WINDING DOWN

I mentioned the other day that GOLD was setup for a decline. You can see where I went short in this market today. As per the usual, I have no expectations of any kind in this trade. It was a signal so I took it. As we wind down for the year, the markets do generally tend to get pretty quiet. However, I have seen some large moves happen during the last few days at times, so when signals show up I do not pass on them just because "I think" it will be slow. The odds are it will be but you just never know.

I was reading about how China has been a heavy buyer of GOLD as a reason why the price has to keep rising? Why? What if they have bought all they are going to buy, couldn't that then mean an absence of buyers? What if the PPT decided to combat them by shorting GOLD in record numbers to drive the price against them intentionally? The point of this is just this, it is all random opinion as to how it will effect the price. It is also irrelevant to short term traders. Even if you dial in exactly on this type of analysis, timing such things on a daily basis is impossible.

From this chart above I see both a downtrend ( short term ) in price, and a longer term downtrend in momentum from the oscillator, confirming the price. This together means to me I should be short so I am. The very high correlation between stock and gold prices probably means this won't go far, since it is unlikely we will get a stock market break here, but at times these two markets can separate. The next chart is that of the NAZ, which to me is jumping out as the weakest of the 3 major indexes.

This is developing into quite a bit of divergence here and now almost of the variety that it is worth taking a counter trend shot. It is my hope it keeps building the last week of the year setting up a January entry. However, things rarely setup exactly as I expect even though I always hope they do, so for the brave, taking a shot now is not a terrible idea. We do have the year end markup which I think is going to trump any sell signals, so I would suggest smaller size on this trade if it is done this month. I am not a big fan of shorting below the low when the market is in open water like this, but occasionally you get a top right on the money doing it. Generally it favors waiting for some type of price action that tells you at least the uptrend is flattening. The worst thing that can happen is getting one of these right because it reinforces a bad habit, then you get run over the next several times you try it.

There are those that say that as go the techs so goes the market. Although just anecdotally, I tend to agree with this, I cannot find any research that actually backs this technically. There are some very good traders who swear by this adage, tech leads. If that is true, the NAZ being the weakest of the indexes adds some fuel to the fire for a coming decline. However, even though it is relatively weaker, it is far from weak so I guess that is an asterisk. If we have a pullback, and this declines more, that would be more meaningful that what has happened thus far, which really is nothing.