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Sunday, February 05, 2012


YOU CAN'T ALWAYS GET WHAT YOU WANT, BUT SOMETIMES YOU GET WHAT YOU NEED




Great words from one of our great philosophers, Mick Jagger. This certainly applies to the setup in the Silver market here. We have a good down trend in place, and commercial selling on this rally. We have the Sentiment now in the bullish zone. There is a four year cyclical top due. You can see how well the sells when bullish sentiment readings are in place have worked. In a perfect world, we would have the Small Specs in gray bullish, but we do not have that. We can see they have been buying, but have not reached excessively bullish levels yet. Rarely is everything perfect.

I am trying to find a way into this market or Gold on the short side now. This is the trade I have been waiting for. This is not a setup, at least for me, that I would just blindly go in and sell at the market. This is a setup based on fundamentals, entering the trades will be done on technical analysis. I have stated that these markets are going to come down sharply once they start. That is an opinion and will have nothing to do with how I manage the trades in it. I think it is a pretty high probability that Gold and Silver will be halved by the time the down moves are over, from their highest prices, but there is a very low likelihood I would hold them for that long.

Even if we went down just to the recent lows, that would be a huge amount of money, and I am in the business of taking profits. There was one interesting development on Friday. The stock market soared, and Gold tanked. Since these markets have been pretty closely tied, that was a bit of a surprise, or was it?

There is all sorts of conjecture out there about Gold from both sides. My favorite is that the price is being artificially suppressed. That has to rank as one of the most ludicrous theories in the history of mankind. These same people probably thought real estate was being artificially held down in 2005. Some times you have to step back and just think about the practicality of theories people throw out there. We have certainly seen one very prominent trend in our world which has led us to this bad situation overall, the inflation of bubbles. If I had to bet, but I have no proof at all, I would wager that somewhere in dark corridors somewhere, conversations take place about how to keep rotating at least one asset class that increases in value sharply. This gives people a place to go to make money when other traditional places are declining. I would then extend that argument to the metals markets as the home of such a recent effort when stocks started declining.

It could very well be that it is a natural phenomenon that money exits one place that is declining and chases something else which results in it rising sharply. Hedge funds now move huge amounts of money very quickly in and out of asset classes. Once an idea gets hot they really drive it. However, do not get hood winked into believing some of these theories that just have no basis in reality, because you think the supporters of it are smart and have a good argument or some inane statistic or two to support their argument. Aside from any of this being right or wrong, how would you make money off of this even if you had proof it was happening in either direction?

Friday's action could very well be a sign that the public has now shifted out of this world is ending fear, and bought into the bull market in stocks. Maybe the FED is just inflating another stock bubble, who really knows for sure. We have to set all of this conjecture aside and trade what is known to us. This above setup to me is something I can put my hands on, I can see it. I don't have to argue at the company water cooler with some young liberal who just graduated from Stanford. These are conditions that have preceded declines in the past and I expect the same thing to happen now. I don't give a hoot if it is a huge meltdown or just a garden variety decline. Maybe we won't decline at all?




Here is the Cotton market, which has a somewhat similar look to Silver. The one difference here is that the Small Specs are doing more buying. This is a sell setup as well that I am looking at.

I am also inclined to look at a buy in the DX and Sell in the Euro, but the setups are not quite right at the moment. I have to keep looking at them. It does appear to me that stocks are off to the races for at least a couple of months. I was just wrong about the early in the year dip, what can I say. I am glad I had the sense not to short the indexes.


5 comments:

Vikas said...

The explanation to Gold declining on Friday was that the risk appetite is now higher, so people are moving towards equities. I have a hard time buying this argument because of the lack of volume in this market. However, your theory on the possibility of declining gold and silver makes me wonder if there's an even bigger equity rally ahead?

SS said...

Grea Blog,really enjoy it and is a great source for me in my trading. keep it up.

Chris Johnston said...

I don't believe risk appetite being higher if that is true explains one days activity in any market. You can't dial big picture mood shifts to one days action. The collective measure of emotions just all on that one day decided to sell GOLD and buy stocks? I don't think so.

The reality is GOLD hit a very heavily watched resistance point going into Friday. There is a great deal of random activity in markets and all of us try and attribute some reason for everything happening. That is one thing I have learned over the years is that I don't try and figure out why something happened, I just try and take advantage of moves when I can see them coming.

I don't think Friday means anything in Gold to be honest yet.

John M said...

Friday may not mean anything yet but I'm looking forward to playing the decline in metals that you've been talking about. Not having your tools or methods, I look at what I look at, and that says there's a good shot at a big drop.

Let's hope we're right. Played even decently, that's a trade that could be a life changer.

Chris Johnston said...

John believe me when I tell you that there is no magic to my tools at all. Sometimes I wonder if just trading off bars charts and nothing else might be just as effective.

I am pursuing the metals aggressively on the short side just due to how well setup they are.