We had a couple of good posts in reaction to my weekend commentary as well as a few emails directly to me. First of all, we will never all agree, and if we do I can promise you I won't act on whatever that view is. I don't like crowded trades even if that means missing some. I think most readers know I am a short term trader, I generally hold trades from 3 to 15 days unless I get stopped out quickly on something. My larger picture comments are more based on my experience having watched and traded financial markets for 25 years. My view of the metals bubble which I know most do not share, a reason I like it, is based on price action alone. It is not based on any opinion about the fate of our dollar or any other arbitrary assessment I might have at any given time on some economic development. I trade short term and generally with what the trend is while occasionally going against them in the conditions I have discussed in here in the past.
My basic point about the metals can be summarized by just looking at the monthly chart of Gold above. Does this really look sustainable? How many other instances in any market in history can you show me where a move like this continued on for years and tripled in price from here? I will save you the trouble, there are none, ANYWHERE.
This does not mean that this cannot be the first, it has already defied the odds for awhile. However, readers need to understand the basis for my evaluations and how I arrive at them, hence the Instruction Manual title. I study price patterns and ferret out the ones that have the highest probability of repeating. Once I have found them, I tailor an entry technique that also has a statistical edge to that setup, and away I go. This pattern here no matter how I study it be it a 5 minute chart, daily, weekly, or yearly, is a climax pattern. What does that mean?
It means that we have a runaway frenzy that is accelerating into the equivalent of a jet burning all of it's fuel. It is very difficult to determine when gravity will kick in. I will promise you this, if you just looked for every pattern that looked like this and bought it you would lose everything you owned in 30 days. This does not mean that you would not be in a profitable position at any point, you very well could be by a large amount like with Silver. However, once you get this type of action the odds do not favor it continuing. Is is not any more complicated than that. I trade in what my studies show are high probability situations, and this is not one. It is not a short sale, trying to short these types of moves is crazy. ADX is now at 51 with the last 11 consecutive days being up closes, again another danger zone. ADX can and does go higher than this no doubt, but it is a warning signal that at least a pullback is coming. This is my reason for calling this a bubble, it is a climax pattern in the price, pretty simple.
If your view is that you are sure the fiat currencies are going away, then you obviously will have the opposite view. My opinions are based on price pattern history and COT data. Opinions mean nothing, it is how much money you make off trading that matters. If you are long and making millions, good for you. I wish everyone success in trading and it is why I do this blog everyday, to try and help with that. Please just keep in mind, there is trading, and there is expressing opinions, they are not the same. I do not and never will trade on my opinions. If you are able to formulate opinions and trade off them and have success, you are far more skilled than I am. I tried that in my younger days and failed.
Net net, maybe I am wrong about this, but my reasoning is simply based on the data, not an opinion on economics. Thank god I am not an economist! For those who don't think it is a bubble take out a second on your house and double your bet. If I was as sure as so many we were going straight to $5000 that is what I would do. Maybe I just don't get it. I would sponsor a pullback buy, like the one marked on the chart, but not one right here.
I know the one comment was also about the bubble in interest rates. Ironically I think if we take out today's high on Tuesday, the 10 year notes are a buy. I really don't know if this market is a bubble or not, there are certainly good arguments for it being one. However, the price pattern does not indicate that yet, so I don't view it as one. If the price pattern winds up looking like GOLD above, I will also view it as a bubble at that time. My studies show that patterns like this if the high goes the next day are good buy signals, so that is what I am looking at. The COT report also shows good buying in this market right now, which supports this trade as well.
I am sure the one reader who has the opposite view of these would say I am being inconsistent here. My views on these are both on the price patterns, not the economics so they are consistent. My studies show that 11 days up in a row is not a buy, very clearly as we have with Gold. On the other hand they show these reversal bars like this when they reverse back the next day are good buy signals. It is that simple for me. Maybe I am wrong on both of them. If I am no be it, I am a trader and I will move on to the next decision knowing I will get some things wrong.
I have had a few spectacular winning streaks in my career, and they are not easy to handle. Once they start carrying on the second guessing hits hard. I had one with 39 wins in a row, and one with 22 in a row in my old trading service. Once you get that many you just want to have some losses to get back more in balance. I recently had another pretty good winning streak and knew I wanted to get a loss in there to level the field. This might seem like negative thinking but it is reality. Perfection is not necessary to trade profitably, and if you strive for it you will not have success trading.
I am still hoping for some type of bounce in stocks to get good sell signals in the Bernanke's. I passed on a sell for Monday because some of my filters said no, so I am hoping we get a bounce for a day or two to set up a sell.
I hope I have made the basis for my commentary clear, and also hope it was done in a way that was not offensive. I just want to make sure readers understand where I am coming from. I know new people come in all the time, so I never know how long or how far back people might be reading, to get a feel for what my approach is. I am constantly studying conflicting views, I don't learn anything from talking to a bunch of Ed McMahons.