Sunday, December 02, 2012


Gold has not done much net in this year it has basically gone sideways. You can also see that it has strayed on and off the seasonal path along the way but has followed it pretty well the last few months. Those of you who get the Newsletter know what these markers on the screen are, we currently have some green ones and had red ones a couple of months ago.

The main thing to highlight in this chart is where I have the arrows at the bottom. Going back to the middle of this trading range the commercials moved into a heavy short position and bingo we got a big decline. A couple of months ago when we reached back up to the same price level they once again got heavily short and boom we declined. They defended that price level very well. It is clear on this chart that they are defending this price range pretty well and as a result I am looking for prices to move back down into the zone that was last defended very well. If we get buying down there which I expect, I will be looking for long positions. At the moment I see this as being in the middle of the range and not really biased either way. Perhaps it is net biased down since the commercials are maintaining their big short position. It is not as good of a sell position as it was a couple of months ago.

I do find it interesting that Gold is lagging the ES on the recent moonshot by the ES. These two markets have been so closely tied together due to the Fed's actions that this divergence is a bearish omen for Gold. I have been on record in here as calling this market a bubble. I still believe this to be true and let me explain why. It is not so much that I think this market has to come crashing down immediately. I define bubbles as inflation in asset prices that are not based on fundamentals and by that measure this clearly meets that standard. Their is no historical track record of Gold being a store of value, it has at times and others it has not. That's it, sorry to disappoint everyone. My argument is not complicated on this. It has risen as an investment class asset right along side every other asset with the exception of real estate. So far it has been different this time and perhaps it will continue to be. Maybe now it is just like AAPL stock and will just rise way up with the stock market. Maybe it will go to $50,000 and cats and dogs will be sleeping together ( Ghostbusters movie line for those who don't get that ).

The bigger picture is irrelevant to me I am a trader so I won't hold something for years anyway. So far my call on this being a bubble has been wrong, time will tell if in the end I am proven correct or not. I thought it would wind up being the only thing the whole world ever got right if it kept going up and then I stumbled upon the research on Coffee. It has been proven there are tremendous benefits to drinking Coffee every day and caffeinated being a bit better than decaf. That is certainly something a billion people have gotten right for years, so perhaps Gold will be the other one. For the time being I am leaning to the short side until we drop into that support zone. From a big picture perspective which ever way we break out of this big trading range is going to be where the debate of bubble vs no bubble will be decided. The move is going to be big when it breaks out of this range in either direction. At this point I can't handicap the move either way. Just for the record my partner Michael does not agree with my bubble view he is holding Gold for the long haul.

Time to revisit the ES chart. I think chart patterns like this one are the most difficult to trade of any that form. 

The first thing that happens in patterns like this is we get a very over sold market that gets more and more oversold every day and wears out the bottom pickers, then magically bounces. It does so on light volume and all the arm chair quarterbacks tell us it is bouncing on light volume therefore it is a sell. This could not be more wrong, I dispelled that myth in a prior post. If these guys actually traded and lost money they would take the time to study that and learn it is hog wash. As we move up on light volume again the top pickers who bought the BS from the armchair guys keep selling and keep getting run over. It is often just a slow painful drift and you see all sorts of divergences on intra-day charts that tell you it is going to stop. "Hey Joe this is it did you see that divergence in the MACD on the 5 minute chart," etcc.. I have been there and done that trust me it is a losers game trying to trade like that.

What these often work into is what we have at hand now. You can see I have an oscillator on the chart and it can be any one of a number of them, there is no magic to these things. What you see is that it has risen up to it's recent highs in momentum yet price has lagged quite a bit. This is a type of divergence but not in the traditional sense, it is more of an exhaustion pattern. I love this pattern but I will tell you it is not the easiest of patterns to trade. However, what we do have now is a condition that can lead to significant price declines. The way I trade these is I really want the market to prove to me that it is coming back down, so it is going to have to move more than just a little down to get me in. Study this on your own you may be able to find good ways of using this concept. Net net here, I do think this is now a spot to look for a selling spot.


We had a lousy month last month in the trading services. I just never recovered from those weird fills on two trades that should have been great wins where we got stopped out on some suspicious price action around our stop orders. I also made a mistake that won't be made again. I was a little bit too aggressive in a couple of entries forcing a couple of trades that I should not have. This past month was pretty choppy in the markets and I was concerned we would not have enough trades to make everyone happy. Going forward this will not happen again and it may mean in some months we trade a lot less. We want profits not action.

Bond Results

Wins               3
Losses            2
%                   63%
Total              $656

We still made money here and I am more than thrilled with what this system has done since I went public with it. I am fairly sure there is nothing anywhere that has rivaled this, ANYWHERE. Trading is a tough business. John Henry one of the greatest systems traders of all time just closed his firm due to poor performance. For a trading system to perform this well is just great and if this is the worst month we ever have that would be a dream come true. I doubt that will be the case. We will have months where we take a loss I am fairly sure of that but if you are waiting for that you have had to hold your breath for a long time.

Swing Results

Wins              5
Losses            6
%                  45%
Total             $2770

We gave back about half of what we made the first month this past month which sucks. Michael and I make these trades also in our accounts so we share the pain. The two trades RB and the Swiss and those stop outs doomed us here. Had those not happened we would have had a decent gain, but they did happen. The markets have been choppy and we are trying to catch trend moves in these trades so this is going to happen. We are still ahead by about $2500 from where we started so it is not a disaster.

I will never hide behind results regardless of what they are. Managing services like this is not easy and there has been a learning curve for me on stops and thin markets. There are certain trades that just cannot be done in a service like this with a lot of people doing them along side me and that is something I had to learn the hard way.


We have contracted someone to redesign the web site. When it is done the blog will be incorporated into the site and it will open up so many more things for me to be able to do. I will be able to offer more and better information every day. We will be able to open a chat room if there is interest and also be able to potentially offer some of our really short term strategies that work really well. They cannot be used the way we are doing things currently. I do get a sense from the client base that a lot of people are pretty short term oriented and we have strategies that work like the bond system but trade other markets, that work very well.

This whole thing is taking time to evolve and the PFG theft of my money has put me in a spot where I have to go slowly since I don't have the excess capital I used to have. I thought about putting a Victoria secret model in here for those who might have been looking for that and were redirected here but this post is already a long one.

Good Trading


Anonymous said...

Thanks for your analysis on the Yen the other day.

A weird thing happened on Friday where Gold and Silver tanked and Copper rallied pretty strongly. It kind of felt like a free market! Ha!

Anonymous said...

Hi Chris,
Am definitely interested in any other short term systems similar to your Bond system. It'll be a great way to diversify.

Chris Johnston said...

It was interesting to see that but don't get your hopes up these correlations are not going to go away any time soon

Anonymous said...

Hi, Chris. Do you mind publish your Bond Trading System trading results by month from the earliest record you have till now? I think many readers / potential subscribers would like to know. It is also important for us to know how much money is needed in order to trade your system profitably without being kick out (when account cannot withstand the drawdown). Thanks.


Roberto Biaggi