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PM Weekly Market Commentary – 4/26/2019

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  • Sun, Apr 28, 2019 - 03:34am

    #1

    davefairtex

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    PM Weekly Market Commentary – 4/26/2019

On Friday, gold rallied +9.77 [+0.68%] to 1291.01 on heavy volume, while silver jumped +0.23 [+1.58%] to 15.12 on extremely heavy volume. Miners did quite well too [+2.86%] the buck fell [-0.20%], along with crude [-3.47%], while SPX rallied [+0.47%].

The metals looked mostly positive this week; split this week; palladium was the star, but below that, silver led gold higher, and the juniors led the seniors higher. What’s more, gold/Euros looked quite strong – it was near the top of the list. This tells us that gold is rallying right alongside the dollar, a relatively rare event. My guess: people across the pond are buying gold. Most items are back above the 9 MA line, which is a positive sign too.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 3.34% 49.03% rising rising rising falling ma50 on 2019-04-26 2019-04-26
Gold/Euro $GOLD:$XEU 2.01% 6.92% rising rising rising falling ma50 on 2019-04-26 2019-04-26
Junior Miners GDXJ 1.86% -8.62% falling falling falling falling ema9 on 2019-04-26 2019-04-26
Silver $SILVER 1.04% -8.67% rising falling falling falling ema9 on 2019-04-26 2019-04-26
Gold $GOLD 0.86% -2.27% falling falling rising falling ema9 on 2019-04-26 2019-04-26
Silver Miners SIL 0.45% -19.90% falling falling falling falling ema9 on 2019-04-26 2019-04-26
Senior Miners GDX -0.19% -5.71% falling falling falling falling ema9 on 2019-04-11 2019-04-26
Platinum $PLAT -0.44% -0.68% rising rising rising rising ema9 on 2019-04-26 2019-04-26
Copper $COPPER -0.94% -7.52% falling rising rising rising ma50 on 2019-04-25 2019-04-26

Gold rallied +11.02 [+0.86%] to 1291.01. Gold printed a daily swing low on Thursday, which resulted in the daily forecaster flipping into an uptrend. Gold also printed a weekly bullish harami that looked quite strong (48% reversal), and while the forecaster moved higher, it remains in a downtrend. Gold is in a downtrend in both weekly and monthly timeframes.  Here’s the GC chart – gold in dollars.

Perhaps more importantly, gold/Euros is looking substantially stronger. GC.EUR daily flipped to an uptrend on Wednesday, the weekly forecaster did so this week as well, which leaves GC.EUR in an uptrend in all 3 timeframes.  Here’s GC.EUR monthly.  Do you see anything other than just a pause in an uptrend here?  Forecaster doesn’t.  The bid for gold remains in place across the pond.

The May 2019 rate-cut chance is now at 3%, and the Dec 2019 rate-cut chance is 41%, and a 23% chance of 2 rate cuts. Things are distinctly more bearish this week.

COMEX GC open interest fell -5,178 contracts this week.

The commercial net rose by 21k contracts, which was mostly shorts covered (-12k) but also new longs (+9k). Managed money net fell by -18k contracts which was mostly new shorts (+11k) but also fewer longs (-7k). Managed money longs are quite near levels which might be reversal territory, while commercial shorts have fallen substantially, but the position isn’t quite as strongly bullish. We could reverse here, but the way I read the tea leaves, the COT report is only mildly supportive of that – more of an “interim low” rather than a “major low”.

Silver climbed +0.15 [+1.04%] to 15.12. The confirmed bullish NR7 weekly print looked reasonably strong (49% bullish), and forecaster flipped to an uptrend as well. The large rally on Friday accounted for all of silver’s gains this week. Silver is now in an uptrend in all 3 timeframes. What’s more, silver managed to break up and through its downtrend line and close above both the 200 MA and round number 15 on Friday too. This all looks really bullish to me – especially in the face of a strong dollar move, and a drop in the price of copper [-0.94%], which usually has a reasonably strong influence on silver.

One note: my calculations for silver use the front month volume-weighted contract rather than the calendar weighting I use for gold; on Friday, the front month rolled, which resulted in an additional 7 cent gain.

The gold/silver ratio moved up +0.22 to 85.38. That’s bearish.

COMEX SI open interest plunged -19,431 contracts this week. That probably has to do with the upcoming contract roll.

The commercial net rose +3.6k contracts, which was 7.5k fewer shorts, and also 3.8k fewer longs. Managed money net fell by -6.6k contracts, which was 6.2 more shorts, and 323 fewer longs. Managed money is once again heavily short at a possible turning point. Based on managed money’s position, this could well be a real reversal for silver.

Miners fell -0.33% this week, underperforming both gold and silver. On Friday, XAU printed a very strong daily swing low (62% reversal), and the weekly takuri line was also strong (58% reversal). Daily forecaster moved into an uptrend on Friday, while the weekly remains mired in a downtrend. XAU is now in an uptrend in both the daily and month timeframes. We are seeing some signs of a reversal in the miners, although they are lagging behind the metals. The juniors look much stronger than the seniors this week – and that’s always a good sign.

The GDX:$GOLD ratio fell -1.04%, and the GDXJ:GDX ratio rose +2.05%. That’s bullish.

USD

The buck rallied +0.53[+0.55%] to 97.46, making a new multi-year high this week. Most of the gains came on Wednesday’s big breakout. The long white candle was a bullish continuation, and forecaster moved higher, and is now in a strong uptrend. The buck remains in an uptrend in all 3 timeframes.

The big currency moves: AUD [-1.52%], EUR [-0.79%] GBP [-0.59%].

SPX rose +34.85 [+1.20%] to 2939.88. SPX made a new all time high on Friday. The white marubozu was a bullish continuation, and forecaster inched lower but remains in a strong uptrend. SPX remains in an uptrend in all 3 timeframes.

Sector map had sickcare and REITs leading, while homebuilders and telecom did worst. Sector map was neutral this week – maybe slightly bullish.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Healthcare XLV 3.60% 6.98% falling falling rising falling ema9 on 2019-04-25 2019-04-26
REIT RWR 1.64% 15.16% falling rising rising rising ema9 on 2019-04-24 2019-04-26
Defense ITA 1.59% 5.45% rising rising rising rising ema9 on 2019-04-12 2019-04-26
Utilities XLU 1.41% 13.50% falling rising rising rising ema9 on 2019-04-24 2019-04-26
Financials XLF 1.32% 0.14% rising rising rising rising ma200 on 2019-04-11 2019-04-26
Cons Discretionary XLY 1.17% 16.43% rising rising rising rising ema9 on 2019-03-12 2019-04-26
Technology XLK 0.95% 19.01% rising rising rising rising ema9 on 2019-03-29 2019-04-26
Cons Staples XLP 0.19% 12.83% rising rising rising rising ema9 on 2019-04-26 2019-04-26
Gold Miners GDX -0.19% -5.71% falling falling falling falling ema9 on 2019-04-11 2019-04-26
Industrials XLI -1.01% 5.70% rising rising rising rising ema9 on 2019-04-25 2019-04-26
Materials XLB -1.30% -1.45% falling rising falling rising ema9 on 2019-04-22 2019-04-26
Energy XLE -1.44% -11.25% falling rising falling rising ma50 on 2019-04-26 2019-04-26
Telecom XTL -1.46% 2.88% falling rising falling rising ema9 on 2019-04-25 2019-04-26
Homebuilders XHB -1.46% 2.04% falling rising falling rising ema9 on 2019-04-25 2019-04-26

The US equity market was the best-performing market this week.

VIX rose +0.64 to 12.73.

Rates & Commodities

TLT climbed +0.74% on the week, and is back in an uptrend. TY rallied too, up +0.50%, printing a very strong swing low (76% reversal), and forecaster flipped – tentatively – back into an uptrend. This puts TY in a uptrend in all 3 timeframes. The 10-year yield fell -5.5 bp to 2.50%. Bonds rally + equities rally + dollar rally = money pouring into US assets from overseas.

JNK rose +0.22%, making a new multi-year high on Friday. Both JNK and cousin HYB remain in uptrends. the daily forecaster issuing a sell signal on Thursday. BAA yields fell 1 bp, and remains in a downtrend – although the downtrend is weakening. The BAA.AAA differential dropped 1 bp, and it too remains in a downtrend. The credit markets continue to suggest any danger is slowly receding.

Crude fell this week, dropping -1.20 [-1.87%] to 62.89, after first breaking out to make a new high on Wednesday. The confirmed bearish NR7 was quite bearish (61% reversal), and both daily and weekly forecasters flipped into downtrends.  EIA report this week looked bearish (crude: +5.5m, gasoline: -2.1m, distillates: -0.7m), and that was good for a 60 cent drop on Wednesday. However, the big move came on Friday, when crude fell -2.26 [-3.47%].  I’m not sure what caused the drop; the pounding started at 4:35 am, and it just didn’t stop until 11 am in New York.  Crude is now in a downtrend in both daily and weekly timeframes.

Physical Supply Indicators

* The GLD ETF tonnage on hand fell -4.99 tons, with 747 tons remaining in inventory.

* ETF Discount to NAV:

 PHYS 10.25 -2.06% to NAV [increase]
 PSLV 5.41 -4.31% to NAV [increase]
 CEF 12.37 -4.30% to NAV [decrease]

* Premium for physical (via Bullion Vault: https://www.bullionvault.com/gold_market.do#!/orderboard) vs spot gold (loco New York, via Kitco: https://www.kitco.com/charts/livegoldnewyork.html) shows a $1 premium for gold, and no premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.34% and silver [1000oz] 3.38%. That’s a big drop in silver big-bar premiums this week.

Grey Swans & Geopolitics

  • Ebola: total cases 1367, with 885 deaths (CFR: 65%). That’s 77 new cases this week, a decrease from last week, but…this week there was an attack on a hospital in Katwa (one of the primary EVD hotspots) where a WHO doctor was killed, and two others were injured. In response, Ebola-related activities were halted in some high-risk areas. (n.b: this could mark a negative tipping point in the effort to contain this outbreak – the epidemic will spiral out of control if militias continue to shoot EVD healthcare workers. Best case we can expect a surge of new cases in May – worst case, we won’t even know what the numbers are since if the workers have to flee the area, the number of new cases will not even be reported.) https://www.who.int/csr/don/25-april-2019-ebola-drc/en/

  • EU – Scheduled for May 23rd. While some UK Labor MPs are in favor of a new BRExit referendum, others who are in “pro-Leave” regions want Labor to soft-pedal its support for a new referendum – lest they get tossed out of office by offended voters. Most of England (outside London) is pro-Leave. The campaign for the EU Parliament is bringing these intra-party divisions in both parties to the surface. The winner: Nigel Farage and his Brexit party. https://www.theguardian.com/politics/2019/apr/26/labour-denies-having-to-rewrite-eu-election-leaflet-after-referendum-row

  • EU Recession: no news.

  • China – Trade: Lighthizer and Mnuchin are traveling to Beijing next week for another round of trade talks. Liu He will come to Washington the following week.

  • BRExit: articles I saw: 1) Labor will decide whether or not to support a BRExit referendum next Tuesday.  2) Labor and the Government have made no progress in Brexit negotiations. 3) Scottish independence is currently polling at 49% due to Brexit – up from 45% during the 2014 independence referendum. Scotland was strongly Remain during the Brexit vote.

  • Yield Curve Inversion: the 1-10 spread fell -3 bp to 10 bp.

  • North Korea: KJU met with Putin in Vladivostok this week; Putin announced that KJU was prepared to give up nuclear weapons, but only after ironclad security guarantees are provided. Putin explained that he believes the security guarantees should be underwritten by multiple countries – presumably including Russia.

US Recession Watch

Here were the economic reports this week:

  • Existing home sales: fell -4.9% m/m, which is a fairly ugly drop, after rising +11.2% in February.

  • New home sales rose +4.5% m/m; media new home sale prices fell -3.9% m/m, and new home inventory dropped to 6 months of supply (from 6.3 in February). “New homes are on sale.”

  • US GDP rose 5.1% in nominal terms y/y, and 3.2% in “real” terms y/y. Mish pointed out that a surprisingly low PCE deflator (i.e. the “inflation” adjustment used to turn nominal GDP into “real” GDP) accounted for a big chunk of the surprising real GDP print, and if the CPI-U was used as a deflator, real GDP would have risen only 1.56%. https://moneymaven.io/mishtalk/economics/explaining-the-first-quarter-gdp-3-2-surprise-vipq3rgp2E6m5rnK_IQiWA/

Housing continues to do poorly, goods continue to do poorly, while services (which includes sickcare) are doing well. So far at least, the US remains out of recession.

Summary

Gold, silver, and the miners all reversed on the daily chart this Friday, more likely that not, and there were hints of reversals in all three on the weekly as well.  Nothing certain, but things looked cautiously positive.  Silver’s close above 15 was an especially good sign.  What’s more, gold in Euros looks quite strong, suggesting that gold continues to have a reasonably strong bid across the pond.

Equities made new all time highs, junky debt rose, and the 10-year also may be reversing higher too, all while the dollar broke out to new multi-year highs.  It seems certain that money is flowing to the US and parking in various places – when everything goes up along with the buck, that’s my go-to explanation.

Big bar gold premiums on gold remain low, and silver’s premium decreased fairly significantly as silver rallied.   Most ETF discounts increased. There is no shortage of gold or silver at these prices.

Gold’s COT position is improving but it still is not at an explicit turning point.  Silver could well be at a turning point right now.

Housing continues to decline, but that’s the only bad news in the recession watch this week.  Credit differential continues to signal a relaxing credit environment.

Curiously, we see an increasing chance in rate cuts here in the US, alongside a strong GDP print.  Perhaps the market doesn’t buy the print – most likely, it doesn’t.  Also, the 1-10 spread is also contracting once more.  That’s another financial market signal of concern.

Gold surprised me this week with the move higher.  GIven the mostly-happy news in the rest of the markets, the bid underneath gold and especially silver was not something I expected.  I’m cautiously optimistic for next week.

Weekly trends (in order of strength):

Uptrend: USD, SPX, DJI, silver, gold/Euros, 10-year treasury.

Downtrend: miners, gold, copper, platinum, crude.

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  • Sun, Apr 28, 2019 - 03:49am

    #2

    davefairtex

    Status Diamond Member (Offline)

    Joined: Sep 03 2008

    Posts: 3152

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    Trump's big oil gamble

Here’s an article written by AEP on the twin sanction regimes that Trump has taken on: in Venezuela, and Iran.  AEP has also noticed that Ghawar is in decline, which makes the piece especially relevant to us here at PP.

https://www.smh.com.au/business/markets/trump-has-just-taken-the-biggest-economic-gamble-of-his-presidency-20190426-p51hdi.html

Donald Trump’s double strangulation of Iran and Venezuela is reducing spare capacity in the global oil markets to wafer-thin levels very fast. If anything goes wrong in the geopolitical cauldron of world energy over the next six months, we will discover whether Saudi Arabia really is capable of cranking up an extra 2 million barrels a day of crude.

What we learnt from the rare glimpse of Saudi Aramco’s books this month is that the legendary Ghawar field is badly depleted. It cannot pump more that 3.8m barrels a day. This is a first-order shock. The company has always asserted with magisterial confidence that it can produce 5m barrels a day without difficulty.

Jean-Louis Le Mee, from Westbeck Capital, says the physical oil markets are on fire. They are heading for a supply deficit of 1.3m barrels a day by the third quarter even if OPEC matches every barrel of lost oil from Iran sanctions. “These numbers should have every investor worried,” he said.

Global spare capacity is arguably as low today as it was during the great oil shocks of the last half century. We are skating on thin ice.

 

  • Mon, Apr 29, 2019 - 03:08am

    #3

    Eannao

    Status Bronze Member (Offline)

    Joined: Feb 28 2015

    Posts: 152

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    Bonds rally + equities rally + USD rally = money pouring into US

Super Weekly Commentary Dave!

You’ve a great way of boiling things down… and this was my favourite line:

“Bonds rally + equities rally + dollar rally = money pouring into US assets from overseas”

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