MARKETS REST; TRADERS TOTALLY CONFUSED

                               Hey, Let’s Look At The Charts

A very boring Friday with enough confusion so everyone can lose some money. Nothing like the “Flying Wedge of Death” in just about all markets to let you know nothing is a sure thing when it comes to trading. Squeeze the shorts and hit a new high for the day, then plummet to a new low and jettison the day trader longs. Rinse and repeat.

For those of you not familiar with the FWD [Flying Wedge of Death], directly below is today’s chart from EURUSD.

                                     Welcome To The Squeeze

No matter where you are at in this trade, you really can’t feel comfortable. Odds are, your stop is in there some place and will get hit; and that is the whole point from those that have the money power and can shove the market.

Really, I could have picked any market today and it would resemble this bucket of slop. Have I mentioned before just how much I hate Friday trading? Except for the mini-scalpers, this type of action is probably the most frustrating; and with good reason because you never know until it is over if the FWD is going to be a FWD or if it’s going to keep going.

If it keeps going [which is the most probable scenario] and you don’t get out, you face some unacceptable losses; if you get out, congratulations you bought the top or sold the bottom; if you flip your position around, you get the double-edged sword of being wrong on both sides of the market. Only the mini-scalpers win.

As most of you know, I have been trading since the dawn of the modern trading era. I would give you the exact year, but it would age me unmercifully. To give you an idea how long that was ago, people mostly still used a black rotary phone to make phone calls. [Don’t ask what a black rotary phone is.]

When I first cut my trading teeth on the trading floor, older floor veterans would talk in hushed tones of this dreaded formation; it was one of the very first things you prepare to avoid in order to be successful.

I don’t know what this means, but in the last 4 months I have seen the dreaded FWD more times than the prior 15 years combined. Now, in some markets, like Centrally Planned gold , it makes sense since the major objective of central planning is to kill the spec trader at every opportunity. Let me just add they are doing a great job of destroying the gold market.

I can remember times in the past [usually a few weeks to a few months] where we had action like this; most professional traders responded by cutting leverage and/or reducing position size and moving to the mini-scalp strategy to pay the bills until market action improved. Problem is that you miss nice moves like yesterday’s big reversal down move, and end up sitting there looking like an idiot.

When does the FWD end? When it does; how’s that for scientific analysis?

Welcome to trading; if you’re not humble about this process, you soon will be.

Have a good weekend everyone.

-vegas

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

REALITY IN AMERIKA: SELL

                                    The Alarm Clock Says Sell

More often than not, if it’s 8:20 A.M. Eastern Time, hold onto your hats and get ready for the daily U.S. dealer selling. Sure enough, today is no different.

With the centrally planned government algorithm cycle in oil still negative and gold looking early like the 5 day cycle is coming to an end, sellers hit the market as the U.S. session opened. Ho hum, what else is new?

But wait…

We aren’t finished just yet. How about a new high, our very own $20 in 20 minutes blue-light special? Sound good? Get used to this kind of volatility and changes in cycles/momentum going forward; as the U.S. and European fiscal situation deteriorates further with each passing week.

Don’t expect the Fed, or the other government planners in Europe, to just sit by and let you take advantage of the folly of Chalky Soetero. Buy and hold will get you hurt.

And, just to add insult to injury, our friend the FWD [Flying Wedge of Death] has made another appearance today with the late morning reversal. From the highs, where you gonna go if you’re just getting long?

To government, it’s just prices; to you and me it is real money. They don’t care about price; they care about getting you to take it lower for them. Looks like mid-morning somebody said “No Thanks” in a big way.

Have a good day everyone.

-vegas

WHO CARES?

                                       I’m With You Mr. Kitty

Apparently nobody today that’s for sure. I’m guessing we saw about 40% the normal volume with a very tight range in gold. The only thing missing for the 'official" FWD [Flying Wedge of Death] was a new low late in the day.

Sure, blame it on Easter, but maybe it’s the account destruction of the last week that has most retail traders wanting to be in church early. Just sayin’ maybe.

The algorithm was in buy mode today looking for entry below 1619.

“So sorry, not today.”

Tomorrow is Good Friday and it’s NFP day. Oh boy, a nothing night followed by a total stop hunt starting at 7:30 A.M. tomorrow morning. Markets that are open will trade off this and I’m sure fireworks will hit the gold market in one way or another.

We did have 3 sell signals today, but no buy signals; but the algorithm wasn’t looking for sells, it was looking to get long below 1619.

Without any test of yesterday’s low, today felt like the proverbial “dead cat bounce”. Sure, we had some covering going into tomorrow’s NFP, but the gold cartel dogs backed off today. It was if they didn’t want a test of the lows.

Vampire Squid [Goldman Sachs] is calling for 200K tomorrow for the NFP report. If we get it, I think selling could resume and 1600 starts to come into focus. It’s all about future Fed printing and a stronger economy negates that, thus hurting gold.

On the other hand, a weak number under 100K could see gold rally into the weekend. Unless you got really strong hands [and stomach] being short into a rallying market into a weekend isn’t something most accounts want to do. We’ll see.

Have a good day everyone.

-vegas

THANK YOU FED

                                     Trading Manual For Today

Just another “Flying Wedge of Death” [FWD] day until the Fed minutes were released; then it was a gold bar large rock off a cliff. The Fed, under the delusional policies of Weimar Ben, has painted themselves into a corner.

On the one hand you got the Bernank, and on the other you got the hawks like Fisher. The problem for the markets [gold, oil, equities] is that they can’t stop the money spigot [QE whatever] or it’s over for the bulls; lookout below.

Just a hint maybe the “new” printed money might be delayed and you see what happens; gold down $40 and equities skid.

On the other hand, interest rates can never go up from here or else. Else what? Else the entire GDP of the U.S. will have to be used for just interest payments. Gig is up folks, the math says so.

Meanwhile, we have a Prez who is a complete narcissist and moron. Reelect this guy Amerika and the U.S. becomes Zimbabwe within months. Thank you Fed for telling us today just how screwed up this country really is and what your priorities will bring upon this country.

Have a good day everyone.

-vegas

THE FLYING WEDGE OF DEATH

                            Kinda Like Trading Sometimes Isn’t It?

Over the last several weeks, I have either mentioned directly or indirectly the single biggest killer of trading accounts since stone-age Neanderthals traded Wooly Mammoth bones. I am of course referring to what I affectionately call “The Flying Wedge of Death.” [FWD]

Every single trading day of my life, since I started trading professionally back in the day, starts with a worry that today may be the day the FWD shows up and pays a visit. I have seen more traders destroyed by this than any other single market event.

Lately, meaning the last couple of months, the FWD has shown up more than usual, and so today I have decided to spell it out in more detail.

Below is today’s 5M candlestick of spot gold from about 1 A.M. to 11 A.M. [Chicago time]. The highlighted blue squares are new highs or new lows [or test of the low] for the approximate 10 hour period. The red trend line on either side forms “The Flying Wedge of Death.”

What makes this type of trading so hard, is the fact that you have two competing camps [bulls and bears] slugging it out via prices, and neither one is winning. You get caught up in this, and don’t recognize it for what it is, you run the very high risk of constantly losing trades and in the process watching your stops get hit and then reversing smartly.

You have a profit for about 10 seconds, and then the market reverses swiftly and goes to your stop. Having cleared out stops, and becoming convinced the market is now headed the other way, you flip from buy to sell [or vice versa] and within 15 – 30 minutes you get hit again. Rinse and repeat, and now you have real losses that have clocked your account by anywhere from 20% - 50%. Having fun yet?

So, how can we steer clear of this type of trading? What conditions exist that allow this type of trading?

Well, one never knows with 100% certainty, but my radar went up with the late after hours rally yesterday. Add to that the usual ‘Lemmings in Asia” a few hours later, and you just had a stealth rally of about $15 during the lightest volume part of the day.

What it means is that when the “meaty” part of the day commences [Hint: Europe & U.S. sessions] you’re going to have traders on both sides of the market who can’t wait to “take advantage” of their particular bullish or bearish view of the market. Welcome to “The Flying Wedge of Death”, where neither new highs or new lows will have any follow through and will swiftly reverse course to the middle range.

Of course, it is easy in hindsight to see this; not so easy as it unfolds in real time. When it ends, and one of the camps throws in the towel, you get what happened between 11:30 A.M. and 1:00 P.M.; a $20 straight up rally.

If you got chopped up in the FWD, you needed the $20 rally in 90 minutes to make back the money you lost in the previous 10 hours. No thanks.

If I were to place the algorithm over the above chart, extremely rapid price changes basically negate the effectiveness of the signals. In the 10 hour chart above, gold had 11 5m candlestick bars $3 or greater with only an approximate $12 range AT ITS WIDEST!

Given the above conditions, waiting for signals is not the way to go; you have to bale at the slightest hint of a price correction. Remember, you have the dealer spread to deal with along with slippage when they don’t really want to take the other side.

There were plenty of days on the trading floor where it felt like you couldn’t get an uptick to save your life. The market closed for the day and you would go home thinking gold was toast. You walk in the next day and it’s called $15 higher on the open, and you want to go out and stand blindfolded on the Eisenhower Expressway.

It happens, and what you have to do is not take it personally or think some higher life force sitting in the nearest galaxy is getting a big chuckle.

Going forward, given the fact the market is putting in moves in off hours, I may trade these hours. The downside of course is that you might be in a position for hours at a time if things slow down. If it happens, just deal with it.

I hope this helps some of you and that no matter if you use my algorithm or not, you can keep an eye out for this particular type of trouble.

Have a good day everyone.

-vegas

MEANWHILE, THE NEXT DAY

                           Couldn’t Find The Rally Button Either

A rather disappointing start to the week; even the “Lemmings in Asia” [LIA] did what I wanted. Seems the marching turtles couldn’t find the rally button.

The algorithm had 5 buy signals today; the first few came in the Asian session and allowed me to set up “free trades”. Unfortunately, the small rallies couldn’t hold and the market moved lower for most of the day.

I was somewhat surprised of 2 things today; 1) no attempt on the highs after the open, and 2) the depth of the decline to the 1692 level. Deflationary forces, early dollar strength, and a general “risk off” attitude today towards the metals, and you have the “$10 flying wedge of death” chart pattern in the U.S. session.

The range was decent but once the U.S. session opened there wasn’t much left of the bull case for the day. Are we gonna have 2 back-to-back huge reversal days? We did get a $10 rally off the low, but like recent days it came so fast it left the algorithm lagging on the buy signal.

This is the kind of day that leaves both bulls and bears somewhat happy. For the bears, there was no follow through of Friday’s massive reversal. For the bulls, the sell off got rid of weak longs and the market still looks set to close the day above 1700.

So far, it looks like the market is congesting the massive sell off we saw on February 29, backing and filling and trying to find a level from which the bull case can resume. Before we can get back above the 1725 – 1750 level, the market is going to need some more time.

Have a good day everyone.

-vegas

THE OTHER SHOE

                                 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.

-vegas