“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"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, January 6, 2014

A Real FLASH CRASH

AS those of you who regularly read this blog know, I have minced no words in mocking those whose constantly sing "Gold is being "FLASH CRASHED" by nefarious forces ( usually references to the bullion banks). I have no doubt that there have been large orders that have taken prices down, sometimes during the thin trading conditions in early morning European/N America hours - what I take strong objection to is that these orders were the work of the big bullion banks. My view is that those orders were from hedge funds.

I think I have provided enough documentation to make my point so I am not going to waste any more of the reader's time in rehashing this once again other than to say that my view is that the bullion banks have been buying gold on the way down; not selling it. After all, when JP Morgan's HOUSE ACCOUNT has been the largest stopper of gold during the December gold contract's delivery process, it is a no-brainer that they were buying the metal from large speculators who were selling it. They ( the bullion banks) provide resistance to gold ( SELL) on the way up; not on the way down! I have written quite often on that in the past.

However, today is a great example of a legitimate FLASH CRASH. You will note that it occurred during a COUNTER TREND RALLY in gold during which the price had rallied some $65+ off the recent low.

I had remarked about the dwindling volume during this rally suggesting that it was not fresh, hot money taking long positions in gold but rather the ABSENCE OF WILLING SELLERS that had created an air pocket above the market which provided very little in the way of resistance to the recent "MELT UP" we have been watching taking place in the metal.

Index funds, rebalancing their portfolios ( more exactly - lots of front running by some traders ahead of and alongside of that large index fund buying), must buy gold contracts irregardless of current fundamentals in order to align their books with the new index weightings. Most traders who understand that are not going to fight that forced buying but will merely stand aside and let it happen while they wait for a higher price level against which to sell or perhaps even get long for a very short term trade.

Today, as gold rallied into an important resistance zone centered near the $1245 region, at 10:14 EST, a flurry of orders resulted in 11,662 contracts trading hands. That is no small feat! The result was a drop in the gold price of some $30 in one minute. Now my friends, THAT IS A FLASH CRASH, not the crap that these others have been telling us about. You will also note that it took place during New York trading hours while the pit session was open; it was not something that occurred during the low liquidity overnight hours. I should also note here that the size of the order to sell was so large that many traders believed it was an erroneous trade and that CME would note that. Well, CME made a statement saying that ALL GOLD TRADES WOULD STAND. So much for any notion of a bad trade!



Can you see the difference/distinction?  Note how the volume during the UP BARS - in BLUE) continued to dry up as the market melted higher. Now look at the MASSIVE spike in volume the accompanied the huge spike in the price range!

This large selling took place during an UPMOVE in gold that has been taking place since the beginning of the year, not during a downtrending phase and the volume was ENORMOUS.

I will try to get a bit more information on this for you as the day progresses but needless to say attempting to trade something like this is not for the faint of heart. I will want to see the final volume of trade for the rest of the day as well as the data from the CME Group tomorrow to make a final assessment but needless to say, gold is now at a crossroads. If, and this will be a big, big "IF", the bulls can take price through today's high and they can do that on big volume, then gold has a very good shot at pushing up for a test of the last overhead resistance barrier noted on the chart. I would want to see a push past that level than can be maintained to convince me that the tide has finally turned in favor of the metal in regards to higher prices down the road.

The speed at which the price went down, and the speed at which it recovered, is very, very interesting. It looks as if we have a battle going on with both sides dug in for now. We'll see which side gains the advantage.

Robust physical demand from Asia has put a floor in the market for now. The big question is whether or not money managers in the West want to tie up portions of their client capital in gold for 2014 or stick with their large and lopsided exposure to equities.

My leaning at this point is that gold is now entering a range trade and will be capped on the upside with good physical offtake of the metal providing a solid floor of support on the downside. The range looks to be roughly $1250 on the top and $1200 on the bottom. A push below $1200 that changes the handle on the metal back to "11" would be negative both technically and psychologically. A push past $1265 would provide enough excitement to take price up towards a test of $1300. Western investment demand is now the key to whether or not we get the latter.



20 comments:

  1. One question I've always had: why are there often such huge large selling trades in the gold market? I'm not talking about manipulation. I'm talking about maximizing profits. Doesn't it makes sense (and profitable) to be a BIT more subtle when you are selling a huge position? Happens with the miners too. I don't get it.

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    1. JPM asserting it's power, saying "we will keep the price moving slowly up in our own time... as so we can soak up more"

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  2. fed finger , golden finger , the finger that moves the hand that moves uncle ben I say … its all about the finger … gold these days has become a bit pavlovian … lets see now who has the guts to go long gold north of 1245 , only the guy with the fat finger … short the hell out I say …

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  3. Excellent explanation of a difficult subject. My suspicion is that the computers decided this was a good price to sell at as gold was stalling at resistance. Them the other computers saw the price start to fall and jumped on to get the price before the fall. Just high speed traders and hedge funds that collectively are biggest part of the market.
    None of this will budge the gold bugs and conspiracy buffs as the BELIEVE and are not subject to reason.

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    1. gold was stalling at resistance ?? … it was breaking out man ! this is becoming such non sense , even to talk about it … booooorrring

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    2. I stand corrected. Still just the computers picking a sell point followed by every one else being on the same side of the trade. Dans finding of 4000 contracts on one second indicates that it might be just one big trader in a thin market. There were few contracts traded in the "breakout".

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  4. What I am confused about is the drop recovered so quickly. The pressure for longs to liquidate as stops were hit should not have allowed it recover so quickly. Could this be bullish?

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  5. I was watching this in real time on the chart. Although we only have minute charts, this drop/flash crash happened instaneously. The whole $31 down happened in a single ping. Zero hedge has some sub minute graphs for those interested. I just wonder how even with algo trading did this happen so fast. Surely there must have been an initial bid of sufficient size to trigger the other herd algos which brings us to Coasta's question above? Why? Who would dump such an initial size if trying to maximise profits - it smacks of manipulation by a huge player. Did this initial bid break exchange limits I wonder? Where are the forensics as ever?!

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  6. the selling finger and the buying finger probably belong to the same dude

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  7. Here is the latest update from master BS artist Larry Edelson of Weiss publications ( first called for major bottom in Fall 2013, then " definitely " in Jan 2014 and now " May 2014 ( which means now I have to renew subscription for another year ?)--LOL

    "
    We have to listen carefully to what the markets are telling us. And right now, gold and silver could be in the process of forming a cycle inversion, that if continued, may delay the final bottom until their next major cyclical turning point, which is in May.

    Again, I know this is not what you want to hear. Many will say I'm merely unsure of the markets, or that I'm a stopped clock that's right twice a day and I probably won't declare the bottom is in place until gold and silver stage a major rally.

    But I can assure you, neither is true. I know these markets like the back of my hand. They either bottom this month — still the higher probability — or they rally a tad and bottom later, in May.

    Either way, gold and silver's short-term bear markets are not complete, but will end this year. The only question now is whether they end this month or in May.

    "

    Yes I have bought a $30 hearing aid device to hear more carefully to Mr. Market. Key point here is no one really knows !!

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  8. There seems to be smaller and smaller minority that believes there is no manipulation in the gold price. Who benefits from the belief that there is no manipulation? Who is the messenger? I found this this interview among many others very telling. RIckards says, "There is probably come manipulation in gold prices. We can talk about that if you want." Crickets. http://www.bloomberg.com/video/gold-declining-prices-versus-skyrocketing-demand-iEcm4n5QS7u9bZ2h~Iwwhg.html

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  9. "Irregardless" is not a word. It's just "regardless" or "irrespective".

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    1. Matt;

      Thank you for your grammatical observations and for noting my typos for material written during the heat of my trading hours. Maybe you learned something about the markets whilst in the process of nitpicking my commentary. Methinks that thou dost protest too much.

      Here is a bit of advice that might help you in the future - use some common courtesy and some better phraseology in your criticism of others... example: : Hey Dan, nice word you just invented there... I was not aware that irregardless was an English word".

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    2. irregardless sounds good to me …

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    3. lol. A gentleman's answer.
      As Brice de Nice would say : "j'tai casséééééé!"
      http://www.youtube.com/watch?v=xEwfYR8ihEA

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  10. I must thank Santa Clash who pushed magically gold's prices towards the 1215-1220 support zone I was hoping for and made them stop right there and bounce. If I can benefit from a fast krach like this once in a while, it's cheering me up :)

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    1. losing momentum on the 1h, I'm selling 1/3 of position at 1238 now and keep the remaining 2/3 but with a stop loss now back at the entry point at 1220 $. Zero loss trade secured. Potential only up.
      Most important thing imho : not to be right about the direction, but to be right about minimizing the risk taken and the potential loss.

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  11. still as Dan says after all the action of the day-week-month we're stuck in the 1185-1250 range. I still see no reason to do more than sit and watch, for now. ho-hum where's my rum.

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  12. Nice information about the topic.It will useful for people who likes to do trade business.Algorithmic Trading

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