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Rise Of The Pigs
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Rise Of The Pigs

by The MoleJanuary 4, 2011

Scott and I were shooting the shit on gold and silver after the bell today as PMs are all the rage these days. You don’t have to be the most astute trader to realize that pretty much everyone is long the shiny stuff these days. These are the types of setups I truly live for – once everyone seems to know something I love to show up and start pissing on everyone’s parade.

And just like Scott I love the smell of bacon in the morning. However, I don’t think breakfast is ready just yet – to elucidate let’s look at some charts:
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Charts and commentary below for anyone donning a secret decoder ring. The rest of you guys will have to wait until tomorrow – sorry. If you are interested in becoming a Gold member then don’t waste time and sign up here. And if you are a Zero subscriber it includes access to all Gold posts, so you actually get double the bang for your buck.
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This chart simply boggles the mind IMNSHO. Since October 2010 we have seen a 30% drop in the gold:silver ratio – if that is not a buying frenzy then I don’t know what is. So, it’s fair to say that the contrarian locked inside of me is waiting for a chance to slip out for some dirty deeds.

However…

The silver chart has been dominating gold and that’s where I’m getting my clues from. I agree with Scott that being short gold is probably the better choice of a victim, but I don’t think now is the time just yet.

So what we have here is a textbook divergence on the momentum side while silver is climbing higher but running out of steam. Today we saw quite a drop which shook out a few jumpy longs. But what’s more important is where prices stabilized and settled at the close – right at that former resistance line, which now seems to be serving as support.

Now I also know that a lot of PM bears have been waiting for a sign of weakness forever now and must be licking their chops right now. My intuition was that they would most likely getting positioned around the 29.5 mark (i.e. that support line) and also near the recent top.

I wasn’t too far off – case in point – the SLV February option chain – note all that activity on the put side near the money.

However, what many fledgling traders often forget (or don’t know) is that commodities and especially precious metals do not trade like equities. Well, actually traditionally they do not but most recently (due to Fed manipulations) movements in stocks seem to resemble commodities – but that’s another story. My point is that PMs have a knack for faking out contrarian traders and I don’t think this time will be an exception. So, what I think is going to happen will be a bit more whipsawing around for a few more weeks, as to give hope to the longs and shorts alike – this will really get emotions heated and you’ll see a lot of smack talk in the usual forums. Then, after the chumps have been kicked to the curb and the bus is a bit more empty I think we’re going to see a real retracement in silver, and in particular gold.

Bottom Line:

Don’t try to trade what everyone expects to happen here. Half the crowd out there expects gold and silver to run to $8,000 pretty much uninterrupted. The other half is probably betting on a slide into the abyss right here and now. If I can pull up a gold:silver ratio chart so can they. My take is a bit more indirect – I think both are wrong. Contrarians are as greedy as the pigs and I think both will be punished. A big drop will probably come when the least of them expect it – after a mutual shake out.

Cheers,

Mole

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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 the usual social media waterholes.
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  • convictscott

    Great post Mole, and after some consideration the sideways fuck around then fall is a very high probability. We both agree, I wouldnt be short just yet.

  • convictscott

    And hypothetically your sideways fuckaround then fall might look something like platinum does right now
    http://www.masterkillers.com/w

  • convictscott

    And sugar looking good too

    http://www.masterkillers.com/w

  • http://practicalt.blogspot.com/ Gold_Gerb

    these frequent posts are (uhm) refreshing.
    are you okay?

    http://www.baconshirts.com/ima

  • SW6

    Repost: Onorio “Take Profits”:

    Well i don`t post here like i used to because i`m mostly trading FX, but e keep coming here because i respect a lot of people form this comunity.
    Ok enough of bullshit here`s the deal, no words just charts in this case two charts….

    Chart number one, you all should know this from somewhere …

    http://www.screencast.com/t/fP

    And chart number two, the one and only Aussie!

    http://www.screencast.com/t/ZI

    Well what does this mean? Nothing, lets wait to see…

  • SW6

    Repost: Raised by Wolves “Anatomy of a Reversal Scalp”

    Whereas the SLV made a new high yesterday, the (SLV)/($SPX) ratio made its last high on December 7th.

    http://content.screencast.com/…

    I thought I'd point this out. Draw your own conclusions if any.

  • chronographics

    Here piggy piggy piggy πŸ™‚

    I like the Bollinger Bands on the Euro at the moment, they are poised to break. Of course they can break the wrong way first and any student of BB will know to reverse their position if it comes back through the middle line.
    Hope you all had a good break, think we are going to see a very interesting year.

  • jesterx

    Alot of people think we are doomed, but there are still great ways to make money. Even while the economy is collapsing around us.

    I subscribe to the guy from australia and his FFT economic newsletter at http://www.forecastfortomorrow… that guy has called many big events before they have happend, including the stock market crash in 2008 and the current financial collapse of the US. (currently happening) I found him from a friend last year, and he has some important work.

    His oil calls are insane, and I have been making good money with them. He is well worth a look, if you want to keep two steps ahead of the sheeple out there.

    I am worried about my financial future. Is anyone else nervous out there?

  • Brishort

    Happy new year Mole! Happy new year to all of you dilignet rats posting here. Always a pleasure to read you all.
    Still around but overworked @ work. Never found it so hard. I feel like agent Hunt ” this is not mission difficult, it's mission impossible…”

    Little P&F update :
    (I do not have time to repost rules for newbies, those around last year will remember):
    The 3 box reversal and 2 box reversal have the same message:
    [3boxes]
    http://stockcharts.com/def/ser
    [1box]
    http://stockcharts.com/def/ser

    Although it came back to around upper BB, my SPX:VIX BB chart still says don't fight the trend as long as still above BB. Weakness is still not bear friendly. Will keep you posted when I see something worthwhile mentioning on the P&F side.

    For now all is pointing fu**ing up all the time. That is the problem with technical analysis. At one point, most bear indicators will stop working and you become a Pavlov rat conditioned to only take into account the ones pointing in the direction of the primary trend if that trend has lasted long enough because you are then conditioned that these are the only indicators working.

    My P&F seems to be sufficiently immune to such feedback loop and once it crosses, it tends to be reliable. We'll see.
    For now, no trend change signal.

  • http://practicalt.blogspot.com/ Gold_Gerb
  • bluprint

    Watching this trendline on the EUR. I'm short now and will either load up on a break or switch to long if it looks like it gets a lot of resistance there. Also it seems helpful to me to watch ES for clues. If ES is up and looks strong first 30 mins or so, I would look for a reversal in the EUR. If ES looks weak and like its really breaking down, I'll look for more downside on EUR.

    http://screencast.com/t/Zl7q3r

    My 0.02.

  • captainboom

    Zero broken? Not updating…

  • ronebadger

    Zero broken again?

  • http://thefxspeculator.blogspot.com Onorio

    Anyone read what i`ve posted yesterday about EURUSD and AUDUSD? If not go back and READ!

    Nice post mole…

    “Bulls make money, bears make money, pigs get slaughtered.” Gordon Gekko

  • ronebadger

    FYI AGQ Puts and Calls Makes for big moves in SILVER …..when you are ready

  • bluelacy

    re-boot the zero- getting hard to put faith in it when you don't know whether it's going to be up or not

  • rg64

    Out of shorts for now

  • Fearless

    Happy New Year everyone.

    I have not been trading since December 14. My grandfather passed away on that day and I could not care for trading ever since. It'll take me a while to get back into it, although I kept the data collection running throughout the time being. I still have the ISEE open interest data if anyone is wondering about it. Nothing interesting to see for now anyways.

  • https://evilspeculator.com molecool

    My condolences – death in the family definitely is a mental reset.

  • OldChicago

    My condolences. Holidays seem to claim lives.

  • https://evilspeculator.com molecool

    “For now all is pointing fu**ing up all the time. That is the problem with technical analysis. At one point, most bear indicators will stop working and you become a Pavlov rat conditioned to only take into account the ones pointing in the direction of the primary trend if that trend has lasted long enough because you are then conditioned that these are the only indicators working.”

    Well, the current POMO induced environment is rather unique – the banisters pretty much figured out a way to convince congress to put the stock market onto government life support. They will not give this up unless forced by the majority of the populace – and that may be a long time coming. OR they'll force things up so long and so hard that we'll eventually see a flash crash of huge proportions. But this current situation may prolong itself for months – maybe even years.

  • EvilTrader

    look at spy 1min.

    Im afraid of such parabolic moves πŸ™‚

  • Bob the Horse

    Aixtron just made a new 52 wk high. Intra-day and on the close. Lovely.

    Am still running v. long fwiw. Some of the European Banks have started to catch a bid now – have a look at DBK chart (US ticket is DB US but you should convert into Euros). Very interesting long – we bought it in Nov – 1st bank we had owned for a long time. No reason why this cannot do 50% this year as earnings are going up and it is on about 5x P/E.

  • ds2

    Mole – Zero ATR you showed us yesterday – Can we please have it in real time?

  • https://evilspeculator.com molecool

    I don't think it's ready for prime time just yet.

  • AlohaBear

    My guess is Wikileaks knows that BAC has been manipulating the market for the Govn

  • OldChicago

    Maybe something, maybe nothing. USD got a huge vol on green candle 10 min ago.

  • ds2

    Ok – standing by. Looks very promising.

  • raised_by_wolves

    I'm back for a little bit after a heart-unhealthy breakfast consisting of five eggs and probably a quarter of a baby pig.

    Again, $SPX is up (and made a new high) while AUD/USD is down. Like AUD/USD, the $SPX to dollar ratio is down.

    Check this out. Open these three links in three tabs and move from tab to tab to compare and contrast.

    $SPX

    http://content.screencast.com/

    AUD/USD

    http://content.screencast.com/

    ($SPX)/(UUP)

    http://content.screencast.com/

    Notice how AUD/USD and ($SPX)/(UUP) are much more alike, which makes sense given the common denominator.

    Now here is a line chart comparison between $SPX and ($SPX)/(UUP).

    http://content.screencast.com/

    The ratio usually leads but sometimes leads nowhere. Also, the ratio is far more likely to get things right at major turning points. Just look at the divergences.

  • ds2

    A little more on VIX – not sure if this has been mentioned yet or not…

    BETHESDA, Md.–(BUSINESS WIRE)– ProShares, a premier provider of alternative exchange traded funds (ETFs), today announced the launch of the first Volatility ETFs. The ProShares VIX Short-Term Futures (VIXY) and VIX Mid-Term Futures (VIXM) ETFs provide exposure to equity market volatility by seeking to match the performance of their respective VIX futures indexes, before fees and expenses. Both ETFs will list today on NYSE Arca.

  • ronebadger

    Is 1276 IT?

    Watching that number like a hawk!

  • EvilTrader

    watchout for TICK non-confirmation of this move.

  • volar

    Sorry to hear… you were missed.

  • raised_by_wolves

    The first five waves down of the New Year.

    http://content.screencast.com/

  • volar

    Does anyone know when the new POMO schedule is released? I heard it was today, but have seen nothing.

  • AlohaBear

    BRD for the first time this year

  • AlohaBear

    Wondering what the format is here, is it trades or what we are seeing, resistance areas and support? jJUST SO I DON'T JUST SPEAK OUT OF TURN

  • kbmck

    The next release of the approximate purchase amount and tentative outright Treasury operation schedule will be at 2 p.m. on January 12, 2011.

    http://www.ny.frb.org/markets/

  • convictscott

    The aud spx one is very interesting πŸ™‚ I'm half considering a pair trade es against aud

  • volar

    OK should have read the fine print… JAN 12th.. lame

  • SW6

    RBW, is that your risk on/risk off indicator?

  • raised_by_wolves

    You mean the SPX to dollar one? Yeah, it is interesting. Useful too.

  • SW6

    It's important to take the time to mourn…it's the healthy thing to do. My condolences.

  • convictscott

    Oh, there is a post on my blog about gold and silver, it was originally supposed to be posted on evilspeculator but Mole and I got our wires crossed. Its got a slightly different perspective on the metals market, and seeing things changed a little overnight I'm going to update it soon. Its worth a look if you are trading these markets

  • raised_by_wolves

    For a pair trade are you considering long ES (stronger) and short AUD (weaker)?

  • raised_by_wolves

    Yes sir.

    And I now consider riskier/safer the real market according to this new theory I've developed.

  • raised_by_wolves

    Here it is again with a different set of BBs and a Fib.

    http://content.screencast.com/

  • raised_by_wolves

    Scott, hover your cursor over “molecool” next to his avatar. Notice how it is a link? You should do the same, linking your DISQUS name to your site. I know your url by heart but other may not.

  • SW6

    The market(s) looked to me like they were showing embryonic weakness. SLV/GLD down again today. SLV/SPX down again today. But $SPX printing a slightly higher high ~1277.

    Hrmph. You wondered what conclusions others might draw, mine was (is?) this: The S&P is plagued with dumber money than other trading vehicles and so is holding up while commodities flirt with a potential downtrend.

  • SW6

    Hey Convict, are you giving me the bum rush? Do you mind giving me your Skype name?

  • raised_by_wolves

    "Now there was evidence that Silver was about to fall over yesterday, namely that it failed to confirm the massive short squeeze in $spx. But even though I take note of correlations, IMO they are too hard to trade so I stood aside."
    By the way, I was all over that correlation like a white, powdery substance under Lindsay Lohan's nose.

  • convictscott

    No the pair trade shorts es and goes long aud, idea is that the lines should eventually cross over.

    I need to work out the ratios of contracts of each

    http://www.masterkillers.com/w

  • http://chartsandthat.blogspot.com/ ultra

    Evening all – and a very happy new year to everyone, if I didn't say already.

    EURUSD at interesting daily support – what chance a little explosive bit of risk-on at this point?

    http://bit.ly/gwo2UH

  • convictscott

    I just entered a pair trade shorting es h1 and simulatanously buying aud futures in the ratio 5 short es contracts to every 3 long aud contracts.

    The rationale is that the value of the es contract is $50 x s&p in points = $63000, and the value of the AUD contract is $100 000 AUD therefore the ratios result in roughly equal value.

    Is there a flaw in my logic? Its early for me.

    Trade plan is to exit whenever the lines cross, which will net me between $7000 and $9000 per 5 es / 3 aud contract group.

    Any thoughts on a stop? I'm currently running a $ value stop, which is unusual for me, exiting on $5000 combined loss

    Its essentially a bet that the current spx / aud disconnect will revert to normal

  • convictscott

    Nicely done πŸ™‚ Thats the meat of what you do, so you should be all over it πŸ™‚

  • convictscott

    I already added you, check your skype. I'm on now

  • Sleepynaptime

    Trades, resistance, support, theories, talking about what you are seeing and what you think it means (with supporting charts, etc.) – basically anything that helps people bank coin is fair game. Constructive feedback to Mole's posts will get you a gold star or at least keep you from getting a tour of his shark tank.

    Posting links to another blog is a no no.

  • volar

    just another day.. ISEE at 343 on 499K BTO Equity calls… I think i remmeber thinking that the 1 348 print before the flash crash would be the highest i would ever see.

    Since DEC we have done >296 6x

    http://content.screencast.com/

    http://content.screencast.com/

  • raised_by_wolves

    Did you notice that SLV/GLD closed above the MA(close,20)?

    http://content.screencast.com/

    SLV closed under MA(close,20) but above MA(low,20):

    http://content.screencast.com/

    Both SLV/SPX . . .

    http://content.screencast.com/

    . . . and GLD . . .

    http://content.screencast.com/

    moved the full distance of the bands while GLD/SPX closed outside of them:

    http://content.screencast.com/

    I have a couple scenarios in mind and will take a nap now in hopes of dreaming about them.

  • http://chartsandthat.blogspot.com/ ultra

    Sounds about right – you want the nominal value on both sides of the pair to be as equal as you can make it.

    Great post on gold & silver by the way – thanks for sharing your thoughts & tips mate.

  • EvilTrader

    thanks.

    Excessive optimism is persisting since mid december.

    WonΒ΄t end well.

  • ronebadger

    BUT, people post links to all kinds of stuff, including other blogs, all the time.

  • ronebadger

    Keep us posted when you wake up.

  • EvilTrader

    Anyone has any thoughts on the macclellan oscillator ?

    Huge divergence today.

  • http://chartsandthat.blogspot.com/ ultra

    Not so sure the short gold thing is the way to go tbh

    Observe:

    $GOLD:$SILVER – false breakdown, start of reversal? – http://stockcharts.com/h-sc/ui
    $PLAT:$GOLD – seems to be as good a harbinger of stock weakness as any, if we get a stock correction, short platinum over gold looks a good bet – http://stockcharts.com/h-sc/ui

    In both cases one half of the pairs trade would be long gold.

  • amokta

    I don't want to bring in fundanalysis, but with all the so called Queezing/money-sprinting, is there not a longer term fundamental inflationary pressures (i.e Pmetals will go up?)

    Is the juke-box jury still out on the infl-defla debate?

    I suppose for day-to-day traders, it may be less of an issue?

  • http://chartsandthat.blogspot.com/ ultra

    This would be the great advantage of the pairs trade – we are hedged via our paired long gold bet, so we are insulated against absolute price movements – we don't care whether they go up or down together, just that gold is stronger than silver/platinum.

    What I am saying is that I think the ratio charts above hint that this will be the case. Usual caveats and weasel words apply as ever, natch.

  • convictscott

    I have buy signals today on both gold and silver. Gold is sitting right at its 50 ema. Agree its definitely not the time to get short yet, although i remain convinced a very very tasty shorting op is right around the corner

  • http://thefxspeculator.blogspot.com Onorio

    Well not much to talk seince yesterday in FX world. USD keep climbing, while CHF and JPY seem to be taking in the ass.

    Anyway EUR short from 1.33 is running pretty good, and AUD from 1.0175 is rolling too.
    We might have some short signal tomorrow in EURCHF, but i`ll keep in touch.

    See ya rats!

  • amokta

    Thanks Ultra – this 'masterclass' level of trading is (as yet!) beyond me, but good to learn the ideas etc.

    Having finally taken advice, i am not trading day-to-day until i get some system together (still going thorough CS old notes etc – begining to see the 'light'!)

  • http://chartsandthat.blogspot.com/ ultra

    I'm sure you are right. I'm probably splitting hairs here – all of them are due a correction.

  • convictscott

    latest stu out – get it at the usual place

  • amokta

    I thought i had seen the end of ewi when my subscript expired πŸ™‚

  • SW6

    Oh, nice! Ok, I added you. I'm totally new to using Skype.

  • SW6

    I'm tired as all get out. Haven't yet recallibrated from Christmas. Gonna turn in early and maybe wake up later to watch the overnight for awhile. Trying to get the trading juices back up and running after some amount of “shirking.” πŸ™‚

    A couple of charts:

    http://screencast.com/t/qOfBIx

    The above is a 2×1 10 min (box size two points, reversal of direction is one point). Not much to say on this one. Two noteworthy things. There is bullish support from ~1174, the trendline is tracing out this bullish support. Second thing might be premature “lure of the countertrend” type thinking but I am watching for a failed semi-catapult. That would mean today's spx high goes no further and indeed turns around and heads down.

    http://screencast.com/t/MU7Hpq

    Now, a 5×1 P&F 60 min time frame. I will be watching it for possible fulcrums. Reversals can happen from fulcrums, as fulcrums delineate important support and resistance. The purple lines show fulcrums that all of us will remember perhaps fondly and perhaps not so fondly.

  • rg64

    So bad…..his analysis is so bad. Every prediction has a caveat. The direction is down but but but little upside still is possible. Been so wrong during this whole rise from the bottom

  • OldChicago

    It's all good out there – news, pundits, predictions, strategists, fundies, bilgazillions, Benny, etc. Dollar, copper, oil, corn, sugar, tech, bank robbers all up, save for Treasuries and Euro.

    Night all.

  • SW6

    No country for short sellers unless the trend line in chart one can meet with a significant break.

  • Sleepynaptime

    I've seen warnings about this from time to time, but I could have misunderstood. Any senior rats want to chime in?

  • convictscott

    Its a disgrace.

  • convictscott

    Prechter on CNBC – starts 4 mins in
    <object classid=”clsid:D27CDB6E-AE6D-11cf-96B8-444553540000″ codebase=”http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0″ height=”380″ id=”cnbcplayer” width=”400″>
    <param name=”type” value=”application/x-shockwave-flash”>
    <param name=”allowfullscreen” value=”true”>
    <param name=”allowscriptaccess” value=”always”>
    <param name=”quality” value=”best”>
    <param name=”scale” value=”noscale”>
    <param name=”wmode” value=”transparent”></object>

  • amokta

    CS – bit of a link fail πŸ™‚

  • raised_by_wolves

    Alright, I woke up with the idea that I should times SLV by 47, add it to GLD times 10 and divide the sum by SPX.

    First, you can see that this ratio went from touching the top BBs to diving into the bottom BBs in three days. At this point, a snapback would not be unexpected.

    http://content.screencast.com/

    Second, this ratio chart has a head and shoulders pattern. Third, this ratio chart has Nice-with-a-capital-N trend lines. I mean, just look at that geometry.

    http://content.screencast.com/

    I would be delightfully surprised if the ratio breaks that horizontal price level here and now.

  • SW6

    delete