STOP HUNT MONDAY

                              Some Days You Feel Like The Fox

Ever since gold rallied above 1580 the other day, the “nibble nibble BOOM!” orders from the Central Planners have been hot and heavy. The manipulations can especially be seen in the last 30-60 seconds of most 5M candlesticks; only somebody who could care less about price would consistently allow Blythe and her crew to butcher their orders in this way.

I don’t think I can ever remember another time when price, from second to second, has been so chaotic and disjointed in gold. Watching prices, you have no idea if the next second is going to quote a bid anywhere near where it was a second earlier. What looks good one second literally stinks the next.

“Run little fox, run!”

Overnight, as if on cue, the “Lemmings in Asia” took the market up to the 1599 level. I guess when you sell it from 1560 all the way down to 1528 the previous 2 days, 1599 looks like a bargain buy.

“Mrs. Wantanabe, please go find a job will ya?”

Over in the currency arena, we got the “Flying Wedge of Death” going on in some of the majors, particularly EURUSD. We got record short positions in the Euro, so until some of these weak hands get shaken out, the market is subject to quick, sharp, and vicious short covering rallies, especially in the off hours and near the European close [9:30 A.M. – 10;30 A.M. Chicago time].

After the $140 sell off [1670 – 1530] in gold, we’ve now rallied back half-way to just in front of 1600. I would expect a few attempts at 1600, but ultimately I think the market needs to step back and do some backing and filling below 1580 before it can really go higher.

Ultimately, it’s going to be the Fed June Meeting that holds the short-term key for gold prices. If Weimar Ben throws cold water on further QE, price action is going to get ugly quick. Until then, prices probably will be contained in the 1550 – 1610 area; price will move on perceptions of change in the QE dynamic.

Really, what choice do they have but to print?

Have a good day everyone.

-vegas

ROLL ROCK UP HILL REDUX

                                       Attention Gold Buyers

I’ve had this nightmare dream before; I’m driving along and everything’s fine and then out-of-the-blue the rocks come falling down crushing my car and me inside. You wake up and realize it ain’t happenin’, but nonetheless for a few seconds it’s a little disturbing.

How many times have we seen this scenario: sharp rally, crush shorts, turn common tech indicators bullish, get public long [again] at or near the top within 100 hours?

As the world falls apart and specifically Europe implodes, the smartest people in the room have just bet, in the last 48 hours, that Weimar Ben will hit the Cntrl-P button over at the Mariner Eccles building and start QE3 in June. If we don’t get it, a whole lot of people are gonna be trapped inside my dream.

I’m going to go out on the proverbial prediction limb here.

I think we have seen the low in gold up and until the Fed meeting in June. I can see about 1550-1557 on the low side and maybe 1610-1625 on the upside until then. But here’s the rub; if we don’t get QE3 from the Fed in June, and 1530 -1525 subsequently gets taken out, we are headed for a major debacle in price on the downside. And with that comes many months of price congestion and basing before gold can ever hope to go higher.

Around the 1580 level and higher today I have seen the “nibble nibble BOOM!!” phenomena from the Central Planners. There’s no doubt in my mind they were heavy handed in the market today. What do you suppose that means?

While the entire world goes ga-ga over the FaceBook IPO today [expecially California State Tax Apparatchiks], Greece is toast, Spain implodes, and European GDP is falling rapidly. Granted we needed some kind of rally because so many people have piled into the short side of gold.

[Here’s a thought; what if FaceBook opens higher and closes lower? What happens then?]

But remember this: in a bear market [not just gold but any market] the rallies are killer – they come out of nowhere and they are vicious – and they convince a whole lot of traders that the trend has just changed and now we can pile into the long side of the trade. If you look at a daily chart of gold this is the type of action we have seen since 1800.

Ultimately, after the stupid money has piled into the wrong side, price rolls over and we get the rinse & repeat cycle we have seen ad infinitum nauseum  since last Fall; buy the rally get stopped out [pick number of days here ___ ] later.

You can rationalize a lot of things, but you can’t ignore the math; Europe is complete toast and the U.S. [add Japan too] is next. Stocks are so overvalued, pumped up via the Fed to get Chalky Soetero reelected, and give the illusion that things are just fine.

We have started to see stocks roll over world-wide; practically every major stock index is lower on the year. When the complete “risk off” comes, just remember gold isn’t immune.

Meanwhile … Chuckle of the day before the weekend.

Have a good weekend everyone.

-vegas

Update 3:15PM Chicago Time

In case you were wondering why I have Friday rules, I present EURUSD as prima facie evidence of what the Central Planners can do when conditions are thin and stops are on the plate. At 2:00 P.M. we had a melt up stop hunt in the EURUSD of about 60 pips within a few minutes on zero news.

Whatever can make your weekend can destroy your weekend. I wonder how many Euro traders are crying in beer as I write; only it won’t just last a few minutes, it will be there all weekend into the open on Sunday night. Been there done that once in 1980; ain’t ever happened since.

Sometimes it may seem to those who are new to trading and creating wealth that my methods can be restrictive and that I may miss some profit opportunities for no apparent reason. Lesson #1; first do no harm, then make money. I rest my case.

The Dow 30 closed near the lows of the day as FaceBook closed at $38. Another pump and dump scam Ma & Pa Kettle will eventually lose money.

Over the weekend [probably Sunday] I’ll have a special post. Tune in for details.

WHEN WILL THE MUPPETS LEARN?

                            We’re Vampire Squid & Here to Help

All the exuberance of Tuesday’s advance just got a whole lot of cold water thrown on it. Even a Vampire Squid [Goldman Sachs] buy recommendation to their customer clients muppets couldn’t save gold today.

“Hey, it’s only money – and yours at that!”

Until late morning stops were set off, it was looking like a pretty dull affair. Stock market weakness, along with declining crude prices, and a rising dollar proved too much too handle for gold.

I’m wondering how many muppets bought gold while the prop desk at Vampire Squid was selling?

Below is an example of what I was talking about yesterday. The black dot is where the bid started climbing from about 1674.09. Over the next few seconds gold climbed all the way up to about 1675.09, a gain of about a dollar. If you long, from let’s say 1674.00, things for a second look promising; and if you’re trying to get out you have to push the liquidate button on the way up.

But let’s say you hesitate – wait a second – wait for it to roll over. Sorry, you lose. In the next second [red dot] the bid is 1673.83. What was a gain is now a loss Welcome to nibble, nibble, nibble, BOOM!

If you are not early, either getting in or getting out, you will pay the price with the dealer.

This is the major reason I have cut my leverage the last couple of months from where it was most of 2011. What looks great one second looks like death the next, and if you have a very highly leveraged trade you’re gonna hit the panic button and end up feeding the dealer.

I’m no muppet, and I don’t trade to feed the dealer or the house; I trade to make money. In these types of conditions it will be near impossible to get the price you want when you want it; you have to be early and be willing to take the money and run.

If you choose to wait, most likely price will get away from you and whatever risk management priorities you once had are now out the window. How do you recover from this?

Have a good day everyone.

-vegas

TRADING MECHANICS 101

                                     Listen When Gold Speaks

Our old friend returns today for another visit. I am of course referring to the “Flying Wedge of Death” [FWD]. Below is the candlestick of today’s action in 15M.

If I had to isolate one kind of market action that almost guarantees losses among most traders, this is it in spades. The problem is threefold: 1) it’s nothing but a stop hunt at both extremes, 2) the reversals at the boundaries are very fast and messy, and 3) there is no follow through at either end.

In most cases, FWD occurs in relatively small range environments; and that makes it particularly dangerous because it is so easy to go from the high to the low and back again numerous times. The key is the breaking of the 50% retracement of the range. When that happens the market is set up for potential trouble.

One of the keys at the boundaries of the FWD that can give you a possible hint of trouble is what I call the “nibble, nibble, BOOM!” phenomena. An example will hopefully clarify better than a windy vegas explanation.

Let’s say we're near the high and spot gold is 1694.00 bid – 1694.30 offer in your order box. Let’s take a look at how the bid trades second by second:

Second 1:         1694.00 bid,    [nibble]

Second 2:         1694.17 bid,    [nibble]

Second 3:         1694.28 bid,    [nibble]

Second 4:         1694.39 bid,    [nibble]

Second 5:         1693.81 bid.    [BOOM!]

So, you’re sitting there long and in the flash of an eye blink you’re down 0.58 from maybe a place you wanted to sell; sorry, it’s too late. You had your chance, and now you will join others chasing the market down for your sell.

Which brings up an important point when you trade spot gold and not futures; most brokerage houses [or banks] will not allow limit orders unless outside a predetermined parameter. At Hotforex it is 10 pips, which is $1.00, but most houses are wider. So, why do they do this?

Easy. The dealer doesn’t want you competing with him for buy/sell prices at the current market.

“Hey YOU! Yea You retail trader; this is my gig and I’m not gonna allow you to mess up my pricing. I got stops to run and other orders to screw, and you aren’t gonna trim my margins. So, you can put that market order in and I will screw it royally I will take care of you.”

Except when you get “nibble, nibble, nibble, BOOMED!”

When you start seeing this happen near a high/low for the day, odds are very good the market isn’t going to be able to continue on its course. Gold is speaking to you; listen to what it is telling you.

Have a good day everyone.

-vegas