Some “long time ago” I said I was out of gold. Maybe a year? For a while I was in Palladium, but exited that a while back. Even longer ago I’d said Silver was in a bubble and going to pop (and some folks tossed rocks at me about it). Today Gold is down over $100 at the moment. This chart shows why I am prone to “dump the bubble” on a whiff of Bubblicious and not hang out waiting to read the news after the fact (especially in volatile commodities, but even AAPL Apple Computer that was a darling of the momentum trade has “rolled over” on the change of leadership.)
In other News Flow, we have Charles Schwab saying trading is down (so the “Home Gamer” isn’t playing much) and various retail reports have been off. The Average Joe & Jane are not spending. IMHO for the simple reason that they don’t have the money to spend or to trade. Too much mandated crap and too much taxes. Mandate that folks blow a couple of $Thousand / year on Obamacare and guess what, they don’t have it to spend on other things. Make gas $4.50 / gallon, there’s a few $Thousand / year more that is not going to be spent on other things. Send their jobs to China, eventually they can’t buy cheap Chinese crap even at Wally World.
In gold, there were changes in China buying, and India did another one of their typical stupidities with attempting to control / tax gold purchases by raising taxes on gold and platinum imports. Sigh. I do so wish that politicians would learn that they can not control or “manage” a market, only screw it up. A market is an organic “self organizing system” and attempting to put “external organizing” onto it breaks the inner dynamic. The only question is how much.
Add to that the forced selling from GLD when holders of the shares “click-click” dump… and some hedge funds and other Whales being overweight gold needing to “unwind” and then light the match: Rumors of Cyprus selling their gold reserves. True? False? Doesn’t matter. Match is lit.
Here’s the chart:
This is a static capture. A live version will be at the end of the posting for watching over time.
So what can we see in this chart? A whole lot of bad news and pain.
First off, notice that things which seem unrelated will often “inflect” together. The peak in GLD and APPLE (and the local peak in SLV – the ‘bubble and bust’ was off this chart to the left) happen about the same time in Sept. So when a “major play” gives an inflection signal, it is time to watch all the OTHER momentum plays to see if they are setting up for an inflection also.
Now look at RSI then. Touched 80. Time to go. Simple? Yes. It’s the “first ring of the bell”, and you can get a ‘retest’ after that. But not always. Sometimes it just rolls over and drops. As AAPL did at the same time. NEVER think you own the Golden Goose. “There’s always a story. -E.M.Smith” and Never NEVER EVER believe the story. Trade it, sure. But the stronger the story and the more “Bubbly” the enthusiasm; the faster you need to get out when it turns on you and bites your ass.
Unfortunately, I’ve learned that no amount of polite explaining to folks will convince them of that fact, nor convince them that their “story” might be flawed. Folks love their stories, embrace their belief structures, and simply can not “let go” of thinking (or “thinking they think especially well”…) and follow “trade rules” and simply do what a chart says. So much of the time I try to get folks to just understand how to read a chart and use it to ‘raise their own worry level’. To just be an awareness tool. Well this chart is a good example of why.
By late Sept early Oct you have MACD “red on top” in a nose dive toward zero crossover, then DMI goes “red on top” as the last call to exit mid Oct. We get a confirmed bear market indicate when MACD crosses below zero, DMI is clearly red on top, and RSI is below the midline. Prices do a crossover of the SMA stack, tries to cross back through the SMA lines and fails. That’s the confirmed “Just be the hell out” moment (and a good time to start doing shorts – shorting AT the SMA stack and selling out on dips away from them until the bottom call comes).
PPLT Platinum held up (with heartburn moments) until February, then PALL Palladium hung in until March, when at the March / April line we had a ‘failure to advance’ and bad news on general consumption patterns. Now it’s dropping hard too. The implications of “folks not spending” are “not good”.
Now look at AAPL. Same kind of pattern, but harder move. Unusual for a stock to be more volatile than a commodity, but that’s Apple. (And a part of why I tend not to trade it… “trendy” things can become “untrendy” in a heartbeat – you simply must watch daily…) Copper (which is the gold line on this chart and hard to see) has been mostly wobbling sideways saying the general economic trends are just laying there (near a longer term bottom patter – see below). Copper is saying the global economy is “not good”.
At the far right, AAPL is showing signs of bottoming. That “Toe” forming. Failure to advance to the downside March to April.
So what to do at this point?
Well, it’s likely that there will be a ‘day trade’ to the upside in selected metals and commodities. It’s very helpful to be in London as they trade well before everyone in the USA… Personally, I find the speed vs location disconnect makes day trade on metals hard. At some point GLD and the SMA stack will converge, so given how far gold is from the SMA stack, that ought to resolve upward. BUT, it might happen upward after a few more days down $100 / day as shorts pick up…
For me, I’m more of a “step aside and watch the blood flow” type. Wait for the “Crash, bang!, tinkle…” of a bottom indication where the dramatic drop, does a Dead Cat Bounce, then the DCB is followed by an SMA merge and wobble then the “dead money” for a few weeks after the DCB.
So that’s why I use charts. To avoid falling in love with “The Story”. To avoid getting enthusiastic about buying that dropping knife too soon. To bring discipline to the process. To look at what IS HAPPENING, not at what I THINK MIGHT BE happening.
Ok, here’s a live chart, though I’m moving the time scale out to 3 years so you can see silver in the context of the “Spike” a while back. Notice the similarity of the Silver Bubble with the Apple Bubble? See how they both ‘stand out’ compared to more staid things like base metals? (Even though commodities like copper are volatile, they tend to be limited in range in a bubble environment. Folks just won’t pay $400 for a copper water pipe, they swap to iron or plastic.) So that’s why I have “comparison charts” with several tickers on them. To make it clear what is being Bubbly and what isn’t. The fundamental properties of mining and the economics of it are not all that different between gold, silver, copper, platinum, etc. So when one of them is getting ‘way out of whack’, it usually means folks are being over enthusiastic and “There’s a Story”…
Looking at the start of this chart (now) you can see the “touch 80 – midline” RSI oscillator of a rising market (though gold being a bit volatile tends to a small ‘overshoot’ of the mid-line touch). DMI context being mostly “blue on top” saying to BTFD. (Um, “Buy The ‘Friendly’ Dip”) and MACD being mostly above zero saying that too. (Buy the inflections to blue on top, bias to be in). Now with MACD clearly below zero and DMI clearly red on top, it’s a bear market and to be shorted, not bought. (Until it gives a clear bottom indicate). In the middle, near Dec 2011, you get the “Flat in transition” kinds of indications. MACD wobble about equally each side of zero. RSI making “lower lows” but mostly wobble about the midline. DMI being more mixed (but in the context of ‘leaving blue on top’ shift bias to ‘neutral or be out’). Prices and the SMA lines in a “topping weave”, looking disordered. That’s when you shift from “trend trade” (with positive bias) to “swing trade” on a fast chart trading each ripple with neutral bias.
We had a ‘last hurrah’ about June, July, August. Then a “failure to advance” to the upside above prior highs. Now we are in a clear bear market. RSI in a ‘wobble’ from 20 to mid-line (50) and back. Short at the 50 point / SMA stack touch of price; cover on the 20 line touch (far from SMA stack). Similarly, MACD crossovers can be used to time the trade. (Or just move to a faster chart like a 10 day hourly).
So that’s how I use this kind of chart with these kinds of tickers. What is my BIAS? Bull? Topping Weave? Bear? Bottom Weave (with DCB)? Given that, do I Trend Trade? (Bull or bear?) Do I swing trade? Do I short with fast covering? Do I just step aside and wait for a clear trade entry indication?
For me, I’ve been out of metals for a while, and I’m staying out. Demand is off and “Politicians and Government Idiots” are attempting to “manage” things. Never a good situation.