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Merely going on record that I do not feel the gold trade is dead and over as I continue to monitor gold futures [GC] shown right. At this point it has retraced 23.6% of from its 2009 low and is forming a bullish fallling wedge. A break above the wedge and I’m a buyer.
They shiny stuff hit a new all-time high of $1200.50 in overnight trading after the RBA announced yet another .25% rate increase. Yesterday I had tweeted that gold had formed a small ascending triangle [bullish] and next stop was $1200. I actually took off some of my gold position on this move but expect another pullback and re-test of the breakout point near $1183 which will give me another opportunity to add more again with a small capital risk. I’ll place my stop just under this buy point and if for some reason this gold move fails, I’ll be stopped out at the top and lose very little. There IS a higher possibility of this being a failed moved vs. when gold cleared the $1000 level because there were numerous attempts to climb above $1000 and once it finally pushed above, all those people who bought near the top had formed some tough support defending their position. Such is not the case here. Traders will be focusing in on this mornings ISM Manufacturing #s [10:00 EST] as further evidence of an economic recovery. Anything in the mid 50s backed up by strength in orders, will point to steady improvement for the mfg. sector which will benefit AUD/USD. Next support for gold $1174
Ouch! Silver. That trade definitely left a mark and I know better than to bet against the current trend but that’s why I do my best to limit my capital risk and keep stops in place. I was able to take off 1k of my ZSL before everything fell apart but the pain [like arthritis] continues to linger which got me to thinking……. It continues to amaze me the things that have and have not worked since the March lows and it reminds me of this post from Tim Knight @ slopeofhope.com.
What Isn’t Working in 2009
- Elliott wave
- Fractal analysis
- Historical analogs
- Classic pattern application
- Volume analysis
- Fundamental analysis
- Sentiment as contrarian indicator
- Seasonality
- Intermarket analysis
- Sector rotation
What Is Working in 2009
- Buying stuff cuz Obama and Cramer told me to.
We have truly come full circle. 2009 is 1999, and the Greater Fool Theory reigns. This is getting really, really demoralizing.
I could be right or I could be wrong on golds unsustainability after its last move up but here’s a play on gold miner CDE. Set a trigger higher/lower for a breakout or breakdown with volume. Either way it should be good for a $4-5.00 run whichever way it breaks 
You don’t have to work to NASA to understand that if you launch a rocket even with the greatest of thrust [or in my case paper airplane] straight up in the air, its projected path is unsustainable and it will fall back to crash and burn. Such is the move with GLD of late. While I have no position currently, I am substantially short silver and will be looking to short gold today.
Poker buddies are cutthroat, heartless bastards *lol* At least the ones I play with on Saturday nights are. Got a call today from the one who cleaned me out last week questioning my Silver short play when Christmas [and he believed jewelry demand] should be increasing here……so here goes boyz.
Not only is the chart itself screaming *short me!* as it broke down from its wedge, it’s now come back and backtested that resistance with Stochastic never able to even get above 80. MACD continues to weaken showing decreased demand and ADX is just plain old weak; no strength in this last attempt. 
Now let’s talk seasonality. Raw material demand is usually high in May or September…….before back-t0-school shopping and the Winter holidays. November/December are actually low demand months as you will see at the chart [right] so unless there’s a sudden currency shift or manufacturing decides to skyrocket [as silver is used in electronics, autos, etc] then yep, silver should wilt and pull back in the weeks to come. Load up by shorting SLV or going long ZSL……………..and kick ass at your next Texas Hold’em game.
With all the focus on gold, I’ve shifted my focus to other precious metals and become pretty bearish on silver as of late. On a percentage basis, silver has actually outperformed the yellow metal so the theory goes, those with the largest gain have the most to give back. Now watching it recently, silver failed to achieve a new swing high. I’m not going to theorize on *why*; I’ll leave that to the pundits. Merely reading the charts, negative divergence in both MACD and Slow Stochastics leads me to believe the weakening in silver will continue. So call me Mrs. Scrooge; I’ve bitten the bullet. I am long a sizeable position in ZSL (ultra short silver) with a stop @ $4.50
Noted a post today from a seasoned investor/trader pondering if we’re in for some Bearish moves here based on the last two days irrational movement in what he considers a *rational* market. Had to scratch my head on that one. Rational market? When we’re setting new 52-week highs based on EPS set so low only a snail could crawl beneath and profits earned by reduced inventories, headcount, financing renegotiations and expenditure reductions? That’s not what I would call a *rational* market but hey, what do I know.
Sure, the USD got a boost in the perverial arm late in the week based on [short covering] profit taking and Bernanke talking of eventually raising rates however in my mind it’s only a short term pop. After all, nothings changed. Next week Ben will ramp up the printing press once more, the USD will continue to be sold and our commodity-led rally will resume.
Taking a quick peak at FCX [my barometer for copper & gold] sure it looks like a Bearish rising wedge at first glance, but the Bollinger Bands are expanding not contracting, Accumulation remains high, ADX, MACD every indicator you could possibly lay on the chart screams higher so I don’t see the problem. *Rational* market? No, but it is what it is……..until it’s not.
Well if that wasn’t fun today, I don’t know what was. Just kidding actually. It’s wide-ranging days like this that can make you jubilant for your longs as you throw your shorts overboard. Then sometime later, massive sell orders flood the market and longs scramble to sell, sell, sell. If you were at your screen this afternoon, you can only imagine the panic that must’ve ensued in the crash of ‘29. It surely can give you grey hair; or in my case *more* grey hair. LOL
Before I go into where I feel the market may head, I felt it only appropriate to review how the market has behaved in past recoveries. This chart from dshort.com I’m certain looks familiar. Almost inspires hope that we’re coming out of this and there’s happy days ahead. Well I certainly don’t believe everything I hear; so I dig deeper.
Now this inflation-adjusted chart of the same recoveries paints an entirely different picture. Were the Bulls being a little too hopeful? Was it too irrational to think we’d continue going higher and higher? Well………irrational, I don’t know. Hopeful? Maybe but that doesn’t mean we’re going straight to the bottom now either. Oh hell no
Today felt like a classic Bull trap. We knew that short interest was at its lowest levels since January ‘09. This meant they could launch an attack at their leisure with guns fully loaded. They knew the entire market was nervous over the FOMC minutes as well as the G20 meeting. Then there was that *leak* of reverse repos the day before the FOMC announcement. It actually wasn’t a leak though. As I pointed out in last nights post, the Fed had begun discussions on reverse repos at their August meeting [Click here for FOMC minutes] so this *leak* shouldn’t have come to a surprise but apparently to many it was. As a matter of fact, Financial Times this evening reported that the Fed is in discussions with Mutual Funds to purchase these Reverse Repos as primary dealers (banks) balance sheets are insufficient to handle the enormity of the transactions. *Yippee* Mutual Funds took a beating last year. The banks have ripped us off enough. Oh,errr, sorry. Got off the beaten path. [clearing throat] Where was I? Oh, yes. How convenient and how much more distracted can one person get? So the market held its breath today and once the FOMC news was released, smidiots jumped for joy and hit their *buy* buttons. Sad, sad smidiots. It’s a difficult lesson to learn but after an inventory release, FOMC or any potentially market-moving announcement, the direction of the initial move is usually the wrong direction. Write it down, paste it over your monitor. Withstand the temptation. I would rather miss part of a move and get in a little late than lose capital because I jumped and was plowed under such as happened to so many today. It’s basically a fakeout. The higher *push* after the release triggers MACD, Stochastics and other indicators on a short term timeframe, say 15 or 30min, and buy orders are hit. Inexperienced traders become giddy and buy but the trend is quickly reversed and its their panicked sell orders that give fuel to the Bears to bring the market down.
I apologize for not writing earlier but I was very interested not only in monitoring the after-market sentiment, but seeing how Asia and now even London traded. Asia hit a brick wall in ES_F at $1061 and now London is showing a little unease in [understandably] protecting their capital and taking some profits [currently @ $1056]. In full disclosure I was never so happy that I had been scaling into an ES_F short this afternoon. I covered it, taking my profits, but did buy FXP as an overnight hedge. It’s so cheap that even if the market goes higher, I believe I’ll hold it until the market does pullback – and it will pullback at some time – that is one thing the above charts show. We can’t go straight up forever.
What I’d like to see would be the market to gap down at the open, bounce off 1st or 2nd support no lower than $1052 then the Bulls come in, fill the gap and squeeze the over-confident shorts. Do I have much confidence that’ll happen? *sigh* No.
John from Across The Curve, a Bond trader, said that oil producing and other commodity producing countries were buying US Treasuries yesterday. What that’ll do is give the buck some strength and put pressure on oil, copper & gold. How long it’ll last is anyone’s guess but I believe if traders see further weakness in crude & copper, there’ll be more profit taking ahead and with that further weakness.
I’m not going to worry about it. I’m hedged. I’m looking for buyers to come in SPX between $1040-1030 but if that does not hold for some reason over the coming days, then I’m drawing my line in the sand at $991. If that is taken out, a Head & Shoulders top becomes a strong threat and with that, a much larger reversal comes into play.
fwiw Crude has support at $67 and $65, gold at $978 and $935. Add notes and support lines to your charts, hedge, take profits at the high, best of luck and remember…………….we’re NOT going to zero.
Just a quick note for all the gold bugs on the long term target on gold. If the triangle breakout holds, I’m estimating $1099 which, once you translate that over into the price of a stock, can be huge.
Add more on down days or pullbacks and don’t be surprised if it pulls back to retest its breakout point. I’ll definitely be buying more there.
