The latest fundamental and technical analysis on what the heck is going on in the markets – Wednesday, 07/26/17.
(Plus a bonus odd-ball philosophical pondering on the tools of the trade).
First a bit of fundamental set-up:
Ahh, get ready. FOMC day. Does anybody really care? Markets seem to think not. On Monday we highlighted the fact that 96.9% are expecting the Fed to hold. Seems about right unless traders have deciphered the Fedspeak word “hold” as meaning “fold”. After all, it wouldn’t really be all that surprising if their language was derived from a 1950s cereal box secret decoder prize. I mean, the military can launch all sorts of laser weapons systems and remote-controlled gun turrets using Xbox controllers, so it’s not like youth-marketed hardware hasn’t worked its way into the hands of the powerful before.
But I digress, the point is not a philosophical pondering of whether life imitates markets or markets imitate life. This is market analysis.
A Fed fold hold could boost the broader indexes and their underlying large caps to fresh new all-time highs. Yeah, I know. Already there. Most overvalued. Well, It will overvalue until it won’t, right? Perhaps the Fed could hike? Unlikely, though their artificial sweetener coating is almost as good as sugar these days, so no matter what they do their spin doctors will quickly get to work spreading the icing. In all actuality, I’m not looking for this to be a big deal one way or another. Fed Chair Janet Yellen will not be giving a press conference today, and with the continued downward pressure on the dollar, they most likely are in “wait and see” mode. But seriously, when are they not?
On International fundamental news, ZeroHedge is reporting that the Bank of England is suddenly worried about complacency in the markets. Perhaps they got the message from our own SilverDoctors Monday Market Outlook? With the summer doldrums winding down, the credit card unable to pay for just one more night of fun on everyone’s summer road trip, and the VIX (market volatility) sufficiently suppressed, well, yes, everybody is pretty complacent.
Let’s start this Wednesday Market Update technical analysis with the US Dollar. Yes, everybody is an expert on the US Dollar. I get it. So I’m not going to give a traditional DXY, Dollar-Euro, or Dollar-Yen chart, but rather, I think few realize just how weak the dollar has been all year, so to put it into perspective, check this out:
(Charts Generated Using ThinkorSwim)
That is the USD-MexicanPeso. Notice the green shot of adrenaline after the November 8th, 2016 US presidential election. Momentum continued through the new year and all the Trump Trade Euphoria, but around the end of January, it has been all downhill. Not only has the shot of adrenaline worn off, but the dollar has even less strength than before. The question is, are the last few days just a dead cat bounce? Time will tell, but that yellow 50-day moving average shows absolutely no optimism. The Fed announcement and the Friday first estimate of 2nd quarter GDP may determine the next few months of dollar action, and we will know in a matter of days how that is going to look. The Fed announcement hits the tape at 2pm EST, so for the chart watchers out there who like the tic-by-tic stuff, today’s action should be interesting.
Gold has been fading all week. In fact, as the chart of gold price action shows below, gold price action is down more that more than $10 since Monday:
Depending on the Fed release today, gold has room to run to the upside without raising too many eyebrows. Perhaps this is exactly where the powers that be want it?
Silver, on the other hand, has been downright ugly since the start of the week. In a somewhat controversial post that took some heat on Monday, the question was asked it Silver is headed towards $15. On the 5 minute chart, silver is unchanged from Monday after some ugly choppiness:
A closer look at silver this morning, Wednesday, July 26th highlights just how ugly the action has been on a minute by minute basis:
Silver is down the customary 1% in pre-market Fed Day action. On Monday we noted there will not be much consolidation in silver, and it does seem as if some sort of move is imminent. The technicals were signaling downside movement, and having gone nowhere in over two trading days, we will know soon enough. If silver pops on today’s news, we might just smash through the 50 day moving average by the end of the week. I’m not going to show it, but the 50 day is right as $16.66. Weird or downright evil? I’ll let you decide that.
As for the broader markets in general, yeah, what can be said. A graph is worth more than a thousand words, so here’s one of the S&P. I’ll let the graph do the talking:
This leaves us with oil (WTI- West Texas Intermediate). Might as well throw Dr Copper on the graph too (purple line). This is what we’ve got since Monday, on the 5-minute chart:
This may be something to ponder as we move into Hump Day: The dollar has been under downside pressure all year, all month, and with exception of a brief pause this week going into the Fed announcement, a weaker dollar is bullish for commodities. We can see that in the price of crude oil and copper so far this week. But what about the metals? They are first and foremost money and they are also commodities as they would have us believe. So a weaker dollar is and should be strongly correlated with higher gold and silver prices. But on the week, gold is down and silver is, well, silver. The stock market is at all-time highs, as called here on SD on the last Monday Market Outlook, and though not shown in this market update, the VIX, which is also known as the fear indicator, is at all-time lows. This means there is no fear right now in the markets (supposedly), and everything is fine and dandy. Now might be a great time to add a little metal to the stack and front-run the Fed in a stacker approved way! After all, what could possibly be the outcome of record highs, record lows, and a steadily weakening dollar, but wouldn’t you know, the pet rocks just sitting there collecting dust in the vaults with nobody to freshen them up. So is silver going to $15? Maybe. Is there a ton of room to run to the upside without raising eyebrows? Well, more like tons. If anybody is trying to time purchases based on this one analyst’s humble opinions on the markets, I would ask you to do your own due diligence and decide on your own if and when you should buy. That said, silver at $15 is a gift, but silver at $16.50 adds a lot more to your stack than silver at $18. Just something to consider as the rest of the week unfolds. So is SD Bullion’s sale this week on generic rounds.