PM Daily Market Commentary - 10/1/2014

davefairtex
By davefairtex on Thu, Oct 2, 2014 - 3:19am

Gold closed up +4.40 to 1213.50 on heavy volume, while silver was up +0.20 to 17.17 also on heavy volume.  PM tracked sideways in asia trading, rallied during London, peaked a few hours after the NY open and then sold off a bit into the close.  Some buyers actually showed up at the COMEX, but not enough of them wanted to take gold home - at least not today anyway.

Today's post will be all about the EMA-9, a moving average that works well to provide trading discipline during strongly trending markets.  When prices crosses and closes above the EMA-9, that is the signal to buy, assuming we are currently in a strong downtrend.

Why do we do this?  Why not just buy when we think prices are cheap?  We all feel the urge to buy when prices get cheap.  But the concept is, we want to hold out for the super-duper-uber cheap prices.  Don't be tempted by "merely" cheap.

And as I've said a million times, in a long downtrend cheap gets cheaper, then becomes the cheapest in four years, then it is "manipulated lower" for a while, it becomes super oversold, then everyone talks about it is selling way below cost of production, and then it surprises everyone by dropping even more - right until it rallies above its EMA-9 where you step in to buy.   This wisdom was imparted to me years ago, and I have never forgotten it.  Sometimes, I even follow the advice myself!  (As we know, good advice is easier to give than to act upon)

So let's look at EMA-9 and gold.  Has EMA-9 provided any insight into gold's recent downtrend?  I think so.  It has been a decent indicator since the head-fake higher at the end of August.  As of now, a close above the EMA-9 [currently 1219] would be a signal that the downtrend may be over for gold.  Failure to close above EMA-9 says the downtrend remains in place.

Ok, so let's look at silver and see if the EMA-9 is working for it.  Wow, except that one head-fake in late August (which you would have avoided since nobody buys tombstone doji rallies) the EMA-9 has worked perfectly.  Had you sold back in July when it triggered at around $21, you would have avoided the entire downtrend and you'd be all set to buy silver on any move above 17.57.

Seen through the lens of the EMA-9, today's rally didn't even come close to EMA-9, so it is ignored.  Not Cheap Enough for us!  Remember, we're holding out for uber-cheap!

Today, the dollar tried to move higher today and failed, closing down -0.04 at exactly 86.00.  Have we hit a top in the buck yet?  Once again, let's check EMA-9 and see how it has worked for the dollar.

You can see EMA-9 has worked perfectly.  There was a clean buy signal in mid-July, and not even a hint of a sell-signal since then.  We see that the buck needs to close below 85.45 before a top might be marked.  We're not there yet.

The EMA-9 won't work in all markets - if the market is tracking sideways, you will get a whole lot of signals to buy and sell and you will not be happy with the results.  EMA-9 only works well in strongly trending markets, which is what we have today in USD, gold, and silver.  While head-fakes can still happen and no indicator is perfect, the discipline EMA-9 imposes on you in a strongly trending market will help you resist the ever-present temptation to jump in before the trend actually changes.  And speaking from experience, the temptation to jump in before the trend changes is very strong.

Miners tried to rally today and failed, with GDX up +0.20% on moderately heavy volume, and GDXJ up +0.65% on moderate volume.  Buying in the miners looked strong until mid-afternoon, when traders decided to dump the miners they'd bought earlier in the day.   GDX printed an inverted hammer, GDXJ a tombstone doji; these aren't significant for the trend we're in, but they paint a picture of a failed rally in mining shares.  My sense is, until the buck marks a top and gold rallies strongly, mining shares won't be bought.  At this point, miners appear to be following, rather than leading PM.

I won't provide a chart for GDX; your homework is to go to stockcharts.com, type in "GDX" into the symbol window, scroll down below the chart to select the "Exp. Moving Average" in the empty box in the Overlays section, change the Parameter from "20" to "9", click Update, and then you tell me if EMA-9 has worked well for GDX.  If so, is it time to buy mining shares because they're really cheap?  Or should we wait longer?

SPX was sold hard today, closing down -26 to 1946.16 on some pretty heavy volume.  The worst performing sector was energy - especially oil and services.  VIX rose +0.40 to 16.71, not a large rise given the strength of SPX decline today.

Long term treasuries (TLT) screamed higher, up +1.94%.  Long term treasury bonds were bought all day long, starting in the futures market before market open and continuing through right to the close.  There is a saying: bond traders love bad news, and with the news about our single Ebola case running 24/7, it was a bond trader's dream day.  Money is pretty clearly flowing from stocks to bonds right now.

Commodities tried to rally and failed, closing up +0.08%.  WTIC dropped again, down -0.62 to 90.70, while Brent was off -0.51 and hit a new cycle low of 94.16.  Even with Saudi Arabia "defending" $100 Brent, oil doesn't seem to be able to get any traction right now.

We remain waiting for a trend change in the buck, PM, and the miners.  So far, no trend change.  While we hope for one to happen soon, using our friend the EMA-9 will help us remain less emotional in this strongly trending market - so we can be less tempted by "merely" cheap prices.

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2 Comments

davefairtex's picture
davefairtex
Status: Diamond Member (Offline)
Joined: Sep 3 2008
Posts: 5681
paper premium snapshot

OUNZ: +0.16%

PHYS: -0.69%

PSLV: +5.44%

CEF: -6.45%

GTU: -7.04%

I executed my long CEF/short GLD + short SLV trade yesterday when CEF premiums were near 8%.  I'm not gonna get rich, but maybe I can squeeze 3-4% out of the market over the next month or two.

PSLV sure is doing well.  Its premium is equal to reports we've had on buying actual physical these days at $1 over spot...

 

KennethPollinger's picture
KennethPollinger
Status: Platinum Member (Offline)
Joined: Sep 22 2010
Posts: 656
EMA-9

Dave  What an education I am getting from you!  This latest on EMA-9 was fabulous.  I hope you keep us abreast of this wonderful change that may happen soon--maybe an ALERT, type of thing.

I plan to offer to the community Rickard's latest info on wealth preservation shortly--brilliant and to the SPECIFIC point.  His Death of Money was great but this latest info goes into GREATER DETAIL on what to do--finally SPECIFIC TARGETS.

Dave and Saxplayer: can't thank you guys enough!  Ken

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