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PM Weekly Market Commentary – 6/14/2019

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  • Sun, Jun 16, 2019 - 02:22am

    #1

    davefairtex

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    PM Weekly Market Commentary – 6/14/2019

On Friday, gold fell -0.55 [-0.04%] to 1348.31 on very heavy volume, while silver dropped -0.04 [-0.30%] to 14.85 on extremely heavy volume. The buck jumped higher [+0.58%], crude rose also [+0.61%] while SPX was mostly unchanged [-0.16%] as were bonds [10Y yield +0.2 bp].

The driving force for the market on Friday was the Retail Sales report; when it came out at 8:30 am, it marked the top for both the metals as well as the starting point for the large dollar rally. What did it say? Headline sales were up +0.5% m/m, or a 6% annualized gain. April’s number was also revised higher too. And even the non-petroleum sales numbers did well. This was a strong sales number – not recessionary at all.

This report caused a strong gold rally to start reversing almost immediately; a $14 rally was unwound back to zero. My guess is, the strong retail sales report will be seen as evidence by the Fed that there is no recession on the way, and thus, there will be no need to cut rates at the upcoming meeting.

The metals sector map has palladium screaming higher, with the mining shares following behind, although much more slowly. Gold was barely above water, while silver actually retreated. Gold/euros did well; this tells us that gold/USD’s non-movement was just a currency effect.  Both copper and platinum went nowhere, but they both are below all 3 moving averages, which suggests they remain in longer term bear markets. The picture is a bit confused – it is mostly bullish for PM, but silver remains weak, as it has not managed to close back above its 200 MA just yet.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Palladium $PALL 8.13% 45.93% rising rising rising falling ma50 on 2019-06-07 2019-06-14
Silver Miners SIL 2.27% -18.21% rising falling falling falling ma200 on 2019-06-14 2019-06-14
Junior Miners GDXJ 2.04% -5.09% rising rising rising falling ema9 on 2019-06-11 2019-06-14
Senior Miners GDX 1.92% 2.96% rising rising rising rising ma50 on 2019-05-31 2019-06-14
Gold/Euro $GOLD:$XEU 1.13% 6.88% rising rising rising rising ema9 on 2019-06-12 2019-06-14
Copper $COPPER 0.19% -17.89% falling falling falling falling ema9 on 2019-06-14 2019-06-14
Gold $GOLD 0.11% 2.99% rising rising rising rising ma50 on 2019-05-30 2019-06-14
Platinum $PLAT -0.38% -11.40% falling falling rising falling ema9 on 2019-06-14 2019-06-14
Silver $SILVER -1.07% -13.61% rising falling rising falling ema9 on 2019-06-13 2019-06-14

Gold rose +1.54 [+0.11%] this week. Gold fell on Monday, then reversed higher, jumping to a new high on Friday (1362) but ran into trouble immediately following the Retail Sales report at 8:30 am. Neither the daily candle (northern doji) or the weekly candle (high wave) were bearish, and while weekly forecaster fell sharply, gold remains in an uptrend. Gold remains in an uptrend in all 3 timeframes.  Gold/Euros actually broke out to a new high dating back to early 2017; it looks very strong.

The June 2019 (next Wednesday!) rate-cut chance ended the week at 23% and the Dec 2019 rate-cut chance closed at 99%, with an 89% chance of 2 rate cuts, and a 58% chance of 3 rate cuts. That’s somewhat increased over last week.

COMEX GC open interest rose +24,338 contracts this week, and 14,189 contracts just on Friday. It was 11 days of global production in new paper – judging from the COT report, those were commercials going short, as they usually do when prices are in an uptrend.

The commercial net fell by -29k contracts; that was +35k new shorts, and 5k new longs. Commercials are back to their usual pattern of going short against the rallies. Managed money net rose by +33k, which was -23k fewer shorts, and +10k more longs. Managed money hasn’t quite run out of shorts, but there are only 40k left.  That’s basically one more week.

Silver fell -0.16 [-1.07%] this week. Silver was smashed on Monday, and spent the week struggling to recover. Friday’s failed rally (a bearish harami) wasn’t actually bearish, neither was the weekly candle pattern – also a bearish harami. Forecaster moved lower, but silver remained in an uptrend.  Silver ended the week in an uptrend in all 3 timeframes.

The gold/silver ratio rose +0.21 to 90.43. Silver continues to lag gold, and that gold/silver ratio remains in 27-year high territory.

COMEX SI open interest rose +11,479 contracts this week, but fell -254 contracts on Friday. This suggests that silver’s reversal on Friday wasn’t engineered by anyone – silver was probably just following gold back down again after the reasonably strong Retail Sales report at 8:30 am.

The commercial net fell by -13k contracts, which was +16k new shorts and +3.4k new longs. Managed money net rose by +11.5k, which was +8.6k longs and -2.9k shorts. The commercials were the ones shorting silver this week.

Miners continued moving higher this week; a dip on Monday was bought, and XAU made new highs, but was eventually dragged lower by the post-retail-sales PM sell-off. The weekly long white candle was somewhat bearish (43%), and forecaster inched lower but remains in a strong uptrend. XAU ended the week in an uptrend in all 3 timeframes. What’s more, the currently-forming monthly candle pattern is exceptionally bullish (82%).  Except for this week’s candle pattern, the miners look bullish.

The GDX:$GOLD ratio rose +1.81%, and the GDXJ:GDX ratio climbed +0.12%. That’s bullish.

USD

The buck jumped +1.06 [+1.10%], rallying for 4 days out of 5. The weekly bullish harami pattern was mildly bullish (40%), and forecaster inched higher but remains in a downtrend. In spite of the strong rally, the buck remains in a downtrend in both weekly and monthly timeframes..

The big currency moves: GBP [-1.15%], EUR [-1.00%], AUD [-1.98%], JPY [+0.36%], CAD [+0.88%].

I’m still trying to figure out the reason for the big rally this week. Certainly Friday’s rally was kicked off by that Retail Sales report – which appeared to tell the market that that the Fed might not actually raise rates during next week’s meeting. Hence – dollar rally on Friday. But the other days? I’m just not sure.  Regardless, the forecasters are all pretty much pointing lower.

SPX rose +13.64 [+0.47%] to 2886.98. Except for a modest rally on Monday, SPX spent the week chopping sideways. While the swing low pattern was bullish (67%), and weekly forecaster moved higher into its uptrend, the daily forecaster didn’t like the sideways move at all, plunging so much that it is just barely in an uptrend. SPX did end the week in an uptrend in all 3 timeframes, but the daily looks very iffy right now.  I think SPX could go either way at this point.

Sector map has consumer discretionary and homebuilders in the lead, with defense and telecom bringing up the rear. This looks like a somewhat bearish sector map – financials and tech both looked fairly weak.

Name Chart Chg (W) 52w ch MA9 MA50 MA200 50/200 Last Crossing last
Cons Discretionary XLY 2.34% 5.59% rising rising rising rising ma50 on 2019-06-10 2019-06-14
Homebuilders XHB 1.94% 1.15% rising rising rising rising ema9 on 2019-06-04 2019-06-14
Gold Miners GDX 1.92% 2.96% rising rising rising rising ma50 on 2019-05-31 2019-06-14
Utilities XLU 1.25% 22.53% rising rising rising rising ema9 on 2019-06-05 2019-06-14
Cons Staples XLP 0.78% 15.23% rising rising rising rising ema9 on 2019-06-04 2019-06-14
REIT RWR 0.74% 10.24% rising rising rising rising ema9 on 2019-06-05 2019-06-14
Materials XLB 0.59% -4.24% rising rising falling rising ma50 on 2019-06-04 2019-06-14
Financials XLF 0.44% -1.27% rising rising falling rising ema9 on 2019-06-04 2019-06-14
Healthcare XLV 0.26% 6.59% rising falling falling falling ma200 on 2019-06-07 2019-06-14
Technology XLK -0.12% 5.33% rising rising rising falling ma50 on 2019-06-07 2019-06-14
Industrials XLI -0.41% -0.26% rising falling falling falling ema9 on 2019-06-04 2019-06-14
Energy XLE -0.42% -20.05% rising falling falling falling ema9 on 2019-06-06 2019-06-14
Telecom XTL -0.87% -9.05% rising falling falling falling ema9 on 2019-06-14 2019-06-14
Defense ITA -2.22% 3.75% rising rising falling rising ma50 on 2019-06-12 2019-06-14

The US equity market was the top performing market this week.

VIX fell -1.02 to 15.28.

Rates & Commodities

TY rose +0.18%, the long white candle was a bullish continuation, and forecaster edged lower but remains in a strong uptrend. TY daily flipped into an uptrend on Monday – so TY ended the week in an uptrend in all 3 timeframes. The 10-year yield fell -0.9 bp to 2.08%. Both weekly and monthly uptrends look quite strong. I’m guessing the FOMC meeting will provide the bond market’s next direction. Currently, the 10-year yield is at or near a multi-year low…so I’m not sure piling into debt is a great idea at the moment. But who knows what the Fed will say come Wednesday?

JNK rose +0.17%, more or less chopping sideways this week. On Friday, forecaster fell into a downtrend. HYB looked much worse, plunging -2.28%, and is now in a downtrend in both daily and weekly timeframes. The BAA.AAA differential rose just +1 bp; credit markets are still only showing a moderate level of concern about risk, but the trend is definitely higher.

Crude fell -1.36 [-2.51%] to 52.88. Most of the damage happened following the somewhat bearish-looking API and EIA reports (EIA: crude +2.2m, gasoline +0.8m, distillates -1.0m), with a bounce on Thursday that only happened as a result of two tankers being attacked in the Gulf of Oman by an unknown party.  The spinning top was a bearish continuation, and forecaster jumped higher, but remains in a downtrend. Friday’s modest rally pulled the daily back into an uptrend – this left crude in a downtrend in just weekly and monthly timeframes.  Even with that rally on Friday, I’m not sure crude continues moving higher without some more fireworks in the Gulf.

COT report for crude does show that managed money has dumped a large chunk of its longs, and is now going short fairly heavily. According to the COT report, if we aren’t at a low now, we could be moving towards one fairly rapidly.

Physical Supply Indicators

* The GLD ETF tonnage on hand rose +7.68 tons, with 764 tons in inventory.

* ETF Discount to NAV:

PHYS 10.75 -1.52% to NAV [decrease]
PSLV 5.45 -2.04% to NAV [decrease]
CEF 12.72 -3.80% to NAV [increase]

* 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 no premium for gold, and a 6c premium for silver.

* Gold dealer big bars premiums were: gold [1kg] 1.30% and silver [1000oz] 3.67%. Silver premiums are starting to fall.

Grey Swans & Geopolitics

  • Ebola: total cases 2084, with 1405 deaths (CFR: 67%). That’s 59 new cases this week; the number of new cases continues to trend lower. However, the big news is the export of 2 cases to neighboring Uganda, which caused a large increase in the number of news items regarding the epidemic. After meeting on June 14th, the WHO declined to call the Ebola outbreak a “PHEIC” https://en.wikipedia.org/wiki/Public_Health_Emergency_of_International_Concern. My guess: that’s because the overall number of cases in the DRC continues to decline. https://www.who.int/csr/don/13-june-2019-ebola-drc/en/
  • Italy – minibot: this week the Eurogroup approved the unelected EC’s recommendation that the EU start a disciplinary procedure against Italy because the bureaucracy just noticed that the Italian debt/GDP was too high. The EC will spend the next few weeks formulating specifics, which will then be voted on by the Eurogroup on July 8-9.  If Italy does eventually get fined, it will be the first such fine in the history of the EU.  Perhaps Italy will pay the EU’s fines using minibots – essentially money printed by the Italian government.  (Heck, if the ECB can do it, why not Italy too?)  Currently the mini-bots look like grandstanding by Italy, but with Salvini, you just never know.
  • China – Trade: No progress. Will Trump and Xi meet at the G20 on June 28th? China has yet to confirm.
  • BRExit: Boris Johnson came in first by a substantial margin in the initial Tory leadership vote; he will most likely become PM. Buzz centers around the question: can a PM effectively execute a no-deal BRExit without a vote of Parliament? GBP is bouncing around multi-year lows. Unelected President of the EU Juncker has stated “there will be no renegotiations” of the withdrawal agreement – of course he also famously said that “you have to lie” when things get tough.
  • Iran: new item this week. Two tankers – not American – were damaged by attacks in the Gulf of Oman this week. Pompeo and Trump both blamed Iran, but provided no evidence. Iran denies involvement. The event caused a minor rally in the price of oil, but the move is very small compared to what would happen if a shooting war actually broke out between the US and Iran. Given the well-documented false flag “nerve gas” attack in Syria two years ago which convinced Trump to launch a missile attack, alongside the obvious benefits to Saudi Arabia and/or Israel if the US starts bombing Iran, the risk of a false flag attack seems fairly high. If US naval assets are attacked and damaged by “someone” off the coast of Iran, and the “US Intelligence Community” blames Iran, what will Trump do then?   Short oil: maybe not right now.
  • Yield Curve Inversion: the 1-10 spread fell -6 bp to +6, mostly because the 1-year rose +5 bp.
  • North Korea: according to a new book, the brother of KJU, who was assassinated by two women wiping his face with VX nerve agent in Singapore, had been acting as an informant for the CIA. Meanwhile, no progress on denuclearization.

US Recession Watch

Here are the economic reports for this week:

  • Retail Sales: headline +0.5% m/m, less autos & gas +0.5% m/m. This is a reasonably strong reading, and is not recessionary.
  • Industrial Production: +0.4% m/m, with manufacturing +0.2% m/m. This is not a strong manufacturing report – but it is substantially better than last month (-0.5% m/m). This is not a recessionary number. My INDPRO forecaster inched back into an uptrend on the basis of this report – but the trend is a very weak one.
  • CPI: headline +0.1% m/m, with the less-food-and-energy index up +0.1% m/m also. Government-measured inflation is just above stall speed. This is negative, but not directly recessionary.  It does tend to be supportive of a rate cut by the Fed.
  • PPI: headline -0.3% m/m. Producer prices moved lower – and the overall series remains in a downtrend, according to my PPIACO forecaster. This is generally recessionary.

The manufacturing sector picked up a bit, retail sales looked reasonably strong, but producer prices continue to show weakness. The overall situation looks more positive than last month. The INDPRO series definitely showed some strength, and it is one of my main indicators. Right now, even the “manufacturing recession” which seemed to be in place for the past few months could move back into expansion again.

Summary

The equity market chopped sideways as did bonds, crude moved lower, and the PM group was mixed.  The buck regained most of last week’s losses – the fact that gold held steady in the face of the large dollar rally should be seen as a positive sign for gold.  In fact, gold/Euros broke out to a new multi-year high this week, demonstrating this strength.

Big bar gold premiums on gold remain low, silver’s premium is dropping, while ETF discounts continue to move lower. There is no shortage of gold or silver at these prices.

The COT report for gold saw commercials move back in their usual role of shorting the uptrend.  Gold COT does not suggest a top at this time.  In silver, things followed the normal pattern; commercials went short, while managed money covered.  Silver still could have a long move higher ahead, based on the COT.

Next week, my eye will be on the Fed.  In spite of the current “most likely no recession” reading from manufacturing, retail sales, and services, but with some slowing in headline employment, what will the Fed do?  As mentioned earlier, rate cut chances for the upcoming meeting are just 23%.

So with no rate cut, attention will focus on what the Fed says about their criteria for a rate cut going forward.  And most importantly for me, I’m looking for any more talk of a “peg” strategy, to be used “just in case” the economy turns lower?

Longer term, we must recognize that we’ve moved from QE being an “emergency-only” strategy, to one that has been normalized – expected to be trotted out during normal recessions.  QE has been proven to provide lasting structural advantages for the big companies, at the expense of the smaller ones.  It basically leads to monopolies – the cartels we have in place now, were helped into place by QE.  I believe a peg would result in more structural support for the big guys, at the expense of the smaller competitors, moving us further away from any semblance of “capitalism” and towards a Russian-style oligarchy-economy.

In the medium term – a peg, once implemented, runs the risk of being seen not as “necessary stimulus in a downtrend”, but rather as an attempt to fund the large, structural US Government deficit that the private sector is presumably no longer willing to finance, and as a mechanism for keeping government interest costs from spiraling out of control.  If the market ever starts to sniff this out, things could spiral out of control really quickly.  Gold in particular would probably do quite well, as it remains the place to go when people start to lose confidence in government.

This could be a non-event, but it could also be quite significant.

Weekly trends (in order of strength):

Uptrend: miners, 10-year treasury, gold, gold/Euros, NDX, silver, DJI, SPX, platinum.

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

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  • Sun, Jun 16, 2019 - 07:58am

    #2
    phusg

    phusg

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    Timeframes

Silver fell -0.16 [-1.07%] this week. Silver was smashed on Monday, and spent the week struggling to recover. Friday’s failed rally (a bearish harami) wasn’t actually bearish, neither was the weekly candle pattern – also a bearish harami. Forecaster moved lower, but silver remained in an uptrend. Silver ended the week in an uptrend in all 3 timeframes.

Thanks again Dave. One quick question; I thought your 3 timeframes were daily, weekly and monthly, or are you referring to the 3 moving averages? Either way I can’t make sense of the above with Silver falling this week and a falling MA50 and also in an uptrend in all 3 timeframes.

  • Sun, Jun 16, 2019 - 10:44am

    #3

    davefairtex

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    timeframes

The forecaster line for each timeframe is attempting to project what the trend will be N time periods from now, where usually N = 2.  So when I say “uptrend”, I really mean, “the model expects silver to be in an uptrend 2 time periods from now.”

The daily looks quite strong, the weekly a bit less so, the monthly is just barely above water, and even that quarterly timeframe (which I don’t really talk about much) is just hinting at an uptrend too.

If all you wanted was a summary of where things are today – well, that would be pretty easy.  No model required.  🙂

Each model involves candle patterns, moving averages (in that timeframe) with a frequency that best matches that timeseries (they are different for each instrument), as well as changes in important and related commodities and currencies in the recent past.

This stuff was all determined experimentally.  It also informs what I talk about in my report.  For instance, changes in OI really do affect the accuracy of the model – and in a reasonably big way.

Apologies for not making this clear.  Hmm.  Seems like I need to change my writing so someone other than me can understand what the chart is trying to say.  My goodness.  Thanks for the question!  🙂

  • This reply was modified 3 months ago by davefairtex davefairtex.
  • Mon, Jun 17, 2019 - 11:21am

    #4

    mikeg

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    Gold

Maybe a permanent footnote on the model Dave… just a thought.

With all the turmoil theses days, it seems most missed the State Dept overnight release that spiked gold Thursday/Friday.

They released that video showing an Iranian boat removing what they say was an unexploded mine (secured with magnets)… ramping up the odds of conflict.

That sent gold through $1350 with little resistance… State released a calming statement about no will for war and the banks got it back to unchanged for the weekend (of course the Retail Sales in the morning helped as you reported).

Speaking of… Your model seems to be calling for the 6 year hard ceiling of $1350 to break… quite a move.

Have I missed something, or are you calling for the banks to step aside “this time” after 6 years?

Thanks,

Mg

  • Thu, Jun 20, 2019 - 09:47am

    #5

    mikeg

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    Gold

Well, it seems you were… well done!

The chaos has been non stop since Nov 2016… hard to see how this week is really any different that countless others.

Could it be that a sitting president seems to have finally stood up to The Fed?

Who knows… but your models will be getting a more detailed look from me in the future (I swing trade both metals within the 6 yr channel… leveraged long or short).

Fortunately, I always wait for the ‘obvious’ reversal to establish itself before I buy and wasn’t caught short yesterday… did cross my mind to jump in when it broke $1350 though… ouch (the importance of sticking to the plan).

It will be fascinating to see what the Bullion Banks do at this point… raise the upper level and carry on (they do have a rather bearish COT position to deal with), or step aside (and wouldn’t it be nice to be able to go long on market fundamentals again).

Thanks Dave… your work always adds to the data I use to establish direction.

  • Thu, Jun 20, 2019 - 01:53pm   (Reply to #5)

    #6

    davefairtex

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    re: Gold

mikeg-

Sorry I didn’t see your earlier post.

Here’s the thing.  I was reluctant to call for a breakout, having been burned too many times.  My model was calling for it.  I can’t tell you why, the model is too complicated – and it just tries to project where prices go in the next 2 time units.  I mean, I probably could dig around in the bowels of the thing, but the bits and pieces probably wouldn’t add up to anything meaningful.  And the model is wrong too sometimes, especially the daily model.  But I think it does a better job than me, since I’m emotional, and it is not.  “It just saw the price moving higher.”  And none of the candle patterns looked bearish so by process of elimination – “breakout coming”.  But did you hear me say that?  You did not!  I had been burned too many times!  Which is probably why the breakout happened.

I go back and forth on whether I want to add in the COT report into my gold model.  That’s because the COT has had varying degrees of accuracy in predicting outcomes over its lifetime (starting 1986 – for legacy COT).  More data is usually better, and so I usually opt to go back to 1975 and skip the COT rather than just starting at 1986.  And the COT sometimes gets it wrong too, sometimes horribly wrong, like in 2011.  I end up using Open Interest, which is sort of  poor-man’s COT, but the good news is, its available same day, rather than with that nasty 3 day lag.  And it really does seem to help.

The model is trained on a sort of moving average that “knows the future” – basically its an MA4, but with 2 values from the future, 1 value from the past, and the current value.  Then you take the change over the next 2 time units, divide by the ATR, and you end up with a number that ends up being the number of ATRs the model thinks price will move in the next 2 time units.  So a forecaster value of “1” says price is projected to jump by 1 ATR over the next 2 time units.

Of course the model isn’t always right.  Sadly.  Or I’d be rich!  But it does come up with surprising predictions, and the monthly tends to be the most accurate.  That’s why I wish I wrote a monthly column.  You guys would think I’m a genius.

How did the monthly DX forecaster pick the top?  I have no idea.  But it did.  The XAU forecaster picked the low for the miners too.  And SI was bullish on silver for quite a while.  More so than I was, that’s for sure!

 

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