PM Daily Market Commentary - 7/31/2013

davefairtex
By davefairtex on Thu, Aug 1, 2013 - 12:13am

Gold finished the day down $3.70 on heavy volume to 1323.10, while silver was up $0.05 to 19.75, also on heavy volume.  The gold/silver ratio retreated a bit to 66.98.  Gold remains at the 50 day moving average.

Although both gold and silver closed more or less unchanged, this concealed a significant amount of price movement intraday.  Prior to the FOMC minutes report, gold experienced a waterfall selloff similar to what was seen during the bad days of the previous downtrend, finally bottoming at 1305.90.  It appeared that the shorts were firmly in control.  In the first 20 minutes following the release of the minutes at 1400 EST, price first snapped up, then down - setting a new low for this cycle at 1305.30, and then finally settled on an upward move that recaptured all of the ground lost earlier - all at relatively high volume.

Gold mining ETF GDX confirms this by exhibiting much the same behavior, closing off slightly at -0.26%.

Fed Minutes: http://www.federalreserve.gov/newsevents/press/monetary/20130731a.htm

If you can detect anything new in that statement from our current understanding - "tapering will happen, if the economy recovers and the jobless rate drops" - then you're better at parsing language than I am.

That said, there's a saying in the trader's world - the news itself doesn't matter, its the market's reaction to the news that counts.  For instance, if prices go up after the release of some "bad news" it likely means the market already knew about the bad news, and it wasn't as bad as the market had expected.  In some sense, some really bad news was already baked into the cake, and so the release of merely moderately bad news was a relief.

So through that lens, how do we interpret today's FOMC minutes release?  Yep, nothing new.  After a whole lot of heavy volume and a new cycle low at 1306, we're largely back where we started from, more or less in the middle of our trading range which we could say is 1305-1350.  I do come off the day with a slightly negative bias, however.  Just my feeling.  One positive bit was that silver appeared to do better than gold.

It was interesting to me that the shorts made a serious appearance prior to the meeting notes release.  I counted 5 high volume spikes down from 0800 - 1100 EST, which I tend to interpret as a large player dumping futures contracts onto the market in an attempt to move prices down.  I.e. what I might call tactical intraday manipulation.  At one point GDX was off -3.5% as a result of gold's move down.  Likewise, any traders that were long prior to today may well have been stopped out prior to the release of the minutes.  In some sense, this had the effect of "clearing out" leveraged longs.

Lest we imagine the longs are being singled out, I also noticed a large spike up in asia trading, also high volume, at about 1040 JST all the way up to 1339, which likely had the effect of "clearing out" any shorts also.

So to summarize: if you were long, or short gold futures going into today, you likely were stopped out.

Normally I use stockcharts.com to show trading activity, but today I'll show today's gold intraday moves using my trading app, from thinkorswim.  The colors are a bit different, mainly because I was too lazy to change the defaults.  I've circled the high volume spikes, which are the ones that likely ended up with either longs or shorts getting stopped out.  Sharp-eyed people will notice that the time axis is a bit funny - that's because my app is set for timezone ICT, which is 11 hours off from NY.  So I see FOMC notes at 0100 ICT, or 1400 EST, and yesterday's move up in Japan trading registers at 840 ICT.

So this apparent stop-clearing exercise is the reason I say that big players play games with the futures market in order to make money.  Certainly, at the end of the day, a lot of people probably were chased out of their positions, and things ended up unchanged.  Of course, had the market broken 1305 on the downside, or 1350 on the upside, it would have been wise to be out of the market so those people who had stops were not stupid for doing so.  But its my opinion that the big guys know exactly where those stops are set, and they use this information ... to make money, especially on days when they know traders are nervous going into a possibly market-moving event like FOMC.

My theory: the gold futures market is a snakepit expressly constructed for stripping money from the participants and dropping it into the pockets of the big players.  Without serious position limits, this sort of activity will continue until the sun cools, or humanity runs out of people that want to try and pick the pockets of the big boys.

And yet, from an overall trend perspective, even the big boys can't fight the marketplace.  So they administer their market beatings, but within the trend, and/or intraday.

 

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