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Friday, February 10, 2012


ATTEMPT #1




I have embarked on my mission to try and catch this Gold trade I have been telling everyone I was looking for. The first attempt is labeled on the chart above. I shorted this last night when the prior day's low broke, just pretty simple. You can see a basic trend line I drew in which has no magic to it. All those do is narrow focus. Due to my larger view on where this market is headed, I am being aggressive trying to catch this. This entry right here is far from ideal, it would have been much better had the low of a few days ago taken out some prior pivot. It may well be that we will bounce and I will have to take another shot at this or two.

The next chart shows something we rarely see in the COT report, the last time was the high in the energies when oil hit $140 before dropping to the low $30's. This is another reason I am so bearish on this market right now. The concept is called Commercial Capitulation. I suspect that what the data shows hides the real story just like it did back with Oil.




What we see here that is very unusual, is the rapid climactic buying by the Commercials as we accelerated into the top. The Large Specs were rapidly exiting the market at the same time. This is highly unusual. The basic idea behind the concept is that the Commercials who generally try and keep limits on trends in each direction, finally just gave in and went long to stop from losing money hand over first in their hedging operations. At the same time the Large Funds were taking profits. On the surface this is capitulation by the Commercials. However, here is what I suspect is really going on just as it was with Oil in 2008. In that prior instance, the CFTC in all it's wisdom had granted certain Large Funds hedging status which allowed unlimited position sizes, which allowed them to drive the price of Oil into the stratosphere. They drove it to the point where the Commercials had to say uncle and gave in and bought finally right at the top. Of course the CFTC later came out and said they had no idea how this happened and had to investigate. The speculators were blamed of course.

This is essentially manipulating the market. As we see them playing with the employment numbers so blatantly right in front of us, it certainly is not much of a stretch to think they did the same thing they did in 2008 with Gold here. We know they want bubbles, and it has been my argument that if there was price control attempts here, it was on the upside. You now see the real reason I think that occurred. If this market does come crashing down, they will of course announce an investigation and express their horror that so many people have lost all their money. New regulations will be drafted to make sure it never happens again. Sound familiar? Talk about patterns to trade from, how about that one? Unfortunately, this is a tough pattern to trade from because it is such a large picture view.

At this point we have to operate on what we know which is that on the surface regardless of what caused it, the commercials threw in the towel at the high, a very very bearish sign for a market. On the recent moves up you see the Commercials have been selling, what I want to see on rallies against a down trend. Obviously the key levels are in the 1500's which is a long ways below, so nothing major has happened yet. I am just probing short term opportunities to try and get in sync with what I think the larger picture map is going to look like.

For perma bulls, which is almost everyone alive, this is not enough of a dip to add to longs yet, that 1526 low would be one to buy against. Since in that view the price can only go to $5000 or more, there is no need for any stops you just buy in on dips and hope you are right. I cannot and never have been able to trade like that. The one thing about the short side I don't like, but it is not bullish like taking the opposite view of T Boone Pickens on oil, is Douchefett has recently said he thinks Gold will under perform stocks. Since I can't stand him as per my name for him, I don't like agreeing with him. However, he is right most of the time on the big picture whereas Pickens invariably is wrong just about every single time.

So there you have it, attempt number one is underway, and it is no coincidence that stock futures are declining at the same time. It will be interesting to see if these two can separate or not. They have been joined at the hip for a while now. I suppose I will get in trouble if Gold does crash and I was the first one to point this out from the COT stats. I bet Briese who went before Congress and told them what happened last time, mentioned it in his newsletter before I have today. I don't get his letter so I do not know that is just a guess on my part.

Good Trading


7 comments:

Robert said...

Chris

This gold is a funny animal..looked like it was going down big time today but has come back nicely..are you still short or did you cover the trade .
Seems like every time gold looks like its really going to drop it comes right back

John M said...

Best of luck on this trade, I'm with you on this. And the part about after the fact regulation is the way things go, isn't it? The powers always try to shut the barn door after all the horses are gone. They do the same thing with air travel security--'protecting' us against what the last guy did and not having the imagination to figure out what someone might do next.

Must be how a the mindset operates in bureaucracies.

Chris Johnston said...

Robert I am still short, price has not gone anywhere near my stop yet. I would not be surprised though if I wind up getting stopped out on this first attempt. If is far from an ideal setup.

Josh said...

Larry Williams is the man. I have seen him speak twice, once in Orlando and once in Vegas. Anyway, I just started a TA site that you might enjoy. Please check it out. Thanks.

http://chartistfriendfrompittsburgh.blogspot.com/

Anonymous said...

Could you write about position size/risk.. how do you do to manage.

Anonymous said...

Hi,

I was looking at some charts for the S&P 500, Nasdaq, and DJIA and they all have very similiar indications pointing towards an upcoming correction. Very similiar to what you are telling us will happen with gold. Also, the USDX US dollar index is looking like it might make some ground towards the upside. I wonder what will happen next week, maybe the markets are telling us something about the Iranian conflict :S

Chris Johnston said...

I just risk 2% or less per trade. For example of the account has 200k, that means $4000 per trade risk maximum. If the stop is $1000 then 4 contracts etc.. I trail the stops if the trade moves in my favor generally above or below large range bars or pivots. I use profit targets for the most part for exits on profitable trades.