Doldrums and Summer lows? Pining sez No!

86
Mon, Jun 19, 2017 - 1:13am

With analysts at most public PM websites now turning decidedly bearish, with the summer doldrums staring us in the face, with the new rate hike raising interest rates (on paper making gold less desirable as it provides no yield), and with the gold seasonals suggesting that “sell in May and go away” was the play, there is a definite bearish tilt to the sector right now. That’s why (among other things) we have a great risk-reward setup staring us in the face.

Pining thinks it’s a great place to go long (with stops)! Let me give you a few reasons why, then I'll outline the trade:

Sentiment:

A quick review of 7 popular and publicly available precious metals analytics/trading sites, and a glance through the comments on those sites, made clear to me that there is (at least roughly) a general consensus in the metals complex right now: after failing to break through 1300, and first pushing through then falling back below the long-term downtrend line in gold, the summer doldrums are upon us and consensus sentiment has turned bearish. The two most likely scenarios I saw discussed were either (1) we languish and churn lower for the next few months following typical gold seasonals pattern into a July or August low, or we cascade from here into an earlier low, perhaps late June or early July.

I like this widespread bearishness very much. This is precisely the type of setup the metals love; wrong-foot the investing public, going against well-known patterns (because it’s never that easy in the metals) and making sure the majority of retail is not on the train and has to chase price. That’s also why the so-so COT doesn’t bother me much, that pattern has been a bit TOO clear recently and has been becoming a little too easy to trade, so I think it’s due for a wrong-foot. In fact it is this “juking the crowd” and subsequent chasing of price on the way up that provides the fuel for the best runs in the metals. This is an excellent setup from a sentiment standpoint. Just ask yourself, when was the last time the majority of retail sentiment was dead-on correct and on the right side of the trade in the metals? Thought so.

GDJX rebalancing is behind us

Regardless of where you stood on the whole GDXJ/JNUG issue, the fact remains that it is now largely in the rearview-mirror. This means a genuine, significant source of instability in the sector is now largely behind us, removing some of the unpredictability which had been a drag on both price and sentiment. Additionally, it is likely that money managers who may have previously been hesitant to allocate funds until this nonsense was sorted may now be prepared to put that money back to work, thus bringing an unexpected tailwind that could help things to the upside. If instability was a negative, then stability should be a positive. Bullish!

Crossing over of the 50,100, and 200 DMA on the Gold Daily chart:

Don’t look now, but for all the wailing and gnashing of teeth, gold is about to see the 50 DMA above the 100 DMA above the 200 DMA. This golden cross setup is seemingly timed to catch people off-guard given the poor sentiment we see now, yet will trigger buy signals for technical traders and algos. With about 60% of stock “market” volume now quants, this is not immaterial. With a massive turnover in shares last week, especially the huge volume on Fed day last Wednesday (see black arrow on chart, look at that volume level) and follow-up churning, there has been a significant rinse in the complex. Lots of longs have been spooked out of their positions, and some shorts have covered profitably. This actually looks good to me, with Quad witching just passed on Friday, and particularly the Thursday and Friday follow-on action- no waterfalls, just tons of repositioning.

The tinfoil hat wildcard, but worth a mention: Is the Fed schizophrenic or working a plan?

Traditional analysis says that when the Fed raises rates, gold craters. Yet during this recent cycle, when the Fed raised rates Gold took off. And guess what? The Fed just raised rates. Short version- Bullish!

Long version: I actually think there is a reason for this counter-intuitive recent action in gold when the Fed has raised. Traditionally, why did the Fed raise rates, and when did they do it? They raised when the economy was getting hot and genuine fears of inflation were taking hold, and they did so to cool-off inflation and that hot economy by sucking liquidity into bonds through higher yield. So with better options (yield) available, gold (which produces no yield and is an inflation hedge) went down. But recently, the Fed has raised with (1) no real signs of inflation, and (2) and a genuinely poor economic picture. So gold didn’t do what it usually does, and in fact one could argue that gold was simply performing another of its traditional roles- that of the Safe Haven in times of uncertainty- since raising rates into a poor economy is quite possibly a recipe for a stock market crash (given that the market is in a highly overvalued position historically). In this context, gold rising (insurance) when the Fed (stupidly) raised rates actually makes perfect sense.

Tinfoil Hat version: Has the Fed decided to become as part of “le Resistance” like so much of the Washington establishment has, and is this the sign? Before you dismiss me as a nutter, answer this simple question: After 8 years of keeping what was initially billed as “extraordinary measures that are historically unprecedented and temporary” in place for nearly a decade now, why has the supposedly ‘data-dependent’ Federal Reserve suddenly just hiked rates AGAIN at a time when economic data just missed so badly? Again? And yes, the previous sentence showed how what the Fed once described as temporary is now permanent, what was once extraordinary is now standard, and how "data dependent" means ignoring the data no matter how bad it is. This is sheer Schizophrenia. Or, you know, Central Banking.

The most recent miss inspiring our data-driven Fedsters to hike more was so big it was the worst miss in six years! In fact, the last time economic data disappointed by this great a margin the situation was considered dire to such a degree that Bernanke unleashed “operation twist”… back in August of 2011. So how is this rate hike in any way logical for a “data-dependent” Fed, absent the deliberate intent to muck things up?

If the Fed were truly making policy as economic data dictates, they wouldn’t be doing this. So why keep hiking rates into a dumpster-fire of an economy when they know could easily lead to a major stock market correction, crash, and/or recession at some point (maybe soon)? Occam’s razor suggests: because they’ve decided that’s what they want! If you do A, knowing it will probably cause B, that strongly suggests you desire B as an outcome. Simple. Call me crazy all you want, but that explanation seems quite consistent with the tone and behavior I’ve seen coming from the rest of the DC/government establishment for the last half year, so I don’t see why the Fed would be any different. When the feeding trough is threatened, some folks ‘resist’, some folks leak, some folks hike. Potato, po-tah-to.

And if you think the market won’t be allowed to drop because it’s never allowed to drop, ask yourself WHO has not been allowing it to drop for the last 8 years? The PPT/Fed. And what are these rate hikes suggesting they might want now? Ummm hmmm.

Regardless, don’t totally sleep on the long-shot catalyst folks; the S&P finally heading south as a possible catalyst for gold…

Trendline test, rise above, and rejection:

One of the lessons I’ve learned the hard way in the metals is that trend lines are not what classical trading theory says they are. In classical trading theory, a trend line should act as a psychological level of support or resistance, and when (for example) price rises then bumps up against it then breaks through, it is supposed to trigger a new wave of buying as other market participants (seeing the strength of price in breaking through the barrier) join in the buying, driving price higher (or of course, in some cases rejecting price and sending it back down).

But all that supposes free and fairly traded markets among participants of equal standing before the law. And these are the metals. HAHAHAHAHAHAHA!!!!! So here, trend lines are places where, when resistance is breached, once price breaks through and attracts new buyers, THEN the market “makers” crush price with an avalanche of paper to harvest all that new money that just came in. Ring the register, bank the bonus.

So the way trend lines work in the metals is that price bumps against resistance or trend lines, and if it goes through bringing in new longs, THEN it gets smashed back down below, and only when everyone who just got run has either been cleared out or turns bearish will price finally be allowed the possibility to rise back up through that line at some point.

In other words, in the metals, trend lines are only valid indicators after the gang-rape has occurred there. We’ve now had that in gold (twice, actually), so in my book, we are finally clear for a rise up through 1300. Strange? Yeah, but that’s how it works around here.

The Bottom Line: Risk vs. Reward

In the end, all of the above is just food for thought, or fun speculation. As the wizened sage of the trading pits atlee once said, “That’s a nice story. Ms. Market doesn’t care about your story, she will go where she wants.”

This is a basic range-trade with well-defined risk vs. reward. You take the known trading range, buy-in near the recent low of that trading range, and use that as your stop- it’s a simple play, regardless of whether any of the above winds up being a catalyst or not. Right now, GDX is just above the recent lows of May, so we have a very clear and recently defined low. We need to make a higher low above this level if we are going to continue moving up, so there is your well-defined stop-loss level. GDX is around 22, and 20.75 would be my stop-loss for this trade… we go below that, the trade is busted, so get out (FYI, I find that gold and silver are gamed so much day to day that setting stops, entries and exits via GDX is much more reliable and predictable, even if the vehicles I am trading are gold and silver). A tight, well-defined 5-6% stop-loss if you’re wrong is acceptably low risk IMO.

But the reward… if this takes off like I think it could, we would at least revisit the highs of GDX 31.5 of last summer. The safe play would be to take 50% profits near that point, then wait for market action to decide further, but I suspect it’s possible that the momentum generated by a rise from 22 to 31 would mean that bull might very well keep running until we hit the 36, and possibly on the outside the 40-42 range. But let’s stay conservative (recent range-bound) in our calculations and stick with the 31.5 figure- that would be an unleveraged gain of 43%. Put another way, that’s a risk/return ratio of 7.7 to 1 on this trade. (Best Borat voice) Verra Niiiiiiiice!!!! And if it keeps rolling to 36 or even 40? Ka-ching!

. . .

So you can have your summer doldrums, your new lows, and your gold seasonals. This parrot, with disciplined stops, is going long.

GLTA

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AIJ
Jun 19, 2017 - 11:41pm

If cryptos were not making any money and AU an AG were..

...then there would be no crypto posts. Isn't that obvious. There is an ADDITIONAL way to make fiat right now to acquire physical metals.......and all you have to do is to desire to do it............

What would Vince Lombardi say......??????

"The difference between a successful person and others is not a lack of strength, not a lack of knowledge, but rather a lack of will."

jchantelDingo
Jun 19, 2017 - 11:31pm

Dingo...

You might be right...perhaps the proverbial writing is on the wall already...but I'm not so sure I'll bail anytime soon. It's true something has been lost in the us vs them theme now that some of Turdville has wandered onto another path to prosperity. We are all so tired of the beatings that it is hard to get excited about metals until we see some progress. This has to be what capitulation feels like in a PM perma-bull Strong Hold!

AIJ
Jun 19, 2017 - 11:15pm

An Internet of not just information, but of Value....

How the blockchain is changing money and business.

How the blockchain is changing money and business | Don Tapscott

Dingo
Jun 19, 2017 - 11:04pm

Divided and Conquered?!?!

Coming up to 4 years as a subscriber here at TF Metals now. The continual beatings from the PTB somehow, served to unite our little clique of Turdites. I loved the off topic stuff, as much as on topic and I happily plead guilty to posting lots of off topic BS. It was always like we were in this thing together, though.

Having stacks of metal hidden under Boab Trees, in ABX vaults and using Goldmoney as a type of cash account, I've probably got enough PMs to last me and my family through. That's my base position and I'd love to add some gold kilo bars to it one day, if a little luck goes my way. However, the stack is essentially in "set and forget" mode. My real excitement is about owning 1.5% of a small mining producer/explorer.

I post a lot of stuff about the company's great current position as well as, refurbishing and quickly bringing into production, huge old high grade mines, as well as finding high grade, Hishikari like, low sulphidation epithermal Quartz veins in Greenfield areas. The geology, engineering and business operations are all intriguing and exciting in themselves. I don't post it here though. I post it all in the dedicated forum for this particular company. Posting this here at TVille, IMO, would be inappropriate and would possibly be perceived as a "Pump and Dump". Therefore, even though I would love to post stuff here, about my little company, I exercise restraint and do not.

This site has essentially gone from being highly unified to being squarely disunited by the onset of Crypto Mania. Turdville hasn't been divided by TPTB (at least I suspect not). We've managed this by ourselves. By posters not exercising restraint and assessing appropriateness and etiquette for their comments, polarisation of our community has occurred. For me - this is a sad outcome. I originally thought that we would all be celebrating together, because we'd have virtually nobody else to celebrate with, at TEOTGKE.

Anyway - I don't have much faith in any group or quasi institution that poses a threat to the system. Invariably these groups, even I dare say our little Turdville, are eventually subverted and destroyed from within. As I see it - people only understand divide and conquer from a third party perspective. Rarely do people recognize it when it's happening to themselves.

I'll give it some more time, however, I believe the damage has already been done here. I'm in two minds about subscription renewal now, because I think that I see the writing is clearly on the wall. I'm going to probably have to go this thing alone. Several months ago, the thought of not renewing would have been unthinkable. I'll try the ignore button - like I said before. I don't think it's going to be enough to get the site's, relative harmony back though. I'm very pessimistic about my future here. I'm not saying this as a threat. It's just my honest assessment and opinion of the situation at hand. Divide and Conquer doesn't fail too often.

Texas Sandman
Jun 19, 2017 - 10:29pm

On the other hand, there's this...

This is pretty obvious... It's a big juicy bullish divergence at the most recent lows... Don't have to squint to see it. Starting to like this one a little more...

jchantel
Jun 19, 2017 - 10:24pm

Topics up for discussion

The issues as I see them that have divided Turdville lately (crypto-currency) really boil down to a few simply things:

1. Use the ignore button if you don't like what someone is saying or how they are saying it.

2. Try to use Bambiology..."if you can't say something nice don't say anything at all"

3. Remember the pain others are going through with their PM portfolio. We are all proud individuals and we know we have tried to get out of the way of this debt fiat Ponzi scheme only to find relentless manipulation. Show more compassion and less triumphalism in your new found crypto success.

United we stand...divided we fall!

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Texas Sandman
Jun 19, 2017 - 10:14pm

tepid silver buy

I'm not crazy about this because it's only slightly oversold and we have that shelf of resistance just overhead, but this meets minimal criteria I described for a bullish trade in silver. We have a bullish engulfing pattern at round number support (16.50) with oscillator oversold. And the final bar did break above the daily pivot (yellow line) and close there. Let's see how far it can go. No pattern in gold here.

AIJ
Jun 19, 2017 - 9:37pm

Elijah Johnson / Brother John F.

  • Biggest moves in cryptocurrencies are yet to come;
  • Bull market in cryptocurrencies;
  • India and China;
  • Likes de-centralized cryptocurrencies;
  • Governmental (elite) involvement;
  • Intrinsic value of Bitcoin;
  • Bitcoin avoids capital controls;
  • Is the U.S. Congress really that stupid?;
  • One year from Now 1 Trillion TAV possible
  • You can't stop an idea whose time has come
10 Fold Increase in Cryptocurrencies by Year-End | BrotherJohnF

John from silver for the people blog

https://www.brotherjohnf.com/

If you like this post, you can upvote, follow, share, and re-steem this post. Thank you!

Dirt_Reynolds
Jun 19, 2017 - 9:35pm

Thank you Pining.

Manic!! Getting caught up, a few comments, then off to the rock pile.

@everyone: Regarding the crypto specific posts. Any subject can be tiresome. Any post can go off topic. This is the world we live in. The solution is simple. In the same way that one might post that there is a "Spoiler Alert" in a forum about a TV episode that folks may or may not have seen, how about a "crypto alert?"
The ignore button is too strong in some cases. Imagine my world, I have no ability to talk about football. I want a "Sports BS" alert in threads like you can not imagine. Unless you don't like football.

Quote:
For the computer savy here is an article on how to build your own "Trezor" for alt coins using an old IBM Thinkpad.
Very interesting...
https://steemit.com/trezor/%40furion/build-yourself-a-trezor

Oh you just had to twist the knife. Ya know that Stinkpad had a nub and a track pad. I even had extra caps for the nub. Yeah I'm that good.
Note: On the convo's. I specifically do not bring it up. Observer effect et al. To be fair no one said anything on Wed.
DC/Marvel: Here is my theory. Stan was walking around the corner with some Spiderman pages. Jack had some Hulk pages. The bumped in to each other. Stan yells, "Hey you got some Hulk in my Spiderman." The rest was history and DC's Market share. :) Talk about not selling, I have all my IM's. Shellhead was like a 4th stringer, now he gets the lead.
Got the PM. thanks.

@AE: Travolta? You have seen Battlefield Earth, riiiiight?

@Ferd: You have NO (look at my posts, you will see I rarely use all caps,) idea how dangerous that is. Expand it out a little bit, and you can see where I am going. My own conservative estimates of Ag, I put @ 2MM. I don't fuck with Au, you guess.

Edit:

#keepstacking #networking

Dr. P. Metals
Jun 19, 2017 - 9:34pm

@Canary

Lol. Thanks for getting me distracted from things for a few mins.

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