PM Daily Market Commentary - 5/2/2016

davefairtex
By davefairtex on Tue, May 3, 2016 - 3:48am

Gold fell -1.50 to 1293.40 on heavy volume, while silver dropped -0.31 to 17.58 on moderately heavy volume.  Both metals made new highs at around 08:00 Eastern, but then encountered heavy selling, which ended up wiping out the gains in gold and driving silver deep into the red.  This was even more dramatic considering that it was a fairly heavy down day for the buck.

As mentioned, gold made a new high, rising to 1306, just below last year's high of 1307 before encountering selling that drove price back down below the 1300 level.  Gold printed a doji candle on the day, signifying indecision.  Ordinarily this would be no big deal, except that the dollar was hit for an -0.44% loss today and that made gold's performance unexpectedly weak.

If gold can close above last year's 1307 high, that's a bullish signal.  On the other hand if gold fails to do so, that will encourage the shorts to pile in.

Silver had a much more bearish experience; after making its high around 08:00 alongside gold, silver sold off hard for the remainder of the day, printing a bearish engulfing candle.  Extremely overbought states are generally fairly high risk situations.  If I were a momentum trader, I'd stick things out until I got a clear sign of a top.  The bearish engulfing is a reasonably good signal for a top.  Its also the largest down day in the last four weeks.

Miners sold off as well, with GDX dropping -1.70% on moderately heavy volume, and GDXJ fell -1.51% on moderately heavy volume as well.  Both miner ETFs opened up, and then sold off for most of the day, bouncing modestly into the close.  Modest though it was, the rally at end of day saved both miner ETFs from printing the bearish "dark cloud cover" candle pattern.

Platinum rose +0.19%, palladium fell -0.21%, and copper dropped -0.72%.

As I said earlier, USD fell -0.41 [-0.44%] to 92.62, dropping briefly below the previous low of 92.52 at one point during the day.  The buck fell pretty much from the open to the close.  A serious break below 92.50 coudl lead to a large sell-off, and in spite of today's weak performance in PM, such a serious breakdown would almost certainly push gold through 1307.  On the other hand, if the buck can manage to find support here, I suspect gold and especially silver will put in highs and start to reverse.

WTIC fell today, dropping -1.10 [-2.39%] to 44.89, printing a swing high (and a confirmed "northern doji") but managing to find support on its 9 EMA.  Oil has made several swing highs, and so far they have not managed to derail the move higher, but printing a swing high today when the dollar is so weak is not a great sign.  The API report is due out tomorrow; if the API report shows a draw, that should be bullish for oil.  How the market reacts to the report is the thing we need to watch.  If oil doesn't rally on a draw, its time to sell.

SPX rose +16.13 to 2081.43, led higher by cyclicals, staples, and financials.  The candle pattern is one of my special ones - a confirmed bullish spinning top, which yields a 46% chance of a continued move higher for SPX.  VIX fell -1.02 to 14.68.

TLT was not happy at the falling dollar, losing -1.01% dropping below its 9 EMA once again.  Risk on.

JNK rose +0.09%, ignoring the large drop in oil.  JNK remains in a strong uptrend, and continues to signal risk on.

CRB fell -1.13%, printing a swing high but remaining above all 3 moving averages.  CRB's fate probably depends on oil.

While the buck continues to decline, it appears that the sellers have started to appear as gold approaches its 2015 high.  Such a point is a good entry point for the shorts; they can load up here just below 1307, and if the longs do muster enough strength, they can just stop out on any strong move through 1307.

In early trading in Asia, the buck has fallen hard through 92.50 and has made a low of 91.98.  This big drop in the buck has pushed gold back up towards, but not yet through 1307. 

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26 Comments

davefairtex's picture
davefairtex
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buck possibly marking a low

Buck was hammered early hitting 91.88 at one point but has managed to recover.  So far PM is holding up, but not so oil and SPX, both of which are selling off.  TLT is shooting higher, announcing "risk off".  JNK agrees, currently off -0.53%.

As of right now, buck has printed a takuri line candle, which is a reasonably strong reversal bar.  We have another 8 hours to go before we close, but the buck putting in a low would be a big deal for PM and the rest of the commodities, along with their associated equities.

dryam2000's picture
dryam2000
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Hard to believe the USD will appreciate much from here

I could be wrong, but...

The financial industry, and energy producers are feeling tremendous pain with low oil prices.  Debt is saturated, and demand is only going to slow.  That leaves lowering the USD as the main way to elevate oil prices.  A high USD leads to the perverse positive feedback loops whereby energy producers rev up their output as oil prices go down, thus causing even further drops in oil prices, and so on.

This world is going to feel some pretty serious pain fairly quickly if the USD goes up.

I suspect the big market sell off will be 'fixed' in short order.

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davefairtex
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belief

dryam-

Sure, the falling buck helped to raise oil prices, but moving the buck around is probably the hardest thing to do - unless you are the Fed and decide not to raise interest rates.  But that could be done with jawboning well ahead of time.  "Guys, we aren't going to raise rates for at least two meetings."  Bang, the buck falls.

I try to keep my belief in check with these sorts of things.  For instance, I did not believe that junk debt would ever leave its downtrend until we had some spectacular detonations in shale.  The recent rally more or less blew my hair back.  It was totally unexpected.  I try to keep my surprise from showing up in the commentary, but it slips out every now and then.

I've been very surprised that the buck fell this far.  I have zero confidence in the Euro, in Euro nation peripheral debt, or in Japan and those JGBs.  But the Euro rallied, and so did the Yen.

How long will those two continue to rally?  I have no idea.  I try not to take my own market predictions too seriously.  Otherwise when they go wrong (and they often do) I tend to hang onto them for far too long, and that can lose me money.

Could the buck be putting put in a low here after head-faking below the prior low just to get everyone loaded up short and to run all the long stops hovering below 92.50?  Yes, I think that could be happening.

Here's quote #3 (of 25) from Jesse Livermore:

3. The obvious rarely happens, the unexpected constantly occurs

The market will often go contrary to what speculators have predicted. At these times, successful speculators must abandon their predictions and follow the action of the market. Prudent speculators never argue with the tape. Markets are never wrong, but opinions often are.

Remember, the market is designed to fool most of the people most of the time.

dryam2000's picture
dryam2000
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Oil, currencies, etc

I'm clearly saying where I expect the USD to go & why.  I could be wrong, and it can be called a "belief" or whatever.  A higher USD will have huge negative implications for the world.  A lower USD would relieve a lot of stress on the system.

The why & how is much more of a political thing.  Countries and CB's make agreements that outsiders are never going to know about.  

I guess I should wear a tin foil hat.

BTW, there are a huge number of people betting on the USD to appreciate including many on this site (Charles Hughes Smith had an article a couple of months ago).  I guess it's news to me that "everyone" is expecting a weaker USD.  Odd.

Also, I rarely give predictions.  If one would look at most of my posts I almost always recommend being well diversified as very few people are going to go unscathed during this economic hurricane, and there are going to be many unexpected twists and turns that even the brightest people will not see coming.

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mikeg
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Predictions

"I try not to take my own market predictions too seriously"

An Oasis of common sense in a vast desert of PM blog analyst hubris (it really is breathtaking, and usually migrates to the comments section as well)!

Well done sir... even though we part company on the issue of pushing the PM market around for profit and to "protect" the corrupt system. Whoever "they" may be, of course use the technical's, you do such a fine job on each day, as tools to an end (the COT structure cycle does not look like a natural occurrence to me).

 

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davefairtex
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tin foil hats?

dryam-

I'm just encouraging you not to take your prediction too seriously.  That way if/when it goes wrong, you will just shrug, change your bet and life goes on.  And if you're right, you'll shrug and collect your winnings.  As my old tennis coach always suggested, "your pulse should never go above resting."  Ideally anyway.

Prices trump tin foil hats, and the wishes and expectations (and hopes and dreams) of central bankers.  Currently the price action is suggesting a possible reversal, and in my world, prices beat everything else.  (See Jesse Livermore's wise words #3).  I didn't expect the buck to fall this far.  I was wrong, which happens all the time.  I don't stress about it anymore.

BTW, there are a huge number of people betting on the USD to appreciate including many on this site (Charles Hughes Smith had an article a couple of months ago).  I guess it's news to me that "everyone" is expecting a weaker USD.  Odd.

I'm definitely one of those expecting USD to appreciate.  Hasn't worked out so well recently.  Fortunately I don't have any trades betting on the outcome.   Maybe the bounce will happen soon, but we'll need a reversal bar today and a confirmation tomorrow to be more sure about it.

Here's the COT report (commercial shorts) for the DX futures contract.  They're the lowest they've been for 18 months.  Based on this, I think we're closer to the bottom than to the top.

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dryam2000
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Perplexing commentary
davefairtex wrote:

dryam-

I'm just encouraging you not to take your prediction too seriously.  That way if/when it goes wrong, you will just shrug, change your bet and life goes on.  And if you're right, you'll shrug and collect your winnings.  As my old tennis coach always suggested, "your pulse should never go above resting."  Ideally anyway.

Prices trump tin foil hats, and the wishes and expectations (and hopes and dreams) of central bankers.  Currently the price action is suggesting a possible reversal, and in my world, prices beat everything else.  (See Jesse Livermore's wise words #3).  I didn't expect the buck to fall this far.  I was wrong, which happens all the time.  I don't stress about it anymore.

BTW, there are a huge number of people betting on the USD to appreciate including many on this site (Charles Hughes Smith had an article a couple of months ago).  I guess it's news to me that "everyone" is expecting a weaker USD.  Odd.

I'm definitely one of those expecting USD to appreciate.

 

Odd, I stated and have always stated that people be well diversified with their financial assets.  And yes, that includes myself.  

Maybe I'm wrong, but your post seems to imply that being heavily positioned in the USD is safe and has minimal risks.  No asset these days should give that feeling.  If I had all of my financial wealth in USD's and/or in investments aligned with an appreciating USD, I would be uncomfortable.  Everyone has to pick how they should allocate their life savings whether it be in USD's, PM"s, their homestead, stocks, bonds, other currencies, or whatever.  Making no decision on whether one should be invested in the USD or not is equal to making a decision.  I am personally hedged for a depreciating USD while still being very diversified. Again, our friends in Canada who left their life savings stored safely in loonies at their local bank just lost about 20-25% of their purchasing power over the past 3 years.

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davefairtex
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exception proves the rule?

mikeg-

An Oasis of common sense in a vast desert of PM blog analyst hubris (it really is breathtaking, and usually migrates to the comments section as well)!

Thanks MikeG, its nice to stand apart from this particular crowd.

I do think the bankers are able to push the PM market around (and they definitely do this on an intraday basis), but I don't think they have a lock on the trend.  Otherwise the COT structure cycle would be perfect.  Its not.  I just need one exception to make my case, and we're seeing one happening right now.

There were several more visible "mistakes" they made back during the move to 1900.  This tells me they aren't perfect.  If they were perfect, then I'd be more likely to buy your argument.

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davefairtex
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perplexing?

dryam-

Maybe I'm wrong, but your post seems to imply that being heavily positioned in the USD is safe and has minimal risks.

Yeah, you're wrong.  Quote me where I implied that "being heavily positioned in the USD is safe and has minimal risks."

 I am personally hedged for a depreciating USD while still being very diversified...

Aha, now I get it.  You're just reading all this stuff into my dollar-rebound post because I'm talking a (near term trend) position that is contrary to your book.  You don't like the thought that the buck might be bottoming here because it goes against your current position and at some level, you think if you bash my post enough (uh, I mean, act "perplexed" enough), it will somehow make today's reversal bar go away and the buck will continue to drop.

That's the true goldbug way.  Say "gold might be topping out for this cycle" and you get hate mail from the goldbugs, for whom the price must always rise.  Say "the dollar might be putting in a low" and you get posts  from the perennial dollar bears, for whom the dollar must always decline.

Meh.  Price will out.   Takuri line forming today.  We'll see tomorrow if the thing has any legs.  Gold is holding up pretty well all things considered.

Right now I'm focused on the daily chart trend.

If you want to have a more general debate on what happens to the various currencies on the monthly timeframe - say when the EU breaks up, or when Japan finally has its denouement, we can.

Just a quick starting question for that general debate - do you imagine either of those two events will be dollar-bearish?

Now don't read into THAT statement some implication that the dollar will forever remain at an incredibly high level.  Everything goes in cycles.  But I do believe we will at some point in the future see a dollar spike that will be one for the ages.  It won't last, of course, but it will last long enough to totally hose both the US economy and all the foreigners who have borrowed in dollars.  When the EU finally blows up, terrified Big Money will flee to the US, and short of imposing capital controls, there's nothing the Fed will be able to do to stop it.  My opinion of course.

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Jim H
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Understatement of the day...

DaveF said,

Gold is holding up pretty well all things considered.

Something is different under the covers here.  I tend to agree with those analysts who suggest that the existence of the new Yuan fix, coupled with the ABX exchange, allow for much more efficient real time arbitrage across markets vs. before.  

Brother JohnF explains this concept in the following interview;

Starting at about 10:20 John explains how these markets have been historically structured to disallow such arbitrage.. not that TPTB would ever structure markets to advantage their ability to manipulate said markets.. because that would just be silly conspiracy theory.      

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Edwardelinski
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Don't take a match to your money.

Please investigate who you are taking advice from.When Dave sighs believe him.We are an educated group hear at the peak.I cringe because highly educated learners are taking advice from half baked,dim-witted,right wing lunatics operating under the guise of a corrupt system.Highly paid analysts from the likes of UBS,Mikinsey,Merrill Lynch etc are paid big bucks because they have track records.I will say it again.A bearish article attracts 5 times more hits than a bullish one.People like to read about the end of days.It is a brilliant business concept.Many aggregated business blogs have made millions off the concept .I wont name names.Bearish articles incite terror,prompting the responsible to feel compelled to protect there families.Bearish articles attract the highest numbers of hits.

as a result THEY collect major revenues.Stop falling for it....

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Penny551
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Dollar Prediction

For fun, I'll take a stab at a couple'a FRN forecasts...

End Game: USD goes to its intrinsic value

The Trend trading software I use shows the buck just now entering a long-term downtrend.  That said, it's way oversold and the CoT seems to indicate we're due for a bounce.  FWIW, the "Shanghai Accord" supposedly equates to a weaker trending buck and CNY, and stronger JPY & EUR. Price and Volume will confirm or refute that thesis  (Rickards). CHS wrote a great piece a week or so ago laying out both cases. 

I'm hoping that plays out bc I would love the chance to buy a little more silver around $16 and a few miners w/ the GDX back below $20.

 

 

Edwardelinski's picture
Edwardelinski
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one question

who sold you the software and how much did it cost?

Edwardelinski's picture
Edwardelinski
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Posts: 323
one question

who sold you the software and how much did it cost?

Penny551's picture
Penny551
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No Prob.  It's from

No Prob. 

It's from www.FTMdaily.com

I've been very pleased w/ it. 

davefairtex's picture
davefairtex
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human sleep cycles: a conspiracy

Yeah the entire structure of the worldwide markets were done deliberately so that gold and silver get hosed.  They certainly weren't structured around the need for humans to sleep in the various regions, or to only work for 8 hours at a shot and then go home and rest.  No, it couldn't be that.

The lengths that goldbugs will go to in order to explain why gold isn't at $5000/oz never ceases to amaze me.  Someday I want to construct a list of all the goldbug "dog ate my homework" excuses.

US retains confidence of its lenders = no hyperinflation = pressure on the gold price.  Its a really simple equation which remains compelling in spite of the push by the promoters to flog their product by any means necessary.  Confidence won't exist in perpetuity, but it remains in place so far.

Again, I like gold, and I think as confidence in government continues to ebb (negative rates being seen as the end of the road, Sanders and Trump being indicators too), gold will be the place to be.  But that doesn't mean I support the constant wave of disinformation from the dog-ate-my-homework gold promoter gang.

 

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Jim H
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Yuan Gold price fix..

Anyone who might want to do their own due diligence, even in the face of Dave's sarcasm, may read the following article;

http://www.safehaven.com/article/41311/a-chinese-revolution-in-gold-and-...

The PM markets today are fraudulent and manipulated.  This is in the process of changing... 

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davefairtex
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no paper here

Well I think its a fine idea to have a Chinese gold fix.  Chinese miners will (hopefully) get a fairer shake when it comes time to deliver than they did from the fraudulent LBMA gold fix.

The image of the SGE as being a "physical only" market is true - as long as you ignore all the paper gold contracts they provide, with Au T+D having the largest trading volume of all the items by a factor of three.  But 'no paper here.'   Nope.  China wouldn't do that!

Koos Jansen explains the structure - scroll down to the section entitled "The Shanghai Gold Exchange".  I've snipped the important bits below:

https://www.bullionstar.com/blogs/koos-jansen/sge-trading-volume-2015-up-84-yy-due-to-international-board/

The deferred contracts (only traded on the Main Board) are:

  • Au(T+D) (1 Kg per lot, delivery in 3 Kg or 1 Kg ingots)
  • Au(T+N1) (100 gram per lot, delivery in 1 Kg ingots)
  • Au(T+N2) (100 gram per lot, delivery in 1 Kg ingots)
  • mAu(T+D) (100 gram per lot, delivery in 1 Kg ingots)

Because the deferred contracts are traded on margin and there is no fixed delivery date, these derivative products embody paper trading.

Daily trading summary here: http://www.en.sge.com.cn/datas/sgeprice-daily/538001.shtml

Here's my real question.  Now that the China Gold Fix (cue harp music - blessed be thy name) is in place, the next time gold drops in price in one of its usual price cycles, what will the goldbug writers come up with to explain the drop?  They'll have to blame someone.  Not themselves or their faulty theories, of course.   Someone Else.

I can't wait to see who.

 

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Jim H
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SGE market dynamics...

I don't know that anyone ever said SGE does not have paper futures.  This is simply a strawman argument.. meant to misdirect readers.  I am getting tired of helping out around here.. so I will simply suggest to interested readers that they do their own due diligence on the following;

1)  Comex level of physical delivery vs. SGE

2)  Comex level of paper trading vs. physical delivery, i.e. derivative (paper) market leverage to physical market ratio, as compared to SGE.  

Cart, Horse.. that old chestnut. 

That should be sufficient to see through the DaveF smokescreen. 

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davefairtex
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ah, the smokescreen

JimH-

Most definitely SGE delivers more gold than COMEX.  Never suggested otherwise.

I don't know that anyone ever said SGE does not have paper futures.  This is simply a strawman argument.. meant to misdirect readers.  I am getting tired of helping out around here.

Yes, poor Jim, it really must be tiring.  Take a break, you deserve it.   :-)  You probably don't know who said SGE didn't have paper futures because you didn't read the article you yourself referenced because of that dreadful fatigue issue.  Here, let me help:

Because the SGE is a physical market not a 'paper' gold market, so it is more likely that prices reflect true physical demand and supply in their gold prices.

Not a big fan of your sources, Jim.  They give gold a bad name.  As I said innumerable times, I like gold, but I really don't trust your goldbug writers, who just make stuff up when it suits them just to sell their little gold bars.

Its the hyperbole and the made-up "facts" that bother me.  Just speak the truth.  That should be good enough.  But as EE says, artificial fear & panic does motivate, and your goldbug writers do have a vested interest in manufacturing fear & panic.  I don't like government disinformation, but I'm just as disgusted when I see it coming out of the alleged "good guys."  More so, probably, since they're supposed to be good.

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Jim H
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SGE vs Comex

SGE is a primary physical market where much of the world's (newly mined) physical Gold is delivered.  Comex is a paper market where very little physical is delivered. 

The Gold "price" market looks to me like it's trading different now.  Different for the last few weeks.  Even today, it won't seem to stay down.  I am trying to figure out what is going on.. this is my truth seeking in action.  My view of Comex is that the action is almost always more about the sellers of paper than it is buyers... the sellers have had the upper hand for the last few years.  The fact that they are the bullion banks, who can create nearly unlimited paper at will, in market busting bursts if necessary, seems to escape notice here at PP.com's Gold commentary section. 

Nonetheless, the sellers seem to be on the bench to some extent now.  I speculate this is because the market pricing power is shifting East, along with the increased ability to arb across the markets.  As JohnF states, the way that the West can keep the East from Arb'ing away the physical metal is by keeping the price in the West above the Eastern fix.  Simple, right?  But all of this only makes sense in my construct. .where the markets today are fundamentally corrupt and non-representative of supply vs. demand of physical.   

 

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Jim H
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Miners getting hit hard today..

Glad I lightened two days ago.  When to put the dry powder back in?  Is this the correction?

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davefairtex
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miners

Miners selling off this way (down 5% when gold is off only 1%) is not a good sign.  The intraday trading pattern looks like straight out liquidation by some big players, complete with a little sell-off right at end of day.  The pattern reminds me of the bad old days during 2013-2015.

Whatever bid the miners had before, its gone now.  It might come back tomorrow - or it might not come back for another three weeks.  Miners look scared of the dollar rally.  That's how I read it anyway.  If the buck continues to rally, PM & company should continue to sell off.  And the buck just confirmed its hammer candle (and printed a swing low), which just increased the odds of the buck rallying further.

Options?  Depends on your desire to take risk:

1) Buy at market close today, because miners have fallen 10% in three days and you like to buy things on sale.  Very high risk.

2) Buy the first time the miners print a single reversal bar.  That's high risk.

3) Buy when gold and the miners generate some sort of high reliability reversal pattern.  Slightly less risk.

4) Buy when the whole orchestra lines up for a gold rally.  That would include the buck topping out, commodities ceasing their descent, gold printing a swing low, and the miners also printing some sort of swing low.  That's much lower risk.

I'll drag in Jesse Livermore again.

21. Don’t take action with a trade until the market, itself, confirms your opinion. Being a little late in a trade is insurance that your opinion is correct. In other words, don’t be an impatient trader.

Here's a chart of the number of non-commercial shorts (from the legacy COT report).  If you look at how they behaved historically, the non-commercials generally guess wrong.  I think risk is pretty high right now that the buck stages a rally for at least a week going forward.  It might not - but the hammer + confirmation is pretty suggestive of a low.

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davefairtex
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one note samba

JimH-

But all of this only makes sense in my construct. .where the markets today are fundamentally corrupt and non-representative of supply vs. demand of physical. 

Or, it could be, your assumption that the bullion banks can print infinite contracts is simply wrong.  Perhaps they have limitations that you just don't know about.  Perhaps the trading desk has a cap on just how short they can be.  After all, your information comes from goldbug writers, which aren't exactly the most reliable sources on the planet.  They are incentivized to simply make things up - and they do it all the time.

Simple explanation is that the buyers at COMEX have returned.  That's even supported by data.  I know data is completely unconvincing in matters of Faith, but my hope springs eternal.

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Jim H
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Thank you Dave...

Agree that risk looks pretty high right now for jumping back into miners.  The dip at the end was troubling.. I retained all my dry powder for another day.   

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davefairtex
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a collection of homilies

You are welcome Jim.  Emotions are the enemy.  Try to be as dispassionate as possible.  Tote up the bearish and the bullish clues, toss hope out the window, and make your trade when you see the odds line up in your favor.  Pulse never goes above resting.  The less you care about the thing you're buying, the better you'll do.  At least, that's been true with me.

If this stuff were easy we'd all be on the beach sipping margaritas.

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