For those who enjoy entrail reading of price charts as I do, I thought you might find the following chart an enjoyable reading experience. It is a one second chart and shows the tremendous volume that resulted from yesterday's selling outbreak in gold.
It is difficult to get any sense of perspective when viewing the chart on a one second time frame so I am putting up another one with a big longer time perspective on it so that you can see just how large the number of contracts that were that traded.
Here is a 20 second chart - notice how the volume on the recovery higher exceeded that of the volume on the way down.
I must say that the speed at which this thing recovered makes me suspect more of an erroneous trade than anything. Open interest readings in gold showed a sharp drop of some 6,243 contracts in the most active February contract in yesterday's wild session. Overall volume was not particularly high given the huge sell order that hit the pit around midmorning EST. It came in at a mere 158,991 on the screen. Combined with the pit trade volume, it did not even make it 200,000. That is not large by comparison to other heavy volume days.
If this was a fresh sell order which was met by fresh buying, we would have seen it by an INCREASE in the day's open interest. We did not get that.
One thing I can say from looking through the data was that some short-term longs were kicked out of the market on the plunge lower as their stops were hit so we obviously got some decent sized long liquidation. But that long liquidation must have been met by some short covering as well.
Here is the other thing I can say from going through this stuff - the sell off occurred at a key technical price level on the chart. Gold failed to extend higher as a result. The price fell to, but did not break below initial chart support near $1225 or so - YET. If it does, the support zone that brought in buying yesterday was near the $$1210 level will need to hold to prevent a retest of psychological support at $1200. The mining shares are holding up which should give the bulls some consolation. That will need to continue.
Where gold goes from here is anyone's guess at this point but keep in mind that on the intermediate term chart, the bears remain in control of the market until PROVEN otherwise. The weekly chart shows a downturn in the ADX indicating a break in the downtrend but negative directional movement ( RED LINE ) remains above positive directional movement ( BLUE LINE ). Bearish forces dominate as long as that is the case. The level near $1180 is critically important!
"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
Trader Dan's Work is NOW AVAILABLE AT WWW.TRADERDAN.NET