Bill Cara’s Blog for Dec 20, 2012
CTA Trading Desk Morning Report
[7:00am ET] Good morning, Geoff here.
I have been thinking a lot about gold the last couple of days so I looked back at my trading journal over the past decade.
I have been a professional trader since 1989. However, I only started trading gold about a decade ago and have learned 10 times as much about emotions and trading in those years, in that vehicle, than I have in all the other years with all the other security types combined. This is because gold is the most emotional trade there is and traders do stupid things with it. The tech bubble in the late 1990s showed how irrational markets can get but gold trumps that period. My early years when I traded in an actual trading pit, surrounded by screaming traders, was a great lesson about how to fade MY emotions and gave me a great starting point for gold, but traders never stop learning or they fail and I have learned a lot about gold.
Cocky traders will eventually blow out their accounts. Survivors have been humbled by mistakes and learn from them but gold traders can’t seem to keep their emotions in check.
Over the last few months, I have made some good calls on gold only because the key drivers for a long trade were present – not because I have a crystal ball. Two weeks ago I told you that those key drivers were in place for the gold miners much like they were in place for the S&P 500 in mid November. The S&P long call has been correct and has not looked back. However, the gold miner trade has not performed like it has in similar past periods and I have written notes of caution because of the poor price action.
Although the long miners signal has not failed yet with a lower price, it has not performed as well as I thought it would based on history. So, I want to repeat that you need to have stops in place or have the fortitude to hold through market declines. When the US dollar did what it looked like it would do (down) and the stock market did what it looked like it should do (up) BUT gold doesn’t rally, it has to get your attention. I have read some trading sites that are showing anger and despair with many traders talking about throwing in the towel on the asset class. This is exactly the wrong time to leave the space – and that’s my point.
In looking over my notes of the last decade, I have come to this conclusion – what has happened before is happening now. The fundamentals for the gold bull market continue to improve and price will eventually move to the inflation adjusted high of about $2900 or higher. Big money knows this and is using any catalyst to move prices lower in order to run the small trader out of the market – some call this manipulation, I call it part of the game, but it is definitely there. If a professional wants to SELL a security, they want to get the highest price available and will be quiet about selling so as not to spook the market and get the algos cooking to the downside. When a professional wants to BUY and they have the size to move the market, they jam prices down and run sell stops that move price lower quickly and then they buy. It’s “sell it to buy it”. That is what is happening as those short of miners are running stops and getting out of their positions.
It’s happening in the futures market too. COT data showed a high level of small speculative longs and these are the ones getting run out of the market now. I’m guessing that Friday’s COT data will show a change in their positions because the puked them out this week.
So; should the US Dollar find support and rally now, but gold’s support fails and gold moves lower, I know that these thoughts are true.
Many people have just about given up on the gold market and if they do, they will have made the worst decision of their investing life. Those are probably the same people who got caught up in the tech mania and collapse in 2000. This is the time to protect your portfolio with sell-stops, but also watch for signs to get long because when this decline is over, that low could be the last low ever again achieved in gold.
Like I said, I have seen this same price action and emotional levels in the past and I will again.
Ok, here are the charts:
The long-term chart showing how price action repeats on its way to $2900 or higher:
I will write more on this in the coming report over the weekend but when all is said and done, the long term buy and holders will end up making the most money when the bull ends a few years from now.
Btw, I’m sorry if you still have not received the last report, please e-mail me and we will make sure that you get one. We will be sending a new report to all of you this weekend so if you don’t want one, please let me know.
If you haven’t requested one yet, please e-mail me and we will get you on the list.
Have a great trading day!
Here are the 7:00am ET snapshots of the latest equity market trading results for Europe, and futures prices plus 5-minute charts of the futures for S&P 500, 30-year US Treasury Bond, US Dollar index, Gold and Crude Oil.
|Symbol||Name||Last Trade||Change||Related Info|
||13.06 (0.54%)||Components, Chart, More|
||4.10 (0.16%)||Components, Chart, More|
||18.99 (0.52%)||Components, Chart, More|
||2.18 (0.03%)||Components, Chart, More|
||1.50 (0.44%)||Components, Chart, More|
|^OSEAX||OSE All Share||492.75
||3.16 (0.64%)||Components, Chart, More|
||1.16 (0.34%)||Components, Chart, More|
||27.32 (0.39%)||Components, Chart, More|
||3.83 (0.06%)||Components, Chart, More|
||7.85 (0.75%)||Chart, More|
||8.04 (0.54%)||Chart, More|
|GD.AT||Athex Composite Share Price Index||883.76
||5.35 (0.61%)||Chart, More|
The team will check in during the day, reporting in the Discourse when there is a new entry.
Enjoy your day.
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