I don't know how I got on the email lists but a few Gold bugs hit me with the Capitulation skit links last night. Is this Capitulation?
I think there is no question from a short term viewpoint it is. Essentially what this means is that there has been a huge climax of action with a dramatic price change, which this qualifies for without a doubt. Could this be the low? Sure it could be. Newsletter readers are going to get the full monty on this from me this month, so I will not get into too much detail here. However, since I am not biased one way or the other on this from a short term standpoint I thought it would be worth addressing this idea.
This typically occurs when the last remaining person throws in the towel and exits the trade, which results in either a huge wave up or down as people rush frantically in an emotional run for cover type of situation. I used to always lay in wait for these times and try to fade them. USED TO.
I like to make money just like the next guy otherwise I would not be trading. I found it impossible to be consistent trying to fade moves like this. You can see from the MACD how dramatically it fell to what has to be it's lowest reading in years. This is what you get at these points, so far so good. Often it will be accompanied by the other side who has been warning of this now chiming in saying I told you so ( yours truly included in this group ). Check mark number two. Here is what is missing with this whole idea from a longer term view point. The pushers of the original idea that has become jeopardized are typically the capitulators which has not even come close to happening. It is when the greatest promoters of the wrong idea give in that the true capitulation has taken place and these guys have not missed a beat. They are pounding the table about a generational buying spot. Buy the mining stocks, physical gold has record demand, this sell off is only in the paper. Huh? The spot price is not paper ladies and gentleman, it is the price you pay to buy a bar. It is when these people admit they are wrong and sell that the real capitulation will take place.
What we have so far are some of the weak hands realizing they are getting clobbered and as a result running for cover and taking their losses.
The other thing that normally accompanies a capitulation point which is not here is we are typically at multi-year highs or lows, not in the middle of a range of pricing like we are here. Net net here I think even though we certainly have very strong price action that resembles capitulation, it is not occurring at a spot where that would take place which would be probably $400 or less. It has to be at a spot where the Gold bugs are selling for true capitulation to be happening. From a short term stand point we could very easily get a big rally here but the trend is down and it is a selling opportunity when it happens. It may take a while because you have to give some time for a condition like this to work itself "off." There is no doubt we could rally way up and change the trend from down to up and the Bugs could still have their day I do not know the future. The COT data does show this as a buy more than a sell but as you will see in my video at the new web site, these are the COT setups that are not very reliable.
The other assertion is that the fundamentals have not changed. I completely agree with this take. The fundamentals have certainly not changed at all. If anything they are closer to being in line with price as it comes down. This move was a speculative move in a commodity, it never had any attachment to any fundamental of any kind. The fundamentals have been saying this would not last, so they have not changed. I agree with the Gold bugs on this one, although in a way they would not like.
It looks like we are going to get my bounce in the Bernanke's next week at least at the beginning of the week, so we could get a great sell signal right around May 1st which would be "extra good Mr. Coleman sir" a quote from trading places at the end for those who don't get that. Look for the point where the Gold bugs start crying foul and selling out claiming government manipulation etc around $400, that will be capitulation if it happens.
My web designer just told me I have to manually move over a number of blog posts to the new site so this is going to cause yet another delay, good lord. It is a small detail that they were supposed to do this. Thank god they caught the second scumbag in Boston. If I had my way I would torture this guy like nobody's business if he did not talk, but I am sure the pansies in government will recite poetry to him hoping to break him.
Have a great weekend