-09 2018-11-16

Gold rose +12.14 [+1.00%] on the week, marking a low on Tuesday and then rallying for the rest of the week. The weekly long white candle was probably a reversal (59%), while forecaster moved up +0.18 to -0.10. That’s still a downtrend, but not a very strong one. Daily forecaster issued a buy signal on Wednesday. Gold is back above the 9 and 50 MA lines, which is a good sign. Gold also appears to be making a higher low. Gold/Euros just barely managed to creep back above its 200 MA; that tells us that a fair amount of gold’s move this week was a currency effect. Gold is now in an uptrend in only the daily timeframe.

The December rate-increase chances fell to 65%.

COMEX GC open interest rose 20,553 contracts this week.

COT report shows the commercial net position rose +36k, which was 27k new longs and 9k shorts covered. Managed money net fell by -32k, which was 29k new shorts, and 3k fewer longs. These were fairly large changes, and move the positioning back to a very bullish level.

Silver climbed +0.26 [+1.84%] on the week, making a new low to 13.86, but then reversing on Wednesday and rallying along with gold through Friday. Forecaster issued its buy signal for silver on Wednesday, which puts silver in an uptrend in both daily and monthly timeframes. Silver’s weekly bullish harami candle print had a 48% chance of being a bullish reversal. While silver is back above the 9 MA, it has not quite made it back to the 50 just yet.

The gold/silver ratio fell -0.75 to 84.66. That’s a decent improvement, and is bullish.

COMEX SI open interest rose +7,585 contracts this week.

COT report shows commercial net rose +14k contracts, which was 11k fewer shorts, and 3k new longs. Managed money net fell by -20k contracts, or 16k new shorts, and 4k fewer longs. Managed money net is close to record levels once more.

Miners reversed along with gold and silver on Wednesday; XAU climbed +2.99%, with the daily forecaster issuing a buy signal on Thursday. Weekly candle print was a spinning top, which had a 63% chance of being a bullish reversal. XAU managed to close back above the 9 and 50 MA lines, and is now in an uptrend in the daily and monthly timeframes.

GDX:$GOLD rose +0.78%, while the GDXJ:GDX ratio dropped -0.38%. That is slightly bullish.

USD

The buck fell -0.45 [-0.47%] to 95.97. After breaking out to new highs (to 97.18) on Monday, the buck spent the rest of the week moving lower, with the forecaster issuing a sell signal on Thursday, and then plunging through the 9 MA on Friday’s sell-off. That still leaves the buck in an uptrend in the weekly and monthly timeframes.

The currency moves were mostly positive vs the buck: Euro +0.75%, GBP -1.23% (BRExit – or maybe not-BRExit), AUD +1.42%, JPY +0.79%, with GBP the exception. The much-worried-about denoument of the Italian budget ended up being a non-event; or maybe a not-yet event. More on that one later.

CNY rose vs the buck this week, climbing +0.25%; CNY fell from 6.96 on Monday to 6.94 on Friday.

US Equities/SPX

SPX fell -44.74 [-1.61%] to 2736.27. SPX fell for much of the week, rallying strongly only on Thursday, with little follow-through on Friday. SPX remains below all 3 moving averages, and in a downtrend in both the daily and weekly timeframes.

The sector map shows consumer discretionary (-3.32%) and defense (-3.20%) leading lower, while materials, REITs, and utilities managed to stay in the green. That’s somewhat bearish, with hints of commodity rally.

Globally, the US was the worst performer this week, with Emerging Asia doing best. That’s risk-on behavior, at least from a money flows standpoint.

VIX rose +0.78 to 18.14.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Gold Miners GDX 1.79% -14.25% falling rising falling rising ema9 on 2018-11-15 2018-11-16
Materials XLB 0.47% -5.13% rising falling falling falling ema9 on 2018-11-16 2018-11-16
REIT RWR 0.13% -1.21% rising falling rising falling ema9 on 2018-11-16 2018-11-16
Utilities XLU 0.02% -2.35% rising rising rising falling ema9 on 2018-11-16 2018-11-16
Industrials XLI -0.59% 1.55% rising falling falling falling ema9 on 2018-11-16 2018-11-16
Healthcare XLV -0.98% 12.85% rising falling rising falling ema9 on 2018-11-16 2018-11-16
Financials XLF -1.22% 2.29% falling falling falling falling ema9 on 2018-11-12 2018-11-16
Homebuilders XHB -1.27% -17.51% falling falling falling falling ema9 on 2018-11-09 2018-11-16
Cons Staples XLP -1.34% 2.02% rising rising falling rising ema9 on 2018-11-14 2018-11-16
Energy XLE -1.93% 0.12% falling falling falling falling ema9 on 2018-11-12 2018-11-16
Technology XLK -2.33% 6.98% falling falling rising falling ema9 on 2018-11-12 2018-11-16
Telecom XTL -2.36% 5.13% falling falling rising falling ema9 on 2018-11-12 2018-11-16
Defense ITA -3.20% 8.65% falling falling falling falling ema9 on 2018-11-12 2018-11-16
Cons Discretionary XLY -3.32% 14.22% falling falling rising falling ema9 on 2018-11-12 2018-11-16

Gold in Other Currencies

Gold rallied in all currencies this week.

Rates & Commodities

TLT climbed +1.19%, zig-zagging higher, ending the week on a high on Friday. TY did well also, up +0.94%. TY issued a buy signal on Monday, and rallied steadily all week long. The TY chart looks substantially stronger than the TLT chart, having managed to close above the previous high set three weeks ago. TY is in an uptrend in both daily and weekly timeframes. The 10-year yield fell -11.5 bp to 3.07%. That’s a pretty strong move.

Is this a flight to safety? I’m not sure. It might be. The really curious move came on Thursday and Friday: TY moved higher, in spite of the rally in equities. It could be that there was a major seller of US 10-year notes that has stopped selling. Perhaps, China?  No need to sell bonds and raise dollars to support RMB if there is progress towards a settlement.

JNK plunged -1.51%, falling 5 days out of 5, making a new low on Friday, which invalidated the possible bullish reversal on Thursday. The plunge in junky debt is a strong sign of risk off.

Crude fell for the 6th straight week, losing -2.94 [-4.89%] to 57.14. Most of the losses in crude came on Tuesday – an appalling 6% plunge in the price of the master resource that turned out to mark the low, at least for now. A Trump tweet that oil prices were way too high (given current supplies) helped push prices lower on Tuesday too. Oil then moved slowly higher over the next 3 days, causing the crude forecaster to issue a buy signal on Friday, but it is hard to know if this is a real rebound or just a dead cat bounce. Crude remains well below the 9 MA, and the 50 and 200 MA lines are distant memories. The weekly long black candle might be a reversal (38% bullish). Another positive sign: a terrible-looking EIA report (crude: +10.3m, gasoline: -3.6m, distillates: -0.8m) released on Thursday did not end up causing a plunge in prices. When bad news fails to cause a sell-off, it is a bullish sign. On that, I hang my hopes that 54.97, hit on Tuesday, will mark the low for this cycle in crude.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +4.45 tons, with 760 tons in inventory.

* ETF Discount to NAV:

 PHYS 9.77 -1.84% to NAV [decrease]
 PSLV 5.16 -4.76% to NAV [decrease]
 CEF 11.76 -4.66% to NAV [decrease]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows a $5 discount for gold and a 5c premium for silver.

* Big bars premiums were: gold [1kg] 0.89% and silver [1000oz] is still sold out. Eagles are back, at a 20% premium ($17.15), while the 100 oz bars have a premium of 4.93%.

Grey Swans & Geopolitics

  • Ebola: total cases 341, with 215 deaths. There were 31 new cases, with 3 of the new cases being health workers. 31 health care workers have been infected to date. There were cases discovered in two new areas. http://www.who.int/csr/don/15-november-2018-ebola-drc/en/

  • Turkey: the 10-year yield fell -61 bp this week to 16.01. Turkey’s 10-year yield continues to decline. The TRY/USD pair fell -2.4% to 5.32. Turkey: confidence restored, at least for now anyways. Erdogan couldn’t have planned it any better.

  • German Government: Interior minister Horst Seehofer, who tried moving right on migration to avoid electoral disaster – and failed – is resigning as head of the CSU, but retaining his post in government. The biggest surprise of the recent elections is not how the right did, but how voters deserted the SPD for the Greens. Was the SPD pragmatic, or did it just sell out? German voters have spoken clearly: the SPD sold out! Interestingly, during the early 1930s in Germany, support for the corrupt centrist parties collapsed, with voters moving both left (communist) and right (Nazi) in response. Takeaway: in a democracy, when the center gets too bought out, the fringe (both left and right) gets a shot at power.

  • Italy – Budget: The Tuesday deadline for Italy to back down from its 2.4% GDP deficit budget came and went without any action by the EC. A European Commission spokesman said in a statement it was still considering what action to take. My sense: they tried to scare Italy via the bond market, and that didn’t work. Will they play right into Salvini’s hands and try to issue a spanking via fines – to a net contributor to the EU budget? The whole affair to date has done nothing but strengthen Salvini and M5S. The differential between the previous government’s deficit (1.5%) and this one (2.4%) seems pretty trivial to go to war over. This suggests to me that the war is probably more about the EC trying to discredit M5S and Lega, showing Italy’s voters (and all the others across the zone) that “going populist” will change nothing, and they should just stick with the pro-EU rubber-stamp parties. https://www.euronews.com/2018/11/16/eu-commission-starts-disciplinary-action-against-italy-over-budget

  • China Tariffs: This week we had a positive Trump Tweet on the potential for settling the US-China trade difficulty, and conflicting reports over whether or not the US had decided to put off the 25% tariff increase for six months. Still, the market appears optimistic about the chances for some kind of settlement. Trump meets Xi at the G-20 in 2 weeks.  A settlement could cause a strong commodity rally, based on the moves we saw this week.

  • Yield Curve Inversion: the 1-10 spread fell -5.5 bp to 39.5 bp. Spread continues to narrow, but if history is a guide, the spread has to cross the 0% line before we need to get worried.

  • US Congressional Elections, 2018: they aren’t over yet, but the picture is clearer. Fivethirtyeight.com projects R+2 in the senate, and D+39 in the house. The potential for the midterms being a “grey swan” in terms of a massive repudiation of Trump (and a likely much stronger market correction) has passed. https://fivethirtyeight.com/features/the-16-races-still-too-close-to-call/

  • North Korea: KJU reportedly attended the test of a “new high-tech weapon”, which wasn’t actually specified in the North Korean press release. Real or imagined, it was probably a signal of annoyance by North Korea that the progress towards a resolution had stalled. https://www.theguardian.com/world/2018/nov/16/north-korea-kim-jong-un-supervises-test-of-new-ultramodern-weapon

  • Mueller Investigation: Acting AG Whitaker has indicated that the investigation will continue, amid a chorus of requests from Democrats for him to recuse himself as a result of him opining that Mueller should stick to investigating Russian collusion. This would seem to suggest that the Democrats don’t believe very strongly in the collusion story either, and are pinning their impeachment/investigation hopes on Mueller digging up “something else.”

Summary

The metals reversed this week; everything in the group put in a swing low, forecaster buy signals, the works. The primary driver was the perception that the US-China trade dispute is moving closer to settlement. This drove the buck lower, and the metals higher, led by palladium & copper. Independently, the 10-year treasury is also starting to catch a bid. The 10-year moved higher every day, independently of what equities or commodities did, with yields falling 11 bp. Perhaps a big seller is done liquidating, its hard to say. Crude might have put in a low too, but that reversal is looking a whole lot more iffy. Junky debt is now heading south at a pretty high rate of speed. After having been relatively quiet for a long time, traders woke up this week and decided to bail out.

Big bar gold premiums on gold remain low, silver’s premium has increased, while ETF discounts decreased. There is no shortage of gold at these prices, but there does seem to be a shortage of silver, for certain products.

The COT report moved more strongly bullish this week, with gold commercial and managed money net both heading back towards record levels. Silver managed money net has also moved back into a bullish position.

Over the past two weeks, the 10-1 spread has been declining, at least partially due to the rally in the 10-year. The spread is a reasonably good indicator of an impending recession. Here’s a chart of what that looks like, dating back to 1965, with a larger context. It shows that we aren’t there yet – and furthermore, there is usually a period of a widening spread prior to the actual recession, likely due to the Fed dropping short rates because of what it sees on the horizon. Executive summary: no recession yet, and it is actually good news that the Fed continues to tighten. In some sense anyway.

Weekly trends (in order of strength):

Uptrend: 10-year Treasury, USD, DJIA.

Downtrend: crude, silver, gold/Euros, platinum, bitcoin, SPX, gold, copper, miners.

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