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PM Weekly Market Commentary – 12/14/2018

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  • Sun, Dec 16, 2018 - 06:08am

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    davefairtex

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    PM Weekly Market Commentary – 12/14/2018

On Friday, gold fell -4.06 [-0.33%] to 1243.81 on moderate volume, while silver dropped -0.20 [-1.31%] to 14.64 on moderately heavy volume. The buck was the culprit, breaking to a new multi-year high intraday [97.71] but retreating by the close – still up +0.37%. SPX fell hard [-1.91%], as did crude [-2.93%].

The fun events this week:

  • China reported weak industrial production data on Friday; this sent risk assets, commodities, and gold and silver plunging, with SPX making a new closing low. The INDPRO print of 5.4% y/y substantially missed the expected 5.9%. This is the worst INDPRO print for China since 2016 – which itself was quite low – and it is a very important stat for China since they are a manufacturing powerhouse. China’s INDPRO chart has been a steady move downhill since the highs in 2011.

  • PM May pulled the BRExit vote after it became clear the motion would fail; a group of Tories could not muster enough support to execute a no-confidence vote against May; May traveled to the EU leadership and asked them for (unspecified) help in getting the measure passed, which they rejected out of hand. The choice is now apparently either Remain, or hard BRExit, and (my guess) will likely result in a second referendum – although this was denied over the weekend. (Cue: “all we need to confirm this is an official denial.”). GBP was all over the map, but ended down -1.13%. The US looks like a peace-and-tranquility paradise by comparison.

The weekly metals sector map is now hinting at a bearish reversal; while silver miners did surprisingly well, nothing else was in the green this week. Gold led silver lower, while the juniors led the seniors down. The moves were relatively mild, but they were enough to pull more than half the items below the 9 MA.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Silver Miners SIL 3.02% -20.39% rising rising falling rising ma50 on 2018-12-12 2018-12-14
Gold/Euro $GOLD:$XEU -0.13% 3.14% rising rising rising rising ema9 on 2018-11-30 2018-12-14
Copper $COPPER -0.15% -9.85% falling falling falling rising ema9 on 2018-12-14 2018-12-14
Palladium $PALL -0.30% 14.05% rising rising rising rising ema9 on 2018-12-14 2018-12-14
Senior Miners GDX -0.40% -8.84% rising rising falling rising ema9 on 2018-12-03 2018-12-14
Silver $SILVER -0.41% -8.07% rising rising falling rising ema9 on 2018-12-14 2018-12-14
Platinum $PLAT -0.87% -10.66% falling falling falling rising ema9 on 2018-12-13 2018-12-14
Gold $GOLD -0.94% -1.04% rising rising falling rising ema9 on 2018-12-14 2018-12-14
Junior Miners GDXJ -0.96% -11.95% rising rising falling rising ma50 on 2018-12-14 2018-12-14

Gold fell -11.20 [-0.89%] on the week; that was all about currency, as the buck rose +0.97% during that same period. Gold daily issued a sell signal mid-week, while the weekly remains strong. However if that buck continues to rise, it will be tough for gold to move higher. Gold is in a downtrend in both the daily and monthly timeframes.  In the chart below, you can see that gold/Euros is virtually unchanged on the week.  Gold’s move: a currency effect.

The December rate-increase chances rose to 77%.

COMEX GC open interest rose +4555 contracts this week.

COT report shows the commercial net fell -19k; commercials added 18k shorts, and sold 782 longs. Managed money net rose +10k, which was 19k shorts covered, and 10k longs sold. Managed money shorts are now about half-depleted. Hmm. 1260 might be the high for a while, especially if that buck keeps rising.

Silver fell -0.06 [-0.41%], a relatively minor move, especially given the drop in the buck. All of the damage came on Friday, when silver printed a swing high (50% reversal), and forecaster issued a sell signal. Silver also dropped below its 9 EMA at that same time. While silver remains in an uptrend on the weekly, it is by a fairly slim margin; silver is now in a downtrend in both the daily and monthly timeframes. While the rest of the week was relatively strong, Friday was not a good day for silver at all.h

The gold/silver ratio fell -0.42 to 84.90. That’s bullish.

COMEX SI open interest fell -3,968 contracts this week.

COT report shows commercial net fell -12k, which was 8.6k new shorts, and 3.5k longs sold.Managed money net rose +13.2k, which was 9.7k shorts covered, and 3.3k longs added. These were fairly large moves; last week’s rally was due to managed money bailing out of their shorts. Problem is, silver managed money positions are starting to become used up – perhaps they are 2/3 gone. That’s not great news, I know. Any substantial moves higher will probably have to come from new long-buying from managed money. The good news is, managed money’s long position is at a very low level. “Nobody cares” about silver – managed money remains net short silver, even after all the recent short-covering.

Miners were mostly flat this week; XAU fell -0.52%, printing a semi-serious swing high on Friday (45% reversal), however all 3 forecasters remain in an uptrend. XAU ended the week above both the 9 and 50 MA lines. My sense is, the miners look stronger than either gold or silver right now.  Weekly forecaster remains strong – and the doji candle is not a reversal bar.

GDX:$GOLD rose +0.50%, while the GDXJ:GDX ratio dropped -0.57%. That is neutral.

USD

The buck rose +0.93 [+0.97%] on the week – it briefly broke out above round number 97 on Friday, but was unable to hold on through the close. [Note: I do my contract roll for DX differently than other places in an attempt to avoid large price swings due to the roll; as a result, my DX values will be different. FWIW]. The daily issued a buy signal on Monday, and by Friday the weekly had also issued a buy signal too. This puts the buck back in an uptrend in both daily and weekly timeframes.

The major moves this week included: GBP -1.40%, Euro -0.75%, CNY -0.50%.

US Equities/SPX

SPX fell -50.59 [-1.91%] to 2599.95. SPX made a dramatic new low on Monday but bounced back strongly, was unable to follow through on Tuesday-Thursday, and finally sold off again on Friday, making a new closing low. The weekly long black candle was a bearish continuation. During the week it looked as though SPX was struggling to move higher. There was no follow through, however, and after Friday’s sell-off, SPX ended the week in a downtrend in all 3 timeframes.

Financials led the market lower again this week, right along with homebuilders. Utilities did best. This was a largely-bearish sector map.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Utilities XLU 0.64% 2.69% rising rising rising rising ema9 on 2018-11-27 2018-12-14
Defense ITA 0.49% -0.97% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Technology XLK -0.05% 0.78% falling falling falling falling ema9 on 2018-12-07 2018-12-14
Gold Miners GDX -0.40% -8.84% rising rising falling rising ema9 on 2018-12-03 2018-12-14
Cons Staples XLP -0.40% -3.81% falling rising rising rising ema9 on 2018-12-14 2018-12-14
Cons Discretionary XLY -1.01% 4.55% falling falling falling falling ema9 on 2018-12-07 2018-12-14
Materials XLB -1.14% -13.05% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Industrials XLI -1.44% -9.88% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Healthcare XLV -1.77% 7.01% falling falling rising falling ma50 on 2018-12-14 2018-12-14
Telecom XTL -1.82% -4.24% falling falling falling falling ema9 on 2018-12-04 2018-12-14
REIT RWR -2.49% -1.48% falling rising rising falling ema9 on 2018-12-10 2018-12-14
Energy XLE -3.09% -10.33% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Homebuilders XHB -3.27% -23.00% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Financials XLF -3.46% -12.46% falling falling falling falling ema9 on 2018-12-04 2018-12-14

Globally, the US was the second-worst-performing equity market; it is now down 4.6% over the last 52 weeks. That still beats the Eurozone: down -17% over that same time period.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Emerging Asia GMF 0.74% -12.17% falling falling falling rising ma50 on 2018-12-12 2018-12-14
Eurozone EZU -0.14% -17.09% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Europe IEV -0.30% -14.77% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Developed Asia VPL -1.08% -13.36% falling falling falling falling ema9 on 2018-12-04 2018-12-14
United States VTI -1.32% -2.35% falling falling falling falling ema9 on 2018-12-04 2018-12-14
Latin America ILF -1.71% -4.56% falling falling falling falling ema9 on 2018-12-07 2018-12-14

VIX fell -1.60 to 21.63.

Rates & Commodities

TLT moved up +0.06%, basically unchanged on the week. Forecaster issued a sell signal on Wednesday, although it moved back to near-neutral on Friday’s modest rally. TY fell -0.25%, also issuing a sell signal Wednesday. However, the move down wasn’t enough to move the weekly forecaster much at all; TY is in an uptrend in both the weekly and monthly timeframes.  That weekly uptrend looks quite strong. The 10-year yield moved up +4.1 bp to 2.89%.

JNK rose +0.29%, moving up 3 days out of 5. Unlike SPX, JNK didn’t make a new low on Friday. I’m not sure that JNK is operating as a very strong “tell” as to where equities go next, but it seems clear that there is no panic in the junky debt market just yet.

Crude fell -0.76 [-1.45%] to 51.62. Crude spent the week chopping sideways. The strong API report on Tuesday gave way to a more neutral EIA report (crude: -1.2m, gasoline: +2.1m, distillates: -1.5m) on Wednesday, which the market didn’t particularly like so much. Its hard to say if this is a low or not. Friday’s drop resulted in a daily sell signal – this puts crude in a downtrend in all 3 timeframes. The weekly is hinting at a reversal, but so far, it hasn’t happened yet.  Hopefully the recent sideways move doesn’t end up being just a dead cat bounce.  If so – next stop is probably somewhere around 42.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +3.83 tons, with 764 tons in inventory.

* ETF Discount to NAV:

 PHYS 10.04 -0.66% to NAV [decrease]
 PSLV 5.26 -3.97% to NAV [increase]
 CEF 11.96 -4.45% to NAV [increase]

* Bullion Vault gold (https://www.bullionvault.com/gold_market.do#!/orderboard) shows no premium for gold, and a very wide spread for silver – almost 40 cents – with the mid-price suggesting a 20c premium.

* Big bars premiums were: gold [1kg] 1.40% and silver [1000oz] is still sold out, while 100 oz bars have a premium of 5.33%.

Grey Swans & Geopolitics

  • Ebola: total cases 505, with 296 deaths. There were 37 new cases, with 4 of the new cases being healthcare workers. A total of 51 healthcare workers have been infected to date, and they remain a major source of amplification of the outbreak. This week the happy talk in the report approximately doubled in size. This is worrisome – good news needs no support. https://www.who.int/csr/don/13-December-2018-ebola-drc/en/

  • Turkey: the 10-year yield rose +70 bp to 17.30, and the TRY/USD pair rose +0.02 to 5.36. Turkey’s 3 months of steady improvement and good financial news may be at an end.

  • Migration: The UN approved its migration pact, but without the support of the US and a dozen other nations including Switzerland. Companies love migration (migration = lower wages paid to workers due to increased supply), while the public is told this is about being compassionate, and being kind to others. Its remarkable how corporations have been able to convince the working class to vote against their own economic self-interest by repurposing political correctness.

  • Italy – Budget: The Italian government dropped their 2.4%/GDP deficit budget to 2.0%/GDP, which the EU told them almost immediately was insufficient, but “a step in the right direction.” Any bets that France will be similarly spanked by the EU for Macron’s attempt to buy off the yellow vest protesters?

  • China Tariffs: China cut US auto tariffs from 40% down to 15%, and plans to boost purchases of soybeans from US farmers. Trump tweeted enthusiastically about the progress being made. I suspect that Friday’s poor INDPRO print will further encourage China to come to a deal.

  • Yield Curve Inversion: the 1-10 spread rose +3 bp to 16 bp, recovering somewhat from last week. This is due to an increase in 10-year rates; the 2-year fell slightly on the week.

  • North Korea: No progress.

  • Mueller Investigation: a judge overseeing Flynn’s sentencing has demanded the FBI turn over the documents surrounding Flynn’s case, including the FBI’s 302 interview forms. (If you are ever involved in any sort of legal dispute, your attorney will advise you to take “contemporaneous notes” to memorialize what occurred, written as close in time to the event as possible, when memory is freshest. The 302 is supposed to serve this purpose.) But it turns out, Mueller didn’t supply the actual 302 from Flynn’s interview – Mueller supplied a 302 where FBI Agent Strzok was interviewed about the interview he conducted on Flynn, some 7 months afterwards, and one week after he was removed from the Mueller team due to his anti-Trump texts! Where is the original 302 for Flynn’s interview? My sense: this could be a big deal; if “the real Flynn” 302 includes exculpatory evidence, and it was not turned over as required, this would seem to be evidence of prosecutorial misconduct on the part of Mueller. https://www.nationalreview.com/corner/where-is-the-flynn-302/

Summary

The attempted SPX reversal on Monday had little to no follow-through during the week; if Monday’s bounce was engineered by the PPT, then nobody ended up buying the reversal. That said, the long bond didn’t move any higher, and the VIX actually fell, so the new low didn’t result in any sort of spike higher in fear. If the new low in SPX on Friday was about Chinese manufacturing ills, then presumably a tariff settlement would help address that particular problem. The dollar’s new highs and the bad news from China helped pull PM and other commodity prices lower. Crude can’t decide where it wants to go, flipping direction 5 times in 5 days.

Big bar gold premiums on gold remain low, silver’s premium has remained the same, while ETF discounts increased somewhat. 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 shows that short-covering was probably responsible for last week’s rally in silver. While the managed money longs are thin on the ground, the shorts are also dwindling away. If we are to see a further move higher in silver, it will have to be from managed money jumping in long. Good news: if we do move lower, there aren’t too many longs for the commercials to chase out of the market; there should be relatively few stops for them to run.

Right now, we are in the middle of tax-loss-selling season. All the items which have dropped this year are under pressure, due to people selling in December in order to match off gains vs losses. Those same items will generally bounce at end of December/early January, but right now, the beaten-down stuff is being sold fairly hard. For the last few years, that has been the lot of the mining shares; this year we seem to have dodged this particular bullet.  Hmm.  Maybe that’s even what is causing some of the pressure on SPX.

Example: over the last 52 weeks, returns were as follows: Homebuilders -23%, Financials -12%, Energy -10%, Materials -13%.  This week, the 3 worst-performing groups were Homebuilders, Financials, and Energy.

Next week: FOMC meeting on Wednesday. My focus is on the dot-plot projections for 2019. Is the Fed going to stop raising rates, as Powell hinted in his speech a few weeks ago? Does he still think that rates really “just below neutral” or was he just being cagey?  No more interest rate increases would probably be positive for gold.

Weekly trends (in order of strength):

Uptrend: 10-year Treasury, miners, gold, gold/Euros, silver.

Downtrend: platinum, copper, bitcoin, SPX, crude, USD.

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