Nov

9

Gold/silver bulls are getting sloppy again, now at $1410/ $27.73. Silver has been the catalyst for this entire two-month leg up, crowning a whopping $10 move during this time frame. At the start of this Tuesday's session, however, the Bulls ought to be cautious. Just like with that $3.50 Dec NatGas print early in Oct.25 session - the daily charts are going parabolic!

I would be heeding the following alarming factors, as Gold and Silver futures sit at record highs tonight:

1. USD has been firming in last couple of sessions - but Gold and Silver still rallied to records. Bulls will argue that this a positive divergence, pointing to "independent strength". I suspect that this, in fact, may be pointing to forced short-covering; and thus, less of the forced short-covering remains to be executed!

2. Platinum and Copper did not follow Gold, Silver and Palladium's move to new highs Friday and Monday. I would note muted response in Crude and grains as well. The only other commodities that continued parabolic were the leading stars of the period: Cotton and Sugar. Again, another sign of forced short-covering well in progress.

3. Significant news of QE2 and elections are done with, and precious metals have just tacked on more gains.

4. Chartists know that, following a lengthy run, a commodity that continues parabolic at week's start risks a powerful intra-week reversal. Those types of "outside reversals" on the Weekly are much more potent, in my observation, than the ones on Daily. When Gold futures chart-painted that "shocking" intra-day reversal from $1366 to $1326 on October 7, that made me temporary Bullish. I shall not be Bullish if something like "outside reversal" will be painted on Weekly chart.

5. Another chart complication will be caused by semi-holiday week, with Veterans Day shutting the Treasury markets on Nov.11, and taking bank and Fed personnel out of the office.

Rocky Humbert writes:

I would be heeding the following factors:

1) The record high in silver was approximately $41.5/oz on January 21, 1980. That's approximately 49% higher than the current price. Anatoly's statement (regarding silver) is wrong.

2) That gold just made a record high is not predictive but it does prove a simple fact. EVERY gold long is sitting on a profit. And every gold short is sitting on a loss. That's not a recipe for bullish capitulation.

Anatoly is continuing to demonstrate a FleckenAbelGrantian personality disorder. Eventually, he'll be right. But eventually is a long time.

In contrast, I just stay long gold and roll up my puts every $50 or so. I wish I could say that I'm smart, but I'm not. The objective of speculation is making and preserving profits. Not sounding erudite. See this post.

Anatoly Veltman responds: 

Rocky's comment is educational. Rocky advocates buy-and-hold (on way up)/sell-and-hold (on-way-down) vs. market timing. Excellent subject for separate thread, and I'm sure such thread will attract wide participation.

To return to this week's Gold/Silver situation, I'm attempting to be ready for this particular charting set-up: outside reversal on Weekly chart. Due to Nov.11 semi-holiday, such weekly bar may be painted this week OR it may take a combination of this week's and next week's bars. Monitoring many liquid markets over the past 24 years, I found such pattern to often mark longer-term reversals- and thus worthy of being prepared.

Why anticipate (rather than follow), and how?

1. A Gold/Silver bull wants to hold Long exposure. Following rapid price jump, his dilemma may be similar to bear's: how to stay with his biased position. One definition of up-trend - higher highs AND higher lows - will be threatened by trading below $1315 or below $1160, depending on trader's intensity. Both marks are too far below, when trading $1410-1425. Thus bull's dilemma is very real: historical cost should never be used in analysis of a liquid trading instrument– you're basically marked-to-market every single $1 move, if not every 10 cent tick. Is this a good plan to hold Long at $1410-1425, if a drop below $1315 will cause you to sell out and possibly reverse to Short? Or even lower, below $1160?

2. One shouldn't ALWAYS try to anticipate every outside price path. Hints are essential to go on ALERT. Fri and Mon Gold/Silver/Palladium jump against stronger USD gave a hint of "forced" short-covering in progress in those particular metals, while other remained calm. Stubborn Cotton and Sugar rocket, while other commodities do little– is another sign of "forced" short-covering. The more short-covering is done, the less remains to be done.

3. I confess that lately my analysis lacks previous complexity, as I just observe/comment and have no vested interest. To duly gage possible trade exhaustion, one-dimensional PRICE charting is not enough. One absolutely must employ second dimension of daily OPEN INTEREST change, and ideally third dimension of changes in Open Interest MAKE-UP (i.e. Commitment of Traders). My current guesses are much less scientific than I'd like– they are just a heads-up.


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