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Saturday, January 09, 2010

GLITTER ABOUT TO COME OFF



We have had a nice bounce in the worlds favorite market which was nice to my bank account balances via the trade I posted in here. As you can see above we are now setting up the bigger picture shorting opportunity for what I believe will be a significant move down.

First, in the top graph we see Sentiment has quickly reversed back to bullish after a brief time in the bearish zone. This of course is bearish for prices. Even more disconcerting for bulls is the GREEN line in the second graph. This is the total net long of small speculators and you can see it has now made another all time new high yet price is well below the peak. This by itself it nothing else were going on would be enough to look at shorting this market.

Next we have the BLUE line which is hard to see but it represents Total Open Interest and you can see it is also very high. When you look at the RED line in the same graph which represents the commercials, you see that they are still very close to their record net short position. This tells us that all the buying is being done by groups other than COMMERCIAL traders.

Last but not least, is the last graph which shows the typcial seasonal pattern which shows we are right in the decline time zone. Larry Williams annual forecast also identifies this area as a significant top probability.

FOLKS IT JUST DOES NOT GET ANY BETTER THAN THIS FOR A SETUP FOR A MAJOR MOVE TO TAKE PLACE

Looking at Copper in the next chart we see basically the same story.




The only differences here are that we are not in sync here with the seasonal but also it shows a more bullish sentiment situation. The other thing that is different here is the Large Speculators have a larger net long position by far than at the all time high. This basically means they are out of fuel to keep driving this much further. This market is much stronger than GOLD anyway and you should always short the weak one. I just wanted to display it for a fuller big picture on this complex.

Now we have to look in the mirror at the Dollar Index, after all it should be bullish with this being this bearish to make this perfect.




I have alot of things market here so lets go through this one at a time. First, there is without question significant commercial selling during this rally, and the large speculators heavily long with price way below where it was the last time they had this position. This is without question bearish, However....

If you look at the 1, 2 and 3 areas labeled on this chart you will see something that indicates a trend change. I will not divulge what these lines are but basically in simplistic terms, once the gaps between price and the lines show up, the trend has changed and you enter on retracements. You can see the first one the retracement was an excellent buy. The second one was an excellent sell that got you the top, and now we have a buy on a dip setup. If we couple this with the seasonal low which typically is right at the first of the year, we have something big in the making.

There is no doubt that the heavy commercial selling is the fly in the ointment here. If you research commercial activity they often are opposite of the trend so this can in fact be bullish at times because it actually confirms a market turn by them turning on their hedging function. This will be confirmed to be the case if the recent highs get taken out.

Since the dollar index is a lightly traded contract this overall has less importance than looking at other markets. It is always important to get a context for bigger picture views so that is why I provided it. You can also see where I have indicated how the Dow ( black line on price chart ) has been trading opposite of the Dollar but might be coming back into sync with it. This relationship has varied enough recently that I think it is worthless because it is not doing what it fundamentally should be doing. I think it is basically noise to consider that now.


I mentioned that there would not be a public service announcement as to when the stock market might be topping, the opposite of this is true here. This is a rare opportunity to make a market killing that does not come up too often. In my 25 years of trading I have only seen a couple of setups that were as good as this for a major move. People willing to listen to what the market is saying and tune out all this insulting crap from all the celebrity pitchmen about Gold, are going to be able to make a market killing on this decline.

Are you going to be one of them, or be part of the herd being rounded up in the slaughterhouse?

5 comments:

Charles Hugh Smith said...

Chris, just to clarify: are you saying the stock market is set for a decline or gold is set for a decline, or both? Thanks--I really value your perspective and trading discipline. I learn a lot from your posts.

Chris Johnston said...

Gold Charles

Stocks are certainly on borrowed time but today's whole post was on gold

robert said...

re: the dollar index chart

Chris, did you mislabel the #2 sell point on the chart?

I can see where #1 was a good buy point, but the #2 sell point seems to be at the bottom of a dip, and right before a big US dollar rally.

Chris Johnston said...

Robert it is labeled correctly. Those numbers are when the trend change happens, then you fade the retracements. So in the case of the #2 point I labeled where the gap developed which was at the low of a retracement. That told us we needed to short the rally. This approach specifically did not generate a buy on that dip, it setup a sell on the rally from the dip. It is a one directional approach based on identifying trends and only trading in the direction of those trends.

Timing the entries is another matter entirely, this just tells us which side to play on.

Chris Johnston said...

For further clarification, it tells us now to buy a dip in the DX if we get one. If we get a gap going back from a big down move from here, this approach would dictate the sell rallies. For now it is saying buy dips, but not buy right here.