PLAYING TO THE CROWD
Since all most people want to hear about is why Gold will rise to the stratosphere and I get booed every time I come out with bearish remarks, I thought I would try and get a few votes from the electorate. During our recent decline we are now starting to see a significant decrease in the commercial short position. You can see from the chart that their net position is still nowhere near the last large long position that kick started the huge rally up. Also, this again is a natural function of how commercial hedgers work. As a result, this makes me short term bullish for a bounce, but does not change my long term bearish outlook. Those record positions should result in a much larger move than what we have had so far. However, if we see the commercials buying record another huge historical position size on the long side, I will change my viewpoint here. This business is not about ego, it is about money. If it turns out things change enough where the $600 level is not going to happen, I will change my view and get bullish. You cannot get too stuck on your own positions, you have to adapt to what is happening. If stocks go up to new all time highs, the Gold market will soar along with it.
You can see from the chart the gradual unwinding of that huge long position recorded in March of 09, that ultimately wound up in a record net short position. This took almost a year, we are looking at the inverse of that right here. We should overall move down for awhile, but I do think we should be looking long right now. This market is tracking the stock market, and stocks look good at the moment to continue the little rally they have going. As a result, this market should follow along. You have seen what happens on large stock down moves, so if we get a resumption of the stock decline, the market will collapse. Use tight stops on longs, the path of overall least resistance is down here. However, I am looking to try and get some money on the long side first.
For this market to be bullish, the dollar "should be" bearish. Here is the DX chart and yes it is bullish, in fact I think there is a short trade there right now.
Again what we see here is a record net short position with the commercials and huge small speculator long position to go along with it. Also, we see the Large Specs have their largest long ever, yet price has not advanced anywhere near where it was when the Large specs were heavily long last time. This is a textbook setup for a short, just like GOLD was at the high. There is one significant problem with this, the gap on the chart between price and those secret lines I have on here. Basically that indicates a trend change, so the trend is now up. I cannot tell you how much I wish that were not the case here, this would be a sell with both hands without that. What that tells us is that dips are buys here. So, we should look for a short near term, then look to get long on the dip for the big ride up. We need to watch the commercials to see if they buy the decline. If they do, we could be off to the races on the upside. It is possible that again this is normal hedging here against the new trend. If that is the case this selling does not mean anything.
However, when we have long established trends that the downward one here overall, it pays generally to get short when commercials get short. My trend change gap does make it a little more complicated in that it says the trend really overall is not down any more.
Here is the daily chart which in my view shows that if Friday's low gets taken out this is a shorting opportunity, and I will be a player there if that happens. I have price projected below that low to show how the indicators will look if that happens. One thing to note that also speaks towards the bigger picture bullishness here, is the third panel down. This is Larry Williams and what he calls a flat lining market. This means basically that we have such a strong trend that the momentum is flat lining in the bullish zone. In these situations you want to buy all the dips. First things first though, I want to play that dip.
Overall this week most markets look bullish, Grains, Energies, Metals, Stocks, and the dollar bearish. Let's see what happens.