Tuesday, March 6, 2012


                                 Slip Or Get Hit; Take Your Pick

As I stated after last Wednesday, look out for the other shoe as it drops.

Meanwhile in Asia tonight, I’m sure the lemmings will be out in full buying force thereby ensuring a test of today’s low by the time the U.S. session gets rolling.

“Guys, listen to me: stop buying this stuff every night. Give it a rest so we can bottom out here. Geeeeesh!”

The major problem trading gold today was risk management. Most of the day was involved with “the 15 minute cha-cha”: up, up cha-cha-cha; down, down cha-cha-cha.

“$5 down, $6up, $7 down, $8 up cha-cha-cha; Hey, I’m not stepping on your account toes am I? Well, have a cookie! HEY, I thought you wanted to dance?"

So, where do you put your stop in this hyperbolic mess? Looking at a 5M candlestick today should convince you that $3 - $5 / oz. stops would have gotten your account hurt. So what do you do; go to $10 stops or $15 stops? If so, and you by chance get taken out; please explain to me how you plan to make it back? [Hint: you can’t]

Today’s action I define as “the flying wedge of death”; each break and subsequent rally get bigger, thereby creating a wedge that gets bigger [thus stopping you out on each one].I have always treated these types of days the same (no matter the market); I walk away and don’t trade. And that’s the reason I didn’t trade today.

I want to bring up the issue of the 800 lb. gorilla in the room. I’m referring to the ETF [Exchange Traded Fund] GLD. This ETF is one of the world’s largest holders of gold bullion, with holdings of thousands of metric tones.

What happens if millions of people redeem their shares and want to get out? Where do you go to sell hundreds of tonnes of gold because you have redemptions to fill within 2 days?

Gold has been up 10 years in a row. There has not been a bear market in gold SINCE the inception of GLD. Nobody really knows what will happen if the public sours on gold and decides to go someplace else with their funds.

I may buy breaks, but I don’t buy waterfalls. What we saw last Wednesday [Feb. 29,2012], when gold broke over $100 / oz., and a little bit today as gold broke about $30 / oz., will seem like child’s play when gold eventually enters another serious bear market.

I’m not saying we are there, so don’t read into or between the lines. I still think gold hasn’t seen its high in this cycle, but next time you have the urge to try and pick a day trade waterfall bottom, think of the traders who lost 50% + of their accounts last Wednesday and whether or not it is worth the risk. I’m saying it emphatically isn’t.

Have a good day everyone.


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