Friday, March 09, 2012


The topic title today was prompted by the pending legislation attempt going on in Congress to force the administration to stop lying about the unemployment numbers. Isn't it amazing now that we need legislation to enforce laws that are already in place because they ignore them? Should they be lying to us in the first place? This report is fools gold as most people know by now. Does anyone really believe that jobs are being created at this rate from their own life experiences? Are there local companies where you live in a hiring binge mode? Of course not.

I was working on my golf swing with my swing coach at Aviara Golf Academy yesterday afternoon and things were going quite well. We have reached a breakthrough point. In any relationship between teacher and student, the challenge is always how to get the points as the teacher to sink into the students noggen. It is easy when you teach someone a craft to know what it is they need to do in order to improve. It is another matter finding the right words to get the thoughts to sink in. I have always had the same problem as Tiger woods, I don't stay level on my downswing with my shoulders. I tend to drop my right shoulder back and to the right. I have pretty significant swing speed ( about 115) even for a 52 yr old, so when I come down too far on the inside with my right shoulder dropping, all sorts of wild shots happen.

Finally after we had worked on one particular idea it hit, and one pure shot after another just flew off the clubs. This is the same with our little profession here of trading. Most approaches require you to make some judgments on when to do what. After all, it is pretty easy to trade if you know which way to look. There is no sure fire way to know this that I have found, but having a bias then looking for a place to play it takes a lot of pressure off the decision making process. The chart above to me now is pretty clearly in a sell the bounce mode. We have the COT stuff clearly telling us the wrong people are bullish up here, and we also have a clear break under the most recent short term pivot point.

It is true that COT "looks" like this when the markets are in strong trends sometimes are way early. It is also true that in strong trends at times you get bear traps where there are false breaks below trend lines or support points that trick people into looking the wrong way at the worst possible time. As my golf  instructor said to me after I hit a drive that we figured flew in the air a bit over 300 yards, take 9 of those a round and 5 misses that are in play, and you are in business. The point being, take the play that is good most of the time and realize that not all of them will work out. I know that even though setups like what we have here can just be continuation patterns where the market just flies right back up, the odds favor that not happening here.

What I would really like to see is the market just stay right here and give us this small range that we can sell below on Monday. If we were to start going on the down side today and form an outside bar today, I will have to take at least a partial position and then try to add to it next week. In our world where everything looks the same, we have the next chart, GOLD.

We are in the sell zone here, so it is just a question of how to enter the trades. Ideally we would bounce a bit more than this, but at times we don't always get what we want. I am not going to show exactly how I enter trades here until after I get in them because that is something I should charge for. I think situations like this are tough. You are damned if you do and damned if you don't. We have a very good setup for a sell so I don't want to miss it. At the same time I don't want to piss away a bunch of money foolishly just swinging at this. I tend to take a smaller than normal initial position in situations like this, then try and add to it. In any event, this is a very well setup market fundamentally for a decline. The COT picture speaks for itself.

When you see a dramatic rise in Open Interest like this and it is almost completely driven by small speculator buying, that is a textbook Larry Williams sell situation. What you do with that is up to you.

As I sign off it is looking like next Monday is going to be a great day to short some things. Have a nice weekend. Thanks for reading, this week was my biggest week ever for traffic here according to the stats.


Robert said...

gold today was down almost $20, but then came back and is up over $15--that's a nice rebound for gold--I guess that sets up your short play -
Gold is hard to read ,like today with the dollar up big time one would expect gold to be down but surprise its up --
any comments on gold move today--
with more QE on the way--it may never drop very much
All pullbacks are being bought-
I believe the move up today for all assets is this news
Reason for the big move up in gold seems to be ..more QE in one form or another

So much for no QE3, at least if Charles Evans gets his way.

Chicago Federal Reserve President Charles Evans was on CNBC just a few minutes ago, and comments from Evans made it sure seem like an additional round of quantitative easing is on its way.


Robert said...

Chris ,
I admit i do not fully understand the COT reports.but this just came out today so maybe you can translate what it means
Wow, the commercials for this reporting period went NET long a jaw dropping 8,797 contracts in silver and also went NET long 45,143 contracts in gold. This report should fuel the conspiracy that there was manipulation on that smashdown last week, as the informed money covered their short positions like madmen, when the speculators were liquidated and sell stops triggered from their long positions. Open Interest in gold dropped 35,795 contracts and silver dropped 4,843 contracts.
So kind sir is this a report one should short or does it indicate gold/silver is going higher

SS said...

Congrats on your Blog. I have enjoyed it very much. I tend to be early on my trades and get stopped out which is frustrating. I usually enter short on the tail of rallies or long on declines at a point where my stop is above or below short term lows and highs to minimize my risk, but being early I often get stopped on an breakout failure. Anyway, thanks for the blog, any thoughts on how far above the short term highs/lows i shold be looking for stop locations? Clearly I am not far enough....

Good trading


Chris Johnston said...

there was some commercial buying and small spec selling this past week in Gold, but not enough to change the picture yet. Silver the buying was negligible and barely even shows on the charts. Net net what took place this week was not significant one way or the other in terms of the COT data.

Chris Johnston said...

My stops are just one or two ticks about pivot highs or lows, I don't think contrary to what is written that stops get run too often by floor guys

John M said...

Congrats on the record blog traffic and the golf swing. How is your four year old doing?

Anonymous said...

A while ago you mentioned a Plan B for the forecast. Did he advise switching to it?

Robert said...

you stated above that the COT report amounted to next to nothing.Maybe I'm missing something but if
the CFTC COMEX commercial traders reduced their combined collective net short positioning (LCNS) for gold futures by 45,143 contracts or 18.4% to show 200,208 contracts net short. Gold declined $109.85 or 6.2% for the Tuesday to Tuesday period .This is the largest one-week reduction in commercial net short positioning for the legacy COT report since July 31, 2007, when the commercial net short position declined by 48,958 contracts in one week.

Apparently “the commercials” took advantage of the very large downdrafts for gold and silver last Tuesday to get the heck out of a meaningful amount of their downside bets for gold and silver futures.

so I have to disagree with you that this report means nothing..seems the smart money is getting out before prices go back up

Chris Johnston said...

Robert you ask my opinion, I give it, then you tell me I am wrong while at the same time admitting recently you don't understand the COT report. I will not be responding to any more of your Gold comments or allowing them to be posted. I wish you well but I have had my fill of this from you at this point.

John, the 4 year old is doing poorly, but thanks for asking, he does not have long. I will have to take a few days away from posting when I lose him, it is going to hit me very hard.

On the LW forecast question no he has not shifted to the plan B yet.

Chris Johnston said...

robert email me at mktwzrd1@gmail.com so we can have a private exchange