RE: Bid are moving up.we just have to take it this week as there are more sellers @ work trying put to the longs
read dan norcinis jsmineset post lastnite
Monday, December 19, 2005, 6:43:00 PM EST
Gold and Dollar Market Summary
Author: Dan Norcini
February Gold closed at $506.10, up $.20 for the day well of the intraday high at $512.10 and near the pit session low of $506.Eurogold came in at € 424.135 for the London PM Fix.
It is important to note that this time of year it is very difficult to get an accurate technical read on any market. The reason for this is that year end positioning is taking place. Many funds and larger traders are closing their books for the year and preparing to take a long holiday weekend. As a result, liquidity often begins to decrease allowing for larger price swings as fewer bids and offers are available at any given price. That results in what might best be referred to as “air pockets’ both above the below the market - prices will scoot upward quickly at the presence of a relatively small buy order or drop easily on a small offer.
Since these larger players are reducing their position sizes irrespective of market conditions, (normally they would attempt to do it with a bit more finesse and skill), their book squaring during such periods can cause wild intraday price movements especially during the closing period which makes for some interesting readings from some of the technical oscillators.
Gold had one of these days today (we will know better tomorrow when we see the actual volume traded figures released as well as the open interest). It ran up quickly and easily to near-term resistance at the $512 level and then dropped right back down coming well off its highs for the day. Ditto for Silver. I suspect we had both longs and shorts liquidating today – terrified shorts running for fear of getting their hands handed to them once again and skittish longs bailing out on year end liquidation concerns. If this indeed becomes an entrenched mindset, look for more choppy action for the balance of the week. I should mention however that the intraday sell off in gold began precisely at 11:00 AM, CST, which happens to correspond exactly with the closing of the physical gold market in London at 5:00PM. We have seen this pattern for years in the gold market….Hmmmm….
Back to the choppy trading aspect - I have seen days in which it seemed as if every large long in the market decided to take the rest of the year off on the same day with the result that the market price dropped sharply on the day only to be followed the next day by what seemed to be every large short deciding to follow suit and exit the market that day sending the price right back up in the opposite direction just as sharply as it had fallen the day before.
As the liquidity decreases, the parasitical floor traders, known as locals, then attempt to do what they were bred to do – gang up like the flock of buzzards that they are and attempt to push the market one direction or the other to find the resting stop orders. If no one steps up to challenge them, they will push the market up, touch off all the buy stops, then sell their profitable longs into the forced buying and congratulate themselves for successfully fleecing the small speculators who happened to be short. As soon as the buy stops are through setting off, the market then falls right back down of its own weight. If the market will not let them push it up, then they will try to push it down and hunt for the sell stops below the market and repeat the process only in the inverse. They do not care whether there are buy stops or sell stops – all they care about is that those orders are out there and they want to run them. The market then becomes a casino simply because the locals are playing their infernal games.
Holiday trading periods are their delight since they can do the most damage while the big guns are away. Why else do you think they pay those outrageous sums for their seats on the exchanges? Needless to say, this can drive both chartists and traders batty as the preceding day’s readings get cancelled out by the price action of the next day. Inexperienced traders can find themselves bewildered during such times as price movements can totally divorce themselves from any underlying fundamental reality. Once you understand what is taking place, the bizarre behavior then becomes a bit easier to accept. Swearing or cursing about it isn’t going to produce a group of kind-hearted locals who foreswear their pilfering and plundering. After all, they need someone to pay for those nice new cars they drive and expensive vacations they take each year.
I am not saying that this is always the case – I am saying however that it can and does happen often enough to make one careful about prognosticating future market direction from each day’s move during this time of year. You have to respect each day’s action as a disciplined trader but it is never wise to make predictions based solely off of one day’s price movement during a holiday market. It continues to amaze me as many years as I have been trading to read market commentary making long term predictions based off of holiday market trading. One has to wonder what it is about men in general that takes otherwise level headed thinkers and turns them into prognosticating soothsayers staring into intraday price action as if it were a boiling cauldron or an animal’s entrails and boldly proclaiming the next month’s price levels as a result. It is foolishness raised to the nth degree.
Take each day as it comes and trade accordingly. Some days you will find yourself moving out of a position only to move right back into the same position the next day as the market reacts. If you get frustrated, that is understandable, but that is part of the game of trading and if you want to play, you have to play by the rules and be willing to make the necessary adjustments to current market conditions. There are also periods when it is simply best to scale back trading position size and wait out the end of year lunacy.
The HUI closed at 258.52, down 1.44 on the day, while the XAU closed at 11.20, down 1.16. The mining shares continue to consolidate and were generally mixed today. Same thing goes for them as for bullion – year end positioning and book squaring will cloud the technical aspects. Markets can always surprise you when you least expect it but it would not be out of the question to see the shares meander in a somewhat meaningless sideways chop until the first of next year. Both the HUI and the XAU look good from a weekly perspective although they do seem to have run up into a zone in which they have met some short term resistance – again, this is understandable seeing the time of year it is and the astounding gains they have managed the last 6 weeks.
It should also be noted, that there is a wide discrepancy in performance among the various gold shares with some putting on a stellar show while others look like a three legged dog in a pond full of alligators… they are paddling like mad but ain’t get anywhere fast much to their serious consternation. One would think that the management of some of the latter would have a serious soul searching session to analyze their “strategy” and dissect the reason for the pathetic performance of their share price in the middle of a raging bull market in gold – but alas, such seems to be too much to ask. They would rather go down with a sinking ship patting themselves on the back for their commitment to “principle” no matter how misguided and flawed that might be instead of instituting some sweeping changes and taking the whatever steps were necessary to turn things around . Humility is indeed a rare gem these days where ego is enthroned.
The dollar managed to eke out a small gain on the day closing at .8957, up 17 points. Dollar strength seemed to be tied more to continued weakness in the Japanese Yen and a pretty sizeable drop in the Canadian Dollar which was heavily overbought and is correcting a tad probably seeing some selling as a result of the weakness in crude and the products.
The S&P (Emini) was clipped for 6.75 points closing down at 1267.50 while the Nasdaq 100 (E mini) was absolutely obliterated for more than 30 points erasing the price action of the last two and half weeks. The Nasdaq 100 (Emini) closed at 1679.50 for the day. The technical posture of the Nasdaq 100 looks especially vulnerable in my opinion. The daily chart is perched precariously above support back at the November 30 low of 1673.50. A convincingly closing break of that level would attract technical selling which could push it down near the 40 Day Moving Average at 1666. Looking at the weekly chart, we will probably need a weekly close somewhere below 1660 to set up a test of support near 1635.
Keep in mind that the Nasdaq is the speculative playground for wild-eyed investors and day traders with attention spans that last all of 10 minutes (those are the more self-controlled ones- the majority live and die by a 3 minute chart these days – you ought to see these guys scarf down their midday lunch – I’ve seen dogs chew their food more finely than some of this gang). If it begins to break down technically and actually rolls over, we could very well see more movement towards the gold world as some techies become disillusioned and turn to the gold arena.
One has to wonder whether that is a good thing or not for gold when you really understand the temperament of these folks. Nonetheless, one thing that we have still yet to see in this generational bull market in gold is an aversion to paper assets among the average US investor. For the most part, the mob is still bullish on the US stock market and economy in spite of the enormous structural problems facing the country. Should that bullish psychology take a hit and we actually see some signs of “FEAR” ( you know – that strange elusive thing which is on the endangered species list when it comes to US investors), gold will see an inflow of funds that were previously earmarked for more of the tech world darlings. That would firmly cement the 4th pillar of the 5 fundamental pillars in a gold bull market. For now, we patiently wait and observe what will transpire.
The yield curve continues to flatten. The spread between the 2 year and the 10 year is now a mere 7 basis points, having again touched the lowest level in many years. That is astounding. That spread represents the profit margins of the lending institutions. With the spread collapsing inward on itself, is it any wonder that the plethora of cesspool related products known as derivatives (Latin etymology – “deriva” – “out of” ; “tive” – cesspool or sewer”) are multiplying like mushrooms after a summer rain. These firms are exposing themselves to all manner of risk in an attempt to generate profits since the conventional method is drying up as the curve further flattens. It seems as if the Fed officials continue to pooh-pooh the flattening curve but I believe that is mere bravado in the face of some very real problems that are lurking on the horizon.
Let’s see what the overnight action in gold brings as Tokyo gears up. The TOCOM reversed itself the other day and lowered the margins on the gold futures contract now that they managed to secure 4 limit-down moves in 4 days and enrich their members who were trapped on the short side. If Japan becomes a buyer again, that will bode well for gold.
Tomorrow brings another day – that is the beauty of trading.
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