Gold Needs Buyers Now.

03/11/2017

Gold needs buyers. Not the short term trading types, the physical owners who understand the basis for Gold as a reserve currency. It needs someone to tell stock market longs at all time highs that if they  do not adjust their exposure in dollar terms by rebalancing stocks with hard assets they risk profits. It is ridiculuous to us that for every new all time high we get in  stocks, that no-one is rebalancing their exposure that we see. Gold should track stocks higher a bit as people take profits off the table for retirement. But we know what is going on. Some broker is talking them into something hot. The only thing that truly trends in this world is humans extrapolating never ending trends. It’s nauseating and we have tons of equity exposure as a group.

If gold does not get some common sense people to invest in it soon, the momentum vultures may have their way. And if tyou want to buy Gold lower, you may get your chance.

From Reminiscences of a Stock Operator:

“Of course there is always a reason for fluctuations, but the tape does not concern itself with the why or wherefore. It doesn’t go into explanations. I didn’t ask the tape why when I was fourteen, and I don’t ask it today at forty…”

Tape watching back in Jesse’s day is what we now call momentum trading. And that is the lens we are looking through again today. We have no alerts, but are seeing a planetary alignment that if we get one alert, the chances of 2 more are high.

To be clear. Sometimes we use the momentum to give us a better price to enter  (eg a predicted washout gives us better buy prices).

Sometimes we surf the momentum (eg- a lot of shorts in market, we get a bull signal, amdcwecjump on the bandwagon). And sometimes we do nothing. But being able to handicap where those inflection points in markets that attract irrational interest is a great tool in deciding what we want to do.

  • If you think reading charts is a waste of time, stop reading here.

 Gold is in trouble. Post the Chinese Congress and their “back to usual” behavior of roiling the commodity markets like a bull in a china shop (forgive the euphemism) one would at least some love to be thrown Gold’s way. But so far nothing lasting on that front has happened, unlike its base brethren, and recently Silver’s rise.

Thats not to say it’s done yet. No need to get your fork ready just yet. Let’s just say we had hoped for some algo short covering to show up with the other metals being so buoyant. Alas it did and someomecsmashed it back down.

Is it too much to ask for $1290? There should have been more stops above $1280 but so far nothing. This again may just be the product of end of year liquidation stifling any sustainable momentum higher.

 

  • If you think using volatility as an indication of how short term momentum traders behave is a waste of time: Stop reading here. 

 

Here’s what we see based on our recent disappointment from a decisive lack of follow through.

Things are getting close to a trigger on a couple time frames on the volatility system (VBAS)we use. Worse, the trigger levels on the downside are lining up on those different time frames.

Bottom line: If gold cannot hold above $1280, it will not hold at $1268 according to our algo. Why? We don’t know. We only handicap risk reward and probabilities. The reason can come tomorrow.

Jesse again:

The reason for what a certain stock does today, may not be known for two or three days, or weeks, or months. But what the dickens does that matter? Your business with the tape is now-not tomorrow.

The reason can wait. But you must act instantly or be left. Time and again I have seen this happen…

To put this quote by Livermore in context for you we could call them momentum traders.

“You’ll remember that Hollow Tube went down three points the other day while the rest of the market rallied sharply. On the following Monday you saw that the directors passed the dividend. That was the reason…”

Notice Livermore wasn’t making notes to potentially trade the reason in the future. He didn’t care why. He was simply reading it and found the reason amusing. Modern tape readers can use the news to trade stocks in play. We happen to care why after the fact, if only to refine our systems and be on the look out for leaking info of a repeat type of event on the future.

 

  • If you think this work is technical analysis, you know what to do.. 

 

Charts:

The Monthly says a big move is coming in next 60-90 days with no bias  as we said in Gold Macro Analysis: A November to Remember

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The Weekly gives the most optimistic outlook, but is nowhere near an alert

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The Daily is set up for a good trade on a settlement above  $1295 or below $1268.

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240 Minute chart’s upper trigger of $1280 was rejected multiple times. Today’s new high breaking a “triple top” congestion and prompt rejection is not helpful. Meanwhile it’s lower trigger is at $1271.

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60 Minute Chart- has $1280 as upper boundary and $1275 as lower.

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Other posts describing the market in this way.

On a momentum basis, when the shorter term triggers are hit while longer term ones are nearby, that gives impetus for follow through on a snowball type effect.

In human terms. Some momentum traders watching hourly charts traders will sell below $1275, which is no big deal.

But if that triggers the 240 chart watchers to sell at $1271, then we are hitting  stops at $1268 on the daily.

So:

$1275>$1271>$1268>>???

At that point momentum either accelerates and we get a washout, or it runs into physical demand which backs off but absorbs all the panicked  selling in a violent, choppy day.

If momentum accelerates, then the monthly chart becomes our guide. And that’s where we run into our prediction of a $50 move one way, followed by another $50-200 move in either direction.

Keep your powder dry if you are a  bullish trader. Keep your cash liquid if you are looking for an investment entry point. One may be coming soon.

Cheers