"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Monday, June 3, 2013

Dollar Plummets - Gold Soars

Up, Down; Up, Down; Up, Down... On and on it goes. Today's big market moving data was the ISM manufacturing number. It came in under 50, surprising nearly everyone on the planet. As a matter of fact, the reading at 49, was the lowest since June 2009! That is saying something indeed.

As soon as that number hit the wires, the currency markets erupted in a turmoil. The usual knee-jerk reaction hit Dollar/Yen and up went the "safe haven" Yen (I still have a hard time putting those words together in one phrase for the sheer idiocy of the rationale behind it), up went the Euro and down plunged the US Dollar, falling through a strong support level I might add.

Here is the problem - the entire world is long dollars. Take a look at the following Chart of the Commitment of Traders in the Greenback. Notice I am not posting the usual breakdown which is the Disaggregated Report for simplicity's sake. Just look at the specs, both the large ones and the small ones. This is what can happen when that group is all crowded together on one side of a trade and a chart level gets taken out. There is literally no one to take the other side of their buying or selling, in this case selling.

What that weak ISM number did was to once again put a temporary halt to the idea that the Fed was going to imminently begin the "tapering" of their bond buying program. That was all gold needed to hear before it reversed its downside reversal on Friday, from its upside reversal on Thursday of last week. In other words, the YO-YO market is acting like a YO-YO with its fortunes tied to both the US Dollar and the QE program. With the Dollar breaking down, gold is breaking up. It really is that simple. Now, if we get one of those strong payrolls numbers again...well, you figure it out.

Gold still needs to clear $1420 to get a larger wave of short covering among that hedge fund category. ideally that will occur against a backdrop of a push PAST 290 on the HUI, preferably through 301. They are still selling rallies but if the technicals continue to improve on the gold chart, their algorithms are going to start lifting them off of the short side. The bias in the gold chart is still down and will be until gold can push past $1440.

It will be interesting to see how the specs react to GLD this week. I am curious as to whether they are going to start returning to the buy side or will merely use this rally to further jettison their gold holdings. Keep in mind that there are a lot of money managers out there who still want to buy dips in stocks, whether here in the US or in Japan. They are going to raise funds to do so where and when they can so the onus is on the gold bulls to prove that this is more than a rally back to the top of a trading range market.


  1. huge moves like this as we open up a new month are not to be trusted; who cares about some silly ism numbers today, come on? I will fade all action late tuesday or early wednesday

  2. Hi guy..

    Great post Dan .

    After massive correction back April 12 , the correction is done.

    It is not about spec buy or sell... Spec is the worse when come to follow .. Spec like to buy high sell low.. While contrian buy low sell high.

    1. What I like is that 90% of trader's comments I read is based on certainty.

      "the correction is done"

      I wonder where you found your cristal ball, but I'd like one like that.

      Trading is about probabilities and finding a risk/reward ratio good enough to make it worth a try, with a stop loss not too close so that you won't get stopped all the time by the market's noise.

      Like, for example, buying silver under 22.25 with a stop loss at 21.95 and targets of 23 then 26 (plus trailing stop and other mechanisms I won't describe, based on a sound money management).

      - Cassandra like traders will imho end up as road pizza.
      - specs are not wrong all the time, or they'd go broke very quickly
      - specs like volatility and make the most of a trend
      - specs rarely buy tops and sell lows
      - it's not as manichean as Star Wars with 2 sides. You don't have Genius commercials making profits all the time and dumb specs losing all their money. There are good specs and bad specs. Though it's true that collusion between commercial can help manipulate a market and its prices, and herd some of the "bad" specs at will.

      Anyhow, it is true that the red median of the pitchfork seems to act as a support, and we are also still in the upward blue pitchfork, so these small victories are what eventually make a trend change its direction.

  3. "Here is the problem - the entire world is long dollars. Take a look at the following Chart of the Commitment of Traders in the Greenback. Notice I am not posting the usual breakdown which is the Disaggregated Report for simplicity's sake. Just look at the specs, both the large ones and the small ones. This is what can happen when that group is all crowded together on one side of a trade and a chart level gets taken out. There is literally no one to take the other side of their buying or selling, in this case selling."
    Isn't this exactly what the gold bugs are harping on about??

    1. TG - some of them, who do not understand what happens with speculators when the trend in a market shifts from being bullish to bearish, keep crying up the fact that hedge funds have a large short position and regard that as a contrarian signal. The problem with that view is that the hedge funds are still net long and have been seemingly forever. What I am talking about occurs when you get a preponderance of specs who are huge net longs or huge net shorts. Right now, the hedge funds in gold are still long. While there are a sizeable number of them playing gold from the short side, the trend is still down for gold until proven otherwise. If a technical chart level gets taken out, you have enough shorts to spark a decent wave of short covering to take the market considerably higher but whether or not that will actually reverse the bearish trend in and of itself, is unclear. It will take a lot of these same specs to want to play gold from the long side as they did the previous 11 years or so.

      When it comes to the Dollar, the chart I posed is very clear and is not at all similar to what is going on with the specs in gold. Can you see how crowded the long side is in the Dollar? That does not mean it must reverse course and start a bear trend; it merely means that the potential for some sharp losses exists. This is what we used to get from time to time in gold when the specs were too crowded on the long side and we would get those downside flushes before the market would then experience dip buyers who would then take it up the next leg higher. However, what way too many of these novices in the gold community miss, is that the specs are no longer buying dips; they are selling rallies. If and when that changes, then we will have something in gold. Not until it does.

  4. Hi...

    The novice speculator will get burn at the end of the tunnel

    Art of investment
    Sell high buy low
    Buy low sell high...

    You guy do the math...

    Short term do not consider the trend...

    Bullish = trick to buy
    Bearish = trick to sell

    I see this before and we will it again

    1 thing I am sure those who short gold below 1325 will get burn seriously

    1. Preditor, imho it all d├ępends on which time unit you are talking about.

      I maintain that if you are probably right as a long-term investor not to try to short gold at 1325, as a short-term day trader or swing trader, fundamentals are of little concern, neither are the price levels.
      Only concern is the trend and the price direction imho again.
      As a trader therefore, especially short-term (a few days or obviously intraday), you could find purely technical + riskreward reasons to go short, without much of a risk if you know how to put a stop loss.

      That's why even if the long term seems bright in terms of Fundamentals, gold, as everything else on paper, appears to me to be vulnerable on the short term to a price drop.
      (at the moment, I don't expect it yet, as volatility decreased and we are rangebound between my two orange segments)

    2. hi ..

      I seldom put stop loss on my trading and trust me i am doing better..

      Putting stop is not a wise thing to do in this environment cause computer trading will try to hit as much as stop.

      Price will go up and go down .. it depend how you going to profit...and i assure you stop loss is not the right way. it just mean that you don't what you are doing that why you need to stop loss.

      During april 12 gold smash, do you know how many stop did that water fall ignite .. just to see price rebound in the next few trading session...

    3. I can but disagree once more, and totally.

      Stop loss must be used, most of the time.
      Well I had a stop loss during the day you mentionned, which made me revert my position with profit at exactly 1469, I was not executed 50 $ Under my stop price.
      I'm sorry but you are talking nonsense.

      The only cases when I don't use a stop loss is during kraches, when volatility goes wild and panic sets in. Then, with intuition only and because I'm used to it, I sometimes go long with a small line and most of the time make a quick profit during the upward correction afterwards. A stop loss during a krach when all technical support are like butter trying to support a hot knife is then very dangerous. But that's all.

      Don't follow that rule and you'll end up as road pizza sooner or later.
      Follow that rule taking account volatility to both know where to put your stop losses and how much of your capital to risk on a trade, and controlling your odds and riskreward ratio, and you'll make a profit on the long run.
      There is NO rule more important than that for successful trading.
      And I don't need to know your track records.
      Believe me, I know enough successfull (real ones) traders myself and how they handle it to know I'm right about this one.

    4. Hi,

      Each trader have unique way to handle the market..

      But technically is not on my list ...

      If you know the situation and well prepare ... And understand what you are doing then stop loss does not needed.

      Ask Goldman sac or jp Morgan head of trading floor... Does they need stop loss? .. What they need to do is squeeze you out of your position.

      Anyway... What I am trying to say is , know what you doing and how the game is play you would not need to stop loss..


    5. Hubert Du Haut ,

      I have never insult your trading style nor i have ever comment your trading a "nonsense" , my commentary is base on good faith ... If you do not agree with me it is fine. But never said someone you do not know a "novice"cause you don't know how well he is doing.

      Every commentary in the blog is wise word, it is base on each individual trading experience and idea develop around it and you guy should respect that...

      I know a guy and there is force much "larger "force then hedge fund and spec..... you guy know ...

  5. At this point in history.
    Dan I just want to thank you for Jesse s link. It provided me a reminder of how much changes in who is allowed to corrupt. The same sins however are repeated over and over and never change. I am guilty and thank god every day for the one who has and will come again. As far as the continued. Dessteuction of our banking system and the bull bear pm picture I am still going to hold tillit all collapses in a heap of sin.

    1. This comment has been removed by the author.

  6. Today is "Super Tuesday" where gold is crushed, commodities are pole-axed, and stocks are pushed higher.

    Here we go again with yet another "Wash, Rinse, Repeat" cycle whereby energy futures are sold down to give the consumer yet another unplanned "tax cut".

    Gold and TIPS are sold hard to avoid any idea that inflation is a threat over the next 10 years.

    The U.S. Consumer is ebullient once again, as XRT and XLY have barely pulled back and are still within a couple dollars are world record lifetime highs, with auto dealers and semiconductors leading the way.

    Another fine example of how "Central Banking Made Easy" by the Bernanke Fed.

  7. Today Jim Sinclair posted a reply to an email about Dean Harry Schultze. Earlier in the week, Bo Polny was mentioned again in the context of charts. In the past, besides his own charts including French Curve drawings, he's quoted Trader Dan, Kenny Adams, Ira Harris and Schultz with great admiration.
    The Comex gold value/benchmark/iron standard quotation LOL, is not going up until ALL the voices have been silenced... just kidding.

    1. http://business.financialpost.com/2013/06/05/why-this-years-gold-selloff-might-actually-be-a-bullish-sign/

  8. I'mtalkinbout Jesse:

    Short piece about the short end of the stick and long-haired monkey business.


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