Wednesday, December 9, 2015

Dec 9 - Equities weakness but getting closer to a bottom, GLD getting closer to confirming a low also

Equities not unexpectedly slid today and we are starting to get closer to solid oversold readings for a 1-2 week bounce.  On the hourly there is some decent positive divergence so I wouldn't be surprised by a bounce tomorrow even if short lived.

On the precious metals front, not much movement still but I am becoming increasingly confident we are lining up for a solid spike up.  The trigger up may be dovish language by the Fed in regard to their path of raising rates.  We are seeing gold and gold miners sentiment at extremely poor levels and the announcements of dividend cuts by Anglo American.  I am planning on getting very long GLD/ GDX in the coming days for at least a month long hold.  This has the chance of making a significant move.

Positive divergence on hourly
 Not quite oversold yet on daily
 Either at bounce zone or very close on $NYMO

 Courtesy, a service I subscribe to and find very useful for identifying inflection points in extreme market conditions.

Anglo American and Freeport -McMoRan have decided that for the health of their companies' futures, they will stop dividends, cut their workforces and try to survive. Next to fraud, this is about the last thing a company wants to admit. Dividends are considered sacrosanct, especially in this market environment where it's hard to get yield anywhere else. So they must really be desperate. That sounds like a bad thing, and perhaps it will be this time. But that's not what history suggests. It's not the first rodeo for either of these firms. They've both suspended their dividends at least once in the past 20 years. Freeport did so on 1998-12-09 and 2008-12-03 and Anglo on 2009-02- 20. By the time the companies reached this desperate measure, metals and mining stocks had already been hit extremely hard (a company will never suspend a dividend in anticipation of tough conditions). By the time Freeport suspended its dividend in 1998, the S&P Metals & Mining Index was down 50% from its monthly closing high. In 2008, it was down 67%. Currently, it is down 69%. That tended to be about it for the selling pressure. A month later, the Metals & Mining Index was higher by +14%, +40% and +12%, respectively.

Courtesy of Tom McClellan from Dec 3 as I still think it is applicable (highly suggested for his reads on the gold market and has a free newsletter for market readings)
Editor, The McClellan Market Report

Generally speaking, when this indicator goes outside +/-2%, it marks a turning point for gold prices.  Just a couple of weeks ago it got all the way down to -4.6% as the gold price selloff was reaching a point of exhaustion.  That did not mark a price bottom though, and now we are seeing a further washout by traders fleeing GLD.
This matches the message I am seeing in the Commitment of Traders (COT) Report data for gold futures, something I have discussed recently in both our twice-monthly McClellan Market Report newsletter and our Daily Edition.  The smart-money commercial traders were in a big net short position at the top in October, but have been rapidly covering their shorts as this recent decline has unfolded, and now they are better positioned for a rebound.  So as the hot-money traders have been fleeing GLD (and gold futures too), the big-money and usually smart-money commercial traders are taking the other side of that trade.  That says gold should see a rebound very soon.

No comments:

July 11 - GLD sucks

stopped out of GLD yesterday for -25%.  Holding off on reentry and maybe will enter if we drop another level. SPY on the other hand is crus...