Discretionary Trading
Now Reading
The Greatest Trick The Devil Ever Played
59

The Greatest Trick The Devil Ever Played

by The MoleJanuary 6, 2013

There’s no central theme to this weekend’s update – consider it one of my ‘Mole goes eclectic’ posts. I’d like to kick things off with some musings on gold and silver. Despite a rather painful correction it continues to be on everyone’s mind. And thanks to a continued and systematic currency race to the bottom across the board precious metals are guaranteed to remain on the forefront of anyone aware of being subjected to the hidden tax on the ignorant, a.k.a. inflation. They say the greatest trick the devil ever pulled was to convince the world he didn’t exist.

Well, I think the devil (or Kaiser Söze) may a piker compared with the likes of Bernanke and Greenspan who both convinced the world that rampant inflation via quantitative easing would be something to be desired or at minimum of long term benefit. Of course to us traders all of this may be academic but if gold and silver are considered the last vestige of safety from inflation then we should expect it to remain a crowded trade – on both the up or downside. As speculators we concern ourselves with how to take advantage of crowd behavior and with that in mind let’s look at some pertinent charts:

When it comes to charting gold I usually refer to silver as it provides us with a lot more context, in particular in recent years. You may recall this chart from a little over a year ago when I made a point about silver having gone exponential. The ensuing shake out was just a matter of time and not surprisingly it’s been a sea of tears ever since.

Of course this was not the first time silver went exponential – as a matter of fact it has happened several times since the mid-nineties. And each time it was followed by a rather thorough correction. The point I’m trying to make now is that each and every of these corrections led us below the 61.8% fib line – sometimes a lot lower. Now I concede that there are dozens of ways to slap some retracement fibs on this chart but either way it should be clear that the current correction has thus far been rather mild when compared with previous ones.

Now the problem I usually have with charting gold should be pretty obvious – since the Greenspan put around the turn of the century it’s been running the most memorable short squeeze of a generation. And that’s not really helpful as there’s not much to hang our hat on. However, when considering silver’s rather distinct retracements it made sense to put the two into context. Although it’s not the most obvious chart you’ll find it does seem to suggest that there is a cycle to things, even with gold. In other words – if you want to know where gold is heading long term then look at silver.

Now here’s the same view but with silver against the silver:gold ratio. And it is here that things are coming a lot more into focus, wouldn’t you say? We we have a pretty well defined long term channel which may aid us in timing long term buying and selling opportunities of the shiny stuff. Currently this chart continues to leave some room for a continuation of this correction. If the ratio manages to drop toward 0.0160 then it may be time to start accumulating some physical but until that happens I remain pretty long term neutral (which means I only play the short term via my charts).

With that in mind let’s look at the P&F charts on both gold and silver – after all they treated us very well last year:
[amprotect=nonmember]
More charts and non-biased commentary below for anyone donning a secret decoder ring. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero or Geronimo subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
[/amprotect]
[amprotect=1,13,9,12,5]

And it’s not looking exactly bullish here – descending triple bottom breakdown on the 4th and a continued bearish PO of 1560. Of course we could drop quite a bit lower here – this is just a guide.

The LT panel suggests that 1638 needs to hold – a drop below that mark and we breach a medium term support line.

Silver – pretty much the same story – also triggered a descending triple bottom breakdown. And the price objective would get us back to a long term support cluster near 26.5.

I told you guys it’ll be an eclectic post and here’s one I definitely wanted to throw in the mix. In recent days the Dollar has managed to push higher, even breaching its 100-day SMA and thus signaling a long. However it now is facing considerable medium and long term resistance  and I can’t help but question its ability to overcome the 25-week SMA, a weekly NLBL and the 100-month SMA. It’s exactly where it failed the last time and until we see a breach we have ourselves a medium term short setup here. Believe me – I would love to see this one snap higher and being short here is a great way to hedge against continued inflation.

SPX – double top breakout on the first trading day of the year. Our new bullish target now is 1600. You may recall that we also reversed bearish PO as we pushed above 1445.

Here’s one I haven’t been showing for a while but once again it’s time for an update. My CPCE Deluxe chart is once again approaching its reversal line. In the past few years a touch of that diagonal was preceding a meaningful correction. We are not there just yet but I wanted to put it out there ahead of time.

Let’s finish up with an exotic one. I looked at the BDI today and noticed that it was once again scraping the bottom of the barrel. Now that’s however not the focus of this chart – it’s another observation which is that apparently there is usually a seasonal drop on February. Now whether or not this affects the tape is another question – apparently it does not as I don’t see a firm correlation. So why share it with you guys?

Well, because if we make another low in February you’ll probably once again hear about the BDI and the corroding state of Western economies from all the usual suspects (sticking with the initial theme). And parallels will be drawn suggesting that a major market correction will have to be just around the corner. But from what I can gather the market seems to care as much about the BDI as it does about J.Lo’s impressive backside. Apparently quite on the contrary – it now feeds off the fact that QE initiatives in one form or the other will be here to stay through 2013 and probably well beyond.

[/amprotect]

Cheers,


About The Author
The Mole
Mole created Evil Speculator amidst the chaos of the financial crisis in early August of 2008. His vision for Evil Speculator is a refuge of reason, hands-on trading knowledge, and inspiration for traders of all ages and stripes. You can follow him and his nefarious schemes at various social media waterholes below.
  • Th3_Acist

    Solid.

  • http://evilspeculator.com molecool

    By the way – why is platinum so damn cheap compared with gold? All the platinum EVER mined would fit into a 25^3 feet box.

  • RacerXX

    Hello my name is RacerX and I am a Silver trader.

  • rothstein

    how do I make that silver – silver/gold chart?

  • AmazingLarry

    Stockcharts.com. Type: $silver:$gold
    To plot silver behind it, enter $silver as Price in the drop down box under Indicators. 

  • Skynard

    Welcome RacerX, looks like you’ve come to the right place then:)

  • RacerXX

    Is this is the support group for recovering PM traders?

  • Skynard

    Most are Futures or Forex traders. No, PM indicates that you don’t come back:)

  • RacerXX

    I was just kidding w/my comment. I got absolutely shellacked last year doing the Doomsday Inflation trade.

  • Joe_Jones

    <3 the post

  • Skynard

    Ah yes, stick around then. Hard lesson that every traders must overcome. We bank coin no matter the direction here.

  • Darkthirty

    Tha bruthas don’t be wearin them some platinum, can’t gits it wid da EBT

  • newbfxtrader
  • http://evilspeculator.com molecool

    Not that I didn’t warn everyone (over at ZH – cough cough). And they all laughed!!!

    Guess who’s laughing now? 😉

  • http://evilspeculator.com molecool

    Oh-oooh – here we go…

  • http://evilspeculator.com molecool

    hey – no copying!! 😉

  • http://evilspeculator.com molecool

    I guess plagiarism is the ultimate form of flattery.

  • http://evilspeculator.com molecool

    Had to work hard on this one as I was coding all week(end). My brain needs a rest – sheesh!! Good progress though.

  • Darkthirty

    Believable, when the FEMA money flies around here they go from welfare office to welfare office in a big caravan getting cards all day. 

  • http://evilspeculator.com molecool

    This is why Asia is kicking our asses: http://www.youtube.com/watch?feature=player_embedded&v=1YLlX61o8fg

  • newbfxtrader
  • http://evilspeculator.com molecool

    Please guess this man’s penis size: http://www.dailymail.co.uk/news/article-2257209/Wealthy-Indian-Datta-Phuge-spends-14-000-shirt-GOLD-impress-ladies.html?ito=feeds-newsxml

    I think we’re talking millimeter here…

  • http://evilspeculator.com molecool

    Yup – the large specs are usually spot on – or inverse the hedgers 😉

  • newbfxtrader

    Lol Indians do love their gold.

  • Darkthirty

    Huge spread in esf3

  • newbfxtrader
  • newbfxtrader

    Seriously take a look at the link I posted and tell me how you could have lost money trading silver?

  • Joe_Jones

    I’m sure it will pay off.  

  • http://dartht.blogspot.com/ Evil_Gerb
  • Skynard

    Yep, big rock/little …….

  • RacerXX

    Yep I remember that post well Mole. I got out.. but kept thinking I’d catch the bottom. Problem is I kept catching it.

  • Darkthirty

    Grew up in Gary Indiana, come by it righteously……

  • RacerXX

    Thanks great chart. I typically look at the Finviz site for commodities charts. They aren’t very clear with the money flow subgraphs. Looks like I need to change my dealer–I mean “provider”.

  • newbfxtrader

    Seriously please stop losing money. COT data is freely available. Use that along with whichever indicator you use (RSI, MACD whatever) and you should be right most of the time. Nothing is 100%. If you look at the large specs they are NOT buying yet and neither should you. If it changes next week you can start taking longs but not before.

  • newbfxtrader

    And Mole with his magical PnF charts! Manages to hit the target more often than not. 

  • Skynard

    Breach of the hourly will get me full short, target is 1425 gap and 62 retrace.

  • rothstein

    picking up leech crumbs. 

  • rothstein

    thanks larry.

  • Skynard

    Tell me someone shorted AUDJPY ramp tonight………..

  • newbfxtrader

    Can I borrow a toe?

  • Skynard

    Ya, don’t start putting fingers in now:) Seeing a hefty move on the horizon now!

  • newbfxtrader

    Just tell me its going down finally…..

  • Skynard

    Can’t say, if 1400 taken out though we could see some good shakeout. Probably not over yet, but will be long by 1-23-13 (AAPL earnings).

  • http://dartht.blogspot.com/ Evil_Gerb

    Market Makers ‘go out on a limb’

    http://i.imgur.com/9AoAk.jpg

  • Skynard

    Hehe, yes you did:)

  • Skynard

    Long term resistance:)

  • captainboom

    Mole, can we get a Daily Zero update before market open?

  • Skynard

    Nice looking div here:)

  • Skynard

    Yen might have the go here:)

  • Joe_Jones

    Not in Beer making. Everyone his own priority. 
    burp…         

  • itcomesupinwaves

    Inside week/day on CADCHF

  • Skynard

    Hehe, my evil plan seems to be working. silver up/market down (a little:)

  • http://evilspeculator.com molecool

    Done! You know we keep it around just for you :-)

  • captainboom

    Appreciated.  I like to check it for a big picture view.

  • http://evilspeculator.com molecool

    Great – TOS NZD/USD chart completely borked now. They really don’t have their act together. The day they sold the company to TDA it was the end of it.

  • http://evilspeculator.com molecool

    ¤ø„¸¸„ø¤º°¨¤ø„¸¸„ø¤º°¨ 
    ¨°º¤ø„¸  N E W  „ø¤º°¨ 
    ¸„ø¤º°¨ P O S T “°º¤ø„¸
    ¸„ø¤º°¨¤ø„¸¸„ø¤º°º¤ø„¸

  • http://evilspeculator.com molecool

    And you are wise to do so.

  • captainboom

    Truth be told, I’d love to have it automagically updated every day.  For example, note the middle Daily Zero panel during the last week of the year.  SPX was dropping, but the DZ didn’t confirm the drop, maintaining a positive reading.  Would have been nice to see the additional information in real time, as it foretold the coming strength.

    I’m not complaining, as I know you are a busy guy.  Just one of the things on my wish list.  This is by far the best place on the web.

  • AMCabrera