Friday, September 02, 2011


Now that we have the NFP report out, we have a big fat zero to digest. I think if this report did not exist nothing would be different. Anyone knows at this point that we have some serious economic issues in this country, and for that matter in virtually every country. I generally do not day trade until this report has had some time to settle down a bit. I do not even consider it at all in any trade I enter or exit that is done on a daily chart, it is just noise. Unfortunately though it does support the notions that things are not improving and there is no recovery. Anyone with a functioning brain and an IQ over 80 knew there was never a recovery in the first place and that it was BS. Onward.

We are seeing a Bond market rally so far after the release of the number, but not a huge one. We were up for the session by a decent amount before the release of the report, and the gains have extended. This is becoming now a marginal pattern at best to short, which I have not done yet. As I have stated, the seasonal and cyclical patterns are still strongly up, and I do not like going against both of those. I do it at times but do not make a regular habit of it. I need something else to back a trade against a trend this strong. The next two tables show trading around this coming holiday. The first one shows selling on the open the last day before this holiday and exiting at the first profitable opening with a $1500 stop. This tells us that is not much of a strategy and we should not have been going short today. The second table shows the results of shorting the opening the day after this holiday, with the same exit strategy. This strategy is a pretty good one by historical tendencies.

Several years ago I used to trade almost solely off things like this. I moved away from that when the pit sessions were rendered irrelevant in the Bond Market. However, I still like to look at things like this for tendencies. In this case it kept me out of trouble today, although had I been selling it would have been below the prior day's low which was not ever visited today. Nonetheless I might have been looking the wrong way. Of course the other issue is the overall seasonal tendency of stocks to decline here is kicking in, and Gold and the Swiss and Bonds are the flight to safety vehicles right now. As I have discussed here, I do not view Bonds as a bubble simply because they are where they are for fundamental reasons. The Fed, the ultimate Commercial player, is buying them in mass quantities, and it is tough to fight the Fed. That is one old adage that is very true. Governments lowering rates in bad economic times is a trait of the markets that has been in existence for decades. The Gold phenomena is a new age relationship, with no historical precedent, which is why I call that a bubble. Maybe that will be a new fundamental relationship going forward, but it is not in the data consistently over time like the Bond market yet. One simple rule in trading is go with what works until it doesn't work anymore, and that is what you should be doing with GOLD. Even though this is an abberation, it is working so go with it.

Net net, now we know that if one is going to short Bonds here it would be better to wait until the day after the holiday. It is possible we could get a trap pattern up here where we make a new high and quickly reverse, so that is what I am looking for now. If you look at the chart, one quick thing to point out that I have labeled on there, is how my COT Synthetic is showing pretty strong buying even with rising prices. This is unusual and tells me to be careful shorting here. The normal movement of that indicator is down when prices rise. When it is rising, or in this case staying high in the face of rising prices, that tells me insiders are pushing this upward not small investors.

Have a great weekend and good trading.


Patung said...

Well ZB has so far stopped at the same place it did last week, and appears hesitant to move on from there...

Anonymous said...

Speaking of gold we are all aware of the dramatic 3 day sell off in gold starting Aug 23 but it has recovered most of the drawdown rather quickly. In that vain I thought this was quite interesting from Ted Butler whose espertise on the metals I would not challenge. This is from Ed Steer's Gold and Silver Daily and points out that even the commercials (as classified by the CFTC) get it wrong from time to time and sometimes very wrong (maybe it's because they are not true commercials)....

Here are a couple of free paragraphs from silver analyst Ted Butler's mid-week comments to his subscribers. "Restating what I feel is the obvious; the dramatic gold rally was caused by aggressive buying by the group of speculative traders which are classified as commercials by the CFTC. Many make the mistake of assuming that just because these traders are classified as commercials that means their trading is purely for legitimate hedging purposes. Nothing could be further from the truth, as the bulk of their trading is speculative in nature. Therefore, while it would be technically correct to say that the gold rally has been caused by speculative buying, most would assume that meant new buying of long positions by easily-identified speculators such as hedge funds and momentum traders. That is definitely not what has transpired in gold recently, as the “normal” hedge fund and technical fund speculators have been selling COMEX gold contracts, not buying them. Instead, the big COMEX gold speculative buyers have been the commercials who were previously heavily short. Correctly identifying the true speculators driving a market is a distinction that makes all the difference in the world. That so few see it is amazing to me."
"There is little doubt that the commercial gold shorts have taken a horrific beating in buying back their short contracts. My guess is that the collective loss on the covered gold contracts so far [since early August - Ed] is on the order of $1.5 billion. Such a loss, even when spread equally among the roughly 40 traders classified as COMEX commercial gold shorts, amounts to a hefty per entity average loss of $37.5 million each. And I’m speaking of closed out losses only; there is still a large number of open gold shorts that the commercials are holding whose resolution remains to be seen. Those “open” losses run to an additional $8 billion at current gold prices. It is imperative to recognize the unprecedented magnitude of these closed out and open gold losses. It’s not enough to say that these commercials lost big-time; having never lost before on such a scale, the turnabout for these commercials must be shocking to them."
Don in Virginia

Chris Johnston said...

Don I have never heard of this guy, so I do not know if he is considered an expert or not on the COT report. For my money I think LW is the king of that. I am not sure how he could derive those conclusions from the data. However, commercials being short or long is just a tool, not the end all especially when they are against the trend. Their normal function has them opposite the trend a good bit of the time, so that is never a reason by itself to fight a trend.

I do think some very smart people have lost some money in GOLD because this whole move is such an anomaly. For all I know it goes to 25000! There are also some games that go on with classification in recent years of who goes where.