"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 free work will soon be available at www.traderdan.biz

Wednesday, July 23, 2014

Thoughts on Wild Swings in Price

It is both amusing and saddening at the same time to read the continued comments from the perma bulls in the gold community who bemoan every sharp fall in gold as the work of some sinister force working to deliberately keep the price of their beloved yellow metal god from reaching its ordained higher price level. We have all seen it often enough to know it by now.

Never you mind that perceptions and sentiment shift nearly daily in our modern markets, especially during a time in which so many are unsure of what is coming our way next. Is it inflation? Is it deflation? Is the economy growing? Is it falling back into mediocrity? Are big foreign banks in danger of failing? Are they okay? Does China have too much debt? Is it nothing to be concerned about? Is the employment situation in the US improving? Is it mired in part time work? Are events in Ukraine serious dangers to world equity markets? Are they limited to the locale? I could go on and one but the reader no doubt gets the point already. Questions abound and answers are uncertain as players constantly repositioning themselves according to the perceived answers on any given day.

We witness these rapid shifts in perception not only on an almost daily basis, but also, in many commodity futures markets, in an intraday basis.

Computerized trading merely amplifies the shift as rapid fire orders, either to buy or to sell, overwhelm the orders on the other side. Huge buy orders gorge on the offers above the market in such speed that the market seems to catapult higher in a maddening frenzy only to give way with as much alacrity to the downside as avalanches of sell orders wipe out the pool of bids completely overwhelming the buy side of the market.

Back and forth it goes, where she stops nobody knows.

Take a look at the cattle market today. I have included a 15 minute chart to note the huge swings in price occurring within rather brief intervals during the session. Just looking at the chart does not capture the wild surges in emotion that result because the swings in price are so intense that the dollar extent of the movements can be enormous. Traders are more often than not unclear as to the "WHY" behind a sharp move in price and as a result, panic/fear/greed etc. soar as the players run here and there trying to protect themselves from ruin or to capture something that they "just know is the big one".

Early in the session the price moved from near 158 to 159.25 or so, a $500 move per single contract. Then price abruptly reversed dropping the equivalent of  LIMIT DOWN move as it fell 300 points off the high of the session in a matter of 45 minutes or so. IT then abruptly reversed higher moving nearly 200 points off the worst level of the session. The former down move is the equivalent of $1200 per contract while the latter is $800. Throw in 10, 20, 30, 40, 50 contracts or whatever, and you can see the extent to which losses can arise lashing, and slashing and mangling anyone of the wrong side.

As I have said many, many times here already, those who keep regaling us with this claptrap about "gold price smashes" and gold takedowns by the feds", etc., as if somehow gold is the only animal out there that experiences wild swings in price are merely displaying their ignorance of the nature of modern futures trading.

No one knows exactly when a large order is going to move prices higher or lower. What they do know however is that if they DO NOT REACT to it, they run the very real risk of getting steamrolled. One can argue for example, "Who in their right mind would sell so many cattle contracts in such large size that they are guaranteed to knock the price lower rather than being able to obtain the best possible price for those contracts that they are wishing to sell".

Does this mean that the price of cattle is being suppressed by sinister forces working at the behest of the government in order to keep the consumer happy with cheaper beef? Of course it does not. What it means is that the days of scale up selling programs or scale down buying programs have been replaced by "All-In" or "All-Out" computerized buys and sells. Hedge funds and other large speculators have moved primarily to technical based system trading. those few discretionary traders such as myself and some of my other companions are firmly in the minority in this new age.

Commercially oriented firms, who seek to hedge, understand ( or at least they should by now) that these antics by the large speculators and their computers provide them with big distortions in price at times due to the excessive nature of their buying and/or selling. They will not hesitate to take advantage of these distortions/opportunities  by selling large amounts of contracts if they feel prices are overextended to the top or buying large amounts if they feel price is undervalued based on their analysis of the market. Were it not for the actions of these commercial firms, there is no telling how whacky some of these markets could become if they were utterly at the mercy of the hedge funds and their computers.

I shudder to think what I would have to deal with as a trader if the markets were to become the arena of nothing but hedge funds. Those guys pay no attention to anything fundamental and what is even worse, they don't even care. If it moves, they chase it. It is that simple. If it stops moving, they get out and go the other direction.

By the way, on a slightly different note, have any of you readers out there who follow the Commitment of Traders reports but more particularly the breathless analysis that we are subject to nearly every Friday afternoon when those reports hit the internet, noticed how they are almost ceaselessly being spun as bullish for gold and silver. It is exactly like a "Head's - I win; Tail's - You lose" excerpt. Commercials are on the long side - wow - it's bullish. Commercials are on the short side but not as much as they were before - wow - it's bullish. Hedge funds are short - wow - it's a guaranteed short squeeze and is bullish. Hedge funds are buying - wow - they want to own gold again - it's bullish. Swap dealers are long - wow - it's bullish...etc, etc,. etc.

Moving only briefly to the grains - reports this AM of a big soymeal order and the usual chatter about heat in August sparked a round of serious short covering the beans. That pulled corn higher as well. Enough of this chatter was around that bulls were able to make use of it to spook some bears and take prices up. After the sharp fall in the price of beans over the three weeks, it was a given that at some point we would get a temporary bottom in this market. Maybe we got one today. Who knows? What we do know is that price stopped going lower today on ideas that beans and meal were cheap and that keep the sellers from being too aggressive. Bulls were then able to push price high enough to catch some upside stops. Looks like it back to watching weather forecasts once again.

The S&P 500 notched yet another brand new all-time high today. Absolutely nothing seems to faze this thing. Meanwhile the yield on the Ten Year is stuck below 2.5%. It is currently a tad lower today ( in spite of the higher equity markets) at 2.464%. The VIX is also lower. No fear anywhere once again it would seem in spite of the Gaza chaos and Ukraine.

The Dollar is a bit stronger and the Euro has now completed the second close below a significant chart support level. I will try to get some more up later with some charts if my schedule permits...


  1. Tail-ender post on the last thread, fits better with Dan's new comments about the S&P 500 today. Please excuse the copy and paste below:

    The SPY is a juggernaut. Nothing seems to matter. Ukraine, ISIS, Portugese banks, MH17, Gaza, Yellen. Meh. Not that I'm complaining, because I'm long as can be, but still...you'd think something could put a chink in the armor somewhere.

    I sit around thinking about exactly what I'm going to do when the trend changes. What my signals will be, what I will do, and when. And...nothing happens. It just keeps going up. Been like that for a year now.

    The only insight I can offer the group here is that I watch some ETF pairs that I set up, watching relative strength, to get a feel for "early" or "late" in the cycle. Most things are flipping to "late" these days.

    XLY (consumer discretionary) switched to XLE (energy). XLI (industrials) switched to XLB (materials). This week I will switch from IJH(midcap) to OEF (megacap).

    "Late" doesn't mean "the end is nigh!" necessarily. There could be a lot of upside yet, in the right sectors. Or not. It is "late" after all. Be on your toes. I am.

    1. I think Armstrong is right on that one : international money flow is what matters, not only domesting.

      I think Eric de Groot is right on that one : concentration can reach huge levels before a market reverses. Concentration is a preliminary signal which portends potential of a reverse, then needing a technical trigger. So let's wait for it :)

      I think I'm right about that one :) : SP500 is in a very simple cristal clear strong uptrend on the 2week timescale. The ma20 is linear, and parallel to the uptrend. It's perfect. Someday it will break, meanwhile, it's bullish. And it may last quite a while, given that each candle lasts 2 weeks on this time unit...support now at 1900 $ level.

  2. As always, outstanding thinking and observations. You are definitely right in that Portugal, Libya,Gaza, Ukraine, and we can go on and on and on, but only Mark and the Shadow know, and that is that stocks are BULLETPROOF!!

  3. Wild price swings? Did anyone see PBYI today? And ICPT earlier this year?

    I am hopping on board (very briefly) for the fun. The metals are dead until September.

    Have fun!

  4. most xlnt Dan!

    we've been seeing NQ ZB DX ride their upper bollinger bands day after day, why would stocks and long bond and us dollar index do that 'so happy together'! ? .... how about flight to safety, livin' in the usa!! the world has trillions that must park somewhere, and really the usa is the last resort!

    in ags the crop tour is happening, so gonna get alot of bearish comments day after day. the 1088-25 former jan. low in novy beans (ZSx4) and 551 in chi wheat (ZWu4), we got right back under those numbers on the ukraine airline disaster day. in dec wheat ZW it's testing 551 now, which was a former low on the continuation chart, eventually december will be the continuation chart.

    corn bleeech...farmers haven't even sold last years crop, hearing tales of elevators only paying 2.50 now to take the corn now.


  5. 77; my call is for $3 corn & $7.50 beans @ Thanksgiving.

  6. Perhaps the root of the issue is there never seems to be a discrepancy in the actual amount of deliverable live cattle, or corn etc. vs other commodities. I think it is this uncertainty that makes the argument pregnant.

  7. Hi Dan

    Let me start by saying a big Thankyou! for persevering and continuing to blog and share information after having to put up with continuous negativity towards yourself from the perpetual 'To the Moon' crowd that is all too persuasive in the precious metal blog sphere these days.

    My experience in PM trading started very recently, only late last year and at first I was guided and hooked by the likes of Harvey Organ, the Turd, Jesse and others with whom by their language and manner of tone I had seriously believed that Gold was massively underpriced by nefarious Govt forces and $5000 an ounce was just around the corner.
    It is only recently via blogs such as this and a monetary loss that I have been able to really appreciate that Gold trades just like any other commodity and the 'To the Moon' notion is just a fairytale peddled by many whom have had little long term exposure and experience in trading Precious metals.
    ( For example, I only recently found out that Koos Jansen is a Sound Engineer by qualification, not that this diminishes his good work in obtaining trade figures)

    Anyway Dan I cannot express how truly appreciative I am that there are experienced and relatively impartial traders such as yourself sharing their knowledge of markets.

    Keep up the Great Work!

    Also a question related to this post, long story short I have been keeping tabs with COT reports and related blog commentary and I am curious if you are referring to a certain G.Arensberg regarding the perpetual bullish reporting of COT reports?

  8. Dan thanks for your thoughts and illustration on the volatility out there. Lots to be said for small positions with stops in place with this going on.

  9. Dan, there's only one problem with your gold comments. Gold is only a small part a commodity. It is much more actual money so naturally it competes with currencies, mainly the dollar. Why would it be surprising that the Fed would want to cap the price? It doesn't make a lot of sense to lump golds wild swings in with corn and pork bellies.

    1. kjm, Dan many times mentioned gold as being the anti dollar.
      Personally, I'd also tell you that it is not a secret that gold prices are considered strategic and sometimes manipulated, especially when out of control on the way up, which Dan also acknowledged if I remember correctly.

      What we are saying here is that Gold is NOT manipulated always, all the time.
      What we are saying is that the wild short term price swings you can witness on gold intraday are not specific of gold most of the time but happen to practically all other markets.
      What we are saying is that this is due to robots taking over human traders.
      Huge volatility due to "all in" bets, are replacing traditional "prehistoric" trading when human were placing their orders.
      As a result, you can see huge price swings on gold AND many other markets, on the way down AND on the way up.

      Most other blogs "gold bug oriented" nearly ALWAYS forget the AND...and the second side of the equation. They focus only on what they want to see. They focus only on the facts which prove their theory. It is a terrible blunder when you do trading : interpret the market to fit your theory, instead of remaining humble and follow the signals of the market, with full objectivity.
      Obviously, they are not traders, or they would know better.
      Hope you will lean from Dan while you read this blog.

    2. The problem with your point, Hubert, as I touched on below, is that Dan behaves as if Eric King's headlines represent the views of the majority of those believe that some manipulation does take place, which is ridiculous on its face.

      Even the subset of shrill bloggers who claim manipulation don't do so every time that the price of gold falls. Dan's posts, like the one above, are like the works of a caricature artist, who exaggerates for effect.

      If you and Dan are truly saying "that Gold is NOT manipulated always, all the time.", then you are stating the blooming obvious, which even the most strident gold investors understand. And in any case, the message is being undercut by Dan's stereotyping.

    3. "If you and Dan are truly saying "that Gold is NOT manipulated always, all the time.", then you are stating the blooming obvious, which even the most strident gold investors understand."

      It sure doesn't seem so to me, though I'd hope you were right :)

    4. kjm; we do not trade bellies anymore

  10. COT are bullish...wow!!
    Thanks for a good laugh, it's exactly that most of the time :)

    EurUsd :

    Chart daily - http://i60.tinypic.com/2rx8qbb.jpg
    My strategy is KISS (Keep It Stupid Simple), so maybe not appropriate, anyway : I'm gambling on the fact that EUR USD is following the blue channel downtrend. Support and first target would therefore be around 1.3350 if prices keep dropping quickly. So I would make some profit of my short position if we reach the blue line on the chart. My longer term profit is the next Fibo level on the weekly time scale, i.e around 1.3150.
    But...because of the manipulators, my brilliant theories may still be wrong, so I have to find a level to invalidate the scenario. The ema15 daily heading down near 1.3540 seems to fit the role.
    Mre or less, I'm taking a 0.60 dollar risk on my position (short 1.3485 under the Fibo) with a first target at 1.3350, i.e 1.30 $ reward. It's not huge ratio (>2 to 1), but next target is 1.3150 and I hope we'll get there too. Besides, ema15 is heading down every day, so I can trail down my stop loss with it.

    Gold : a close under the mlh inf of the weekly timescale Andrew's pitchfork would negate the bullish trend a little more, and probably induce a re-test of the next Fibo level at 1278. After going long at 1335 (and out 1336), then at 1308 (and out at 1305), don't miss my next long entry on gold at 1278 :)

    Have a nice day,

  11. Add timing to the problems with Dan's tortured, straw man laden analogy that kjm and So Close have touched on. The volatility that he highlights in this post happened "early in the session", which, of course, is not the same as dumping a huge number of contracts during the most illiquid periods as is often seen in the gold futures market.

    Also, sadly, Dan continues to conflate a small, shrill, sub-section of those who believe that gold prices have been manipulated to some degree with those who have a much more measured perspective. In fact, the vast majority of those who own gold are NOT traders, and hold the metal as a form of long-term insurance. They do not, contrary to Dan's frequent straw man claims, yelp that every jump down in price is the result of manipulation, and they are also well aware of the fact that there are many other variables at play.

    What would be both more useful and impressive would be if Dan were to respond specifically to posts by some of the more thoughtful and measured bloggers who follow the gold market closely, and believe that manipulation does take place at times. Taking shots at King World headlines is neither useful, nor does it provide meaningful insight.

    Finally, the irony is that while it is an established fact that the U.S. government has manipulated gold prices in the past, Dan would have us believe that now, during a period in which the dollar is at much greater risk, and "modern" futures markets coupled with a digital printing press have provided it with a much easier way to exert influence, there's nothing to see here, folks!

  12. Paul how about you provide some url links to blogs for these supposed thoughtful and measured gold traders?

    The exhaustive list of shrills needs some balance. I do hope you have a very comprehensive listing to balance the very long list of shrills. Afterall you do say these investors are the majority.

    1. Marvin, you need to read a bit more carefully. I have repeatedly made the point that gold "traders" make up only a small percentage of those who believe that prices have been manipulated, and are therefore not accurately representative of the broader group.

      Furthermore, your suggestion that somehow a "balance" is required between the types of bloggers who focus on gold in order to reflect some correlation with actual numbers is ludicrous.

      Some thoughtful observers of the gold market include Chris Powell of GATA. Here's an overview of his research into gold price suppression:


      Pater Tenebrarum's Acting Man blog:


      Pater comments intelligently on many political and economic topics, including gold. Here's a link from his site to a recent pdf report on gold by Incrementum AG:


      Koos Jansen is another thoughtful observer who does excellent, and at times unique research:


    2. Paul how can you prove and provide evidence of your assertion regarding the percentage numbers of traders and what they believe in?

      Im curious to know where and how you can quantify and also qualify the opioons of these traders.

      I am intrested in Balance because the internet blogsphere attracts Economic Naysayer conspiracists and Gold bugs like mealy mouthed moths to an old flickering street lamp.
      I can easily rattle off a large number of blog sites that are very myopic on the movement of Gold. In no order here is a small list without the big stars of the goldbuggery world.


      I could go on, but its obvious Goldbugs outnumber rational traders substantially, And of those 3 sites you pasted

      1: Gata has been mentioned by Dan who used to write for them and has he said that he was uncomfortable with the pressure to be constantly bullish and has stepped back.

      2:This aggregate link blog (like ZH) just doesn't want to load for me? always timing out... so i cannot take a critical look

      3. Koos is new to the PM investment world, he is a qualified sound engineer and only started Gold blogging in 2013. As such he lacks depth of experience in this industry and he is obviously trying to make a living from Gold blogging instead of trading the actual metal and following price movement in the market.
      As such the nature of making a living out of blogging means he constantly rubs shoulders via interviewing and reposting material from many well known one eyed Gold bugs such as Rickard, Sprott, Schall, Stanczyk, T Ferguson, Ristori etc etc. He has inadvertently hitched a ride on the Professional Gold Bug Gravy Train.
      I am yet to see in any of his numerous articles and interviews one guest or interviewee that thinks Gold can and will drop in price.

      So out of those meagre 3 links you posted, I can say that 2 are useless for trying to actively trade the PM market, they completely fail the bias test. Again please show us all where these mythical rational Gold bloggers live.

    3. Koos is a nice guy, but has just sold his soul to Bullionstar.com, and the Comments on his website have dropped off like a well-manipulated stone

      As it happens, Bullionstar.com is my local dealer, and I believe that I am correct in saying that I introduced him to them, but Good Guys and Honest Dealers do not necessarily add up to an entirely objective viewpoint, and I seriously doubt that Koos will ever recover from his recent commercial hookup. Which is a shame

    4. What's the ratio of traders that believe gold not to be manipulated to the number of traders that believe gold is not manipulated who trade in a manipulated currency that used to be backed by Gold?

  13. Copper climbed for a fourth day, the longest rally in three weeks, on better-than-expected manufacturing data from China, the world’s largest user of industrial metals.
    Commodity Intraday Tips

    1. Zzz.... Zhikah Donk, why do you bother writing a sentence before your spam...oh, ok, you don't even exist? You are just an automated stupid BOT?
      I see...
      Capital Stars is shit Capital Stars is shit Capital Stars is shit.

      Hey, who knows, maybe Google search engine is so sophisticated now that it will send back "shit" as first result if I write your bloody stupid website inside it now...

    2. Interesting that Shitkah has to use the profile picture of Indian movie starlet Preetika Rao.

      That just oozes trust and respectability, I mean these days who doesn't take financial advice from someone advertising a picture of say Brittany Spears, Megan Fox or even Paris Hilton.... Right?

  14. a quick Point of Order about the "during illiquid periods / when New York is asleep" Comments

    you are all quick enough to believe that Asians are gobbling up all of the Gold - why do you suppose we are not actively trading it as well? I am 7 hrs ahead of London, so probably at least 12 hours ahead of you lot, and if you'd only open your eyes to the fact, we have very active markets over here too

    1. Asians? Trading? Warf! You'd need electricity in the first place... :)

  15. folks, the gold is a bear mkt, plain and simple; secondly, the best teams in baseball are all on the west coast, so relax and have a grey goose

  16. postcolonial; good points; if the bulls were so proud, why do they not load up in the illiquid and quiet times? They are hurting for certain. Also, ask them what they thought about the illiquid last nite in beans? My guess is you will not get an answer.

  17. 1) Past FED chairs have ADMITTED to watching gold price closely, and caring about (AND manipulating) it's rise showing the weak dollar. What makes you think no is any different? Fed wouldn't care about OJ futures or cattle as they don't demonstrate failure of their dollar policy. In other words, there is MOTIVE

    2) They have shown before they are willing to manipulate commodities lower to make their economic policies look better - such as releasing oil from the SPR when it "gets too high" - why would gold be any different?

    3) Fed refuses to allow an audit of OUR gold. Why? I await an answer from Dan on this, but doubt it will ever be forthcoming.

    Bottom line - the federal government lies, cheats and steals all the time. What in the hell makes you think they wouldn't do so in order to prop up the dollar and keep faith and confidence in the Ponzi fiat scheme? They lie cheat and steal for far less reasons than that. They have means, motive and opportunity. That's good enough for me.

    I'm not saying every single downmove is the sinister hand of the Fed - but there can by no doubt it happens plenty. Anyone who thinks not is a serious naive idiot.


    1. Matt;

      I think you have mistaken this site for your gold choir. Please go preach to them - they do not abide here for long.

      As long as it makes you happy - believe what you want. That does not make it so.


    2. Lie cheat and steal. Are you sure you arent talking about sinclair?


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