Gold Update, Blog Correction and Timing Markets
September 11, 2016
Trader Scott’s Market Blog
A sharp reader pointed out some mistakes and unclear comments that I made in the September 6 gold update post. First is the original post. Then today’s update and updated charts.
This is the original post:
September 6, 2016
The method I employ with my market operations does not include modern technical analysis (TA) – meaning moving averages, stochastics, etc. I did use them when I started and my results were atrocious. Of course, to be fair, I was completely clueless about anything market wise back then. One of my very successful mentors couldn’t have explained the difference between a moving average and a batting average. But being ignorant about modern TA certainly didn’t affect his performance. He was a master at looking at a chart showing only PRICE and VOLUME, and then understanding where (price) and when (time) that he wanted to enter and exit a market (almost always profitably). I still don’t understand even half of what he profoundly understood. But, by far, the three most important “concepts” to understand are: the TREND of the market – bull/up, bear/down, or sideways/trading range; the SUPPORT and RESISTANCE zones/areas; and ACCUMULATION/bottoms and DISTRIBUTION/tops. Markets trade in TRADING RANGES most of the time. Most people are unaware of what that means, and they will get “chopped up”. And for most of the other people who are aware of their existence, they don’t like to trade them. I love them. But if you’re going to trade them, you need to excel at reining in your greed and therefore to be quick to take full or partial profits – meaning sell/short near the top into strength and buy/cover short near the bottom into weakness. Zero thinking involved. No emotions, almost robotic. That mentor of mine continually prodded me to trade those TRADING RANGES, because he believed that they are the very best way to learn how to become very successful in markets. There are so many great lessons to be learned. The very best traders that I’ve ever been around are magnificent at working with TRADING RANGES. You can make a magnificent living just focusing on TRADING RANGES.
As I’ve stated often, I love buying into markets that have supposedly “broken support”. The first chart is a 60 minute chart of gold showing the “breaking of support”/running of sell stops/place where the “manipulators” reverse their positions/ideal place to “take the other side”. You can see the top and bottom of the range. Point #1 on the chart shows the big selling wave (on a short term basis only, we need to learn not to put too much emphasis on each short term wave up or down). That selling wave closed at the bottom of the corresponding price bar, and along with the volume (#1) spike, it “warned” me that the “manipulators” were gunning for taking out the bottom of the RANGE (“breaking support”) and setting up a Richard Wyckoff SPRING situation. And you can see the result, so far that is.
The second chart is a weekly chart over the last few years. This is the general process that I have been going through with this chart when I have given my gold outlooks over the last few years (archived).
#1 is the preliminary support(PS) or the “alert” that the beginning of the end of the DOWNTREND has started. But, definitely not the end. The PS is virtually always followed by a lower low.
#2 is the selling climax(SC) which is the ensuing lower low, with the volatile price ending well off of the low, and the volume increasing substantially, but, here’s the key, the volume must be less than at the PS. That shows the beginning of the downside pressure abating. The confusion comes in because you can have multiple SCs, but basically what’s going on is a testing and retesting process of the lows. It’s called ACCUMULATION and it’s incredibly important to learn, understand and respect it.
#3 in December 2015 is where I gave my first public recommendation to buy goldsince late 2008. The point where I believed that combination of RISK and PROBABILITIES had become very favorable. And in this UPTREND in PMs, I am mostly focused on the miners.
And, BTW, you can use this general process for every time frame.
Now for an update on 9/11:
In the original charts, I did a lousy job of notating them. I fixed that and I also updated thru Friday.
There is solid SUPPORT shown on Chart #1 @ $1306ish. I love buying into markets that have allegedly “broken their SUPPORT areas”. You get the biggest/quickest/least RISKY/highest PROBABILITY bang for your buck in this situation, but ONLY IF you understand what you’re getting yourself into. These are very volatile trades. You need to be unemotional doing this (and all the time in markets actually). I do expect more attempts to “break support” in gold. Working with volume is the only way that I know to consistently/ accurately judge the PROBABILITY of whether or not the market will actually hold those SUPPORT areas. It’s all about PROBABILITIES. I notated the chart and I will update, as necessary.
And as the Chart #2 notations show, I believe that gold had been in a very large area of ACCUMULATION beginning in April 2013. The final (I believe) bottom of that area was in December 2015 at point #3. And I had warned several times after that April 2013 Preliminary Support area (check the archives), that I believe that gold is in ACCUMULATION, but we have not yet seen the final lows. So to be very cautious about buying, preferably just be patient and just wait to buy. And since late 2011, I had constantly repeated that the final low would not be until September 2015. I mentioned it here and here and others.
And now, I believe, gold is in the next huge leg of the massive multi-decade bull run that started on July 20, 1999 at just under $250. But the early part of an UPTREND/bull market is still characterized by the “manipulators” not yet being finished ACCUMULATING. They will still sell and/or short to keep the market prices lower. They do this so that they can keep adding to their huge strong handed long positions. The very best way (we’re all human and we all make misjudgements at times) to “see” this occurring, IMHO, is by understanding the delicate, intricate interaction between price and volume (i.e. supply vs. demand). It’s why at the beginnings of big bull runs, you’ll initially see halting volatile upswings – but after the “manipulators” have had their fill at the trough, you will then get those continuous, unrelenting moves higher and higher with relatively low volume. And you get the long parade of self-proclaimed contrarians that keep getting wiped out trying to short that market. And you also get all those who claim that the market is bearish because it’s going up with light volume. That light volume is actually because the “manipulators” are relatively absent from the market. But if you’re pretty good working with price and volume, you understand that you must wait until the volume starts really picking up again as the market continues moving higher – this is actually a warning that the “manipulators” are coming back INTO the market, but this time to sell back to the weak hands what they had previously bought from them much lower in price. But this situation is NOT a place to short the market yet. You must always wait for the ENDING ACTION, such as a BUYING CLIMAX. That’s how you time markets well. A PRELIMINARY SUPPLY or a BUYING CLIMAX are examples of ending actions. It’s the volatile, explosive volume areas “created” by the “manipulators” to entice the public (weak hands) to buy, buy, buy. It’s usually associated with great “news” (aka horse manure). A word of caution (and another nuance of success in markets) – just because there’s great “news” and an explosive price move higher, it does NOT imply that it is an ideal time to go short. It certainly could be, but it’s more complex than that. But it is definitely NOT an ideal time to buy.
And on the first chart below, the 60 minute chart, where I noted that in the most recent buying wave it is imperative to take profits – that was a short term trade for me. And I am fairly quick/very quick to take at least partial profits on approximately half of the position. It’s how we survive. I hope folks can understand this: I put little focus on making money, most of my focus is on not losing money, as the profits will, over time, take care of themselves.
So the question is: “Do you want to learn to trade and invest (i.e. follow/emulate) what the “manipulators” (strong hands) are doing, or do you prefer to emulate what the weak hands are doing? There are ways to do this business of speculation in a smart/logical/rational manner or a dumb/haphazardly/emotional manner. It’s your choice.
Chart #1: https://www.tradingview.com/x/2pRVQbEH/
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.