Trader Scott’s Market Blog
December 15, 2016
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The only winner from the aftermath of the Fed meeting was the US$. My extreme bullishness on the $ has been laid out in post after post. Too many people continue to fight the uptrend. I will continue to use bigger selloffs in the $ to buy using ETFs. This $ uptrend is the main reason for my view that the $ would keep a lid on any huge gold rallies to start taking out much higher resistance levels until Spring next year – the first chance for a major top in the USD. But for investors to use the big selloffs to buy. Last December my focus was on gold and the miners. I did some selling/shorting of those during this year. And my focus this year would be beginning in late November into December the miners and silver. I have no interest in gold, except as a proxy for the group. Last week in a comment reply, I repeated my approach currently in the PMs:
“It’s the way I accumulate in these areas, meaning to buy into the larger selling waves around support areas. But part of that approach is to sell some into rallies/hedge. This approach won’t work for me without selling some into rallies, and using profits to add on. Building a position. But not trying to pick/guess the bottom. Sometimes we can get very close to the bottom (like the archived December 2015 post) doing this, but that’s not a necessity for this approach to work real well. Until I’m much more certain of a bottom, I will continue selling into rallies. Please look at the posts from the end of last year, when I kept saying we’re not quite there yet. I needed to be more certain, but even then I was allowing for lower lows. The strong hands never attempt to pick bottoms, they build positions as a process and they get out as a process. It’s much less stressful this way. I understand many folks are not going to do this approach. But, definitely the alternative is to buy in tranches. A bit at a time, but using a guide, such as at support, or below support. Layer in, and if possible, layer out. It is a much better approach. I will occasionally put in a bigger order, but I need to see several distinct things first. The lower lows in gold continue to show fading volume, which is generally bullish, but it also means lower lows. That’s because we need a powerful sign of strength first, like a selling climax. We have seen a minor selling climax in silver on 12/02, but that will likely see a retest. You’ve seen my posts where I’m avoiding buying gold itself, only silver and the miners. Gold is the proxy for the group for me. You don’t have to be a trader per se , but even investors should understand some principles of trading. It is very beneficial for timing investments also. But yes, buying in tranches (accumulating) to me is a much better approach. If the market takes off sooner, at least you have a position. This game isn’t easy as you know.”
Gold has to see a powerful selling climax for me to become more aggressive, otherwise I will continue to sell into rallies. The strong hands are not showing up in a big way to buy, they are doing some short covering, but they need to get much more aggressive. Silver again rallied right up into resistance at $17.20. There are a lot of buy stops right above there. The last time I bought silver was November 24th, Below $16 is a good place for long term buys. So I’ll just keep playing this game until a powerful sign of strength comes in and then reassess – but now, using new lows in the miners to cover some hedges and nibble a bit. But, PMs are very bullish long term, we just have to get past this period. Much of the weight will come off of gold with the big problems in Europe, with the breakup and the bank derivatives. Gold and the $ can rally together at times. But for a long time, it’s been my focus to watch gold’s performancevs. all the other currencies. And also, recently a lot of questions came in about the relative outperformance of the miners and silver vs. gold. And the answer was, my concern is the opposite – the underperformance of gold vs. the other two. Until gold starts leading, I’m concerned. So sentiment wise we’re there and it is important, but it takes much more than just bearishness to set a great bottom.
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.
December 15, 2016 @ 5:28 am Aamer
Thanks scott for a great and timely post. You have answered my questions even without asking….
December 15, 2016 @ 12:01 pm traderscott
As we talked about Aamer, below $15.75 on silver is when it gets much more interesting.
December 15, 2016 @ 5:55 am Jay
Hi Scott, I agree with you that gold and $ will rally together in future. I was planning on buying some physical gold. Do you think this is the right time or could gold drop further till 1000$ in early 2017? It also looks like premium on physical could increase even if paper gold drops further so there would not be much difference in price of physical gold going forward
December 15, 2016 @ 12:00 pm traderscott
Jay, until we get something on the downside similar to the very bearish upthrust on election night, I would not buy gold. We can then buy gold with much more confidence. Yes at those major lows, the premiums can cause price to not drop further. But even with a selling climax, there will be lower lows still. We just have to be patient. Certainly gold could drop further. The strong hands are not stepping up in a big way yet.
December 15, 2016 @ 12:52 pm traderscott
As I’ve been stating – the relative outperformance of the miners and silver until yesterday was not bullish. I was concerned about the other side – gold lagging. When gold starts leading again, it will be more bullish and pull everything with it, so they can begin to outperform again in the bigger uptrend. But we still need to get thru this period. It’s why I kept talking about using gold as the proxy, and how the strong hands were not stepping up – that has been what was concerning to me. And lastly, you can’t buy around the lows of a selling climax without stepping up into weakness – it’s just pure logic.
December 15, 2016 @ 3:06 pm traderscott
The biases we have about markets are deadly. Whether it’s PMs, stocks, RE, bonds – if we go into a market and just assume it’s going up so we buy, that doesn’t work. Markets have bull trends and bear trends and sideways trends. As to PMs, we’ve been fed so many false narratives. And way too many folks have bought PMs just based on those narratives. Gold’s day is coming. When I said well before the election that a rally after the election is not what gold needed, but it needed a large selloff first – this is the point. Gold was not yet strong enough to see a powerful rally. It needed lower prices to get there. The rally on election night did the opposite – it weakened it. So now we’re in the process of strengthening it. But that is not a timing tool at all. a selling climax and then the selling waves back to the lows or below – those are the timing tools. Go way back in the archives and see how many times I used the word patience when it comes to gold. The first good chance for a $ top is spring 2017. But the selling waves in gold before then are the opportunities – it’s just about the timing around the lows to try to get the risk out as much as we can. Then we can let the market and the narrative work for us, not against us. Markets are not about believing in news and speculation and theories, they’re about believing in facts. And using those facts to time your entries (cut the risk way back). Look at what the PM gurus did to people again with all of their hype about gold to the moon after the election.
December 15, 2016 @ 5:48 pm Jon
Miners getting beat with the ugly stick on big volume with GDX breaking 19.00 and GDXJ below 32.00 (which I had hoped for) so adding to positions. You say expect a $ top this spring , but what if a trigger forces the huge (5 sigma) long bond shorts to cover sending rates down pronto ( i.e. a problem with Trump getting the final nod from the college or any number of other bugs in the ointment). Lance Roberts wrote a good piece on zero hedge about whats driving interest rates. Seems the volatility you expect could arrive before spring…
December 15, 2016 @ 6:20 pm traderscott
Jon, definitely the short Treasury boat is about to capsize. Anything can happen in markets, the only way to deal with that is always, always prioritizing risk. And buying below support is a good way certainly. As is taking partial profits at times (selling strength), so you’re constantly working to minimize risk, not maximize gain. In this weird business, the best way to maximize gain is to minimize risk. There are going to be a lot of events soon and persistently from here forward to cause volatility. The relatively low volatility over the past several years has been because of low rates – that deal is done now. You obviously understand it Jon, but the charts always “look’ the worst at bottoms. But of course that doesn’t mean an ugly looking chart implies a low. They can look even uglier, but for all of you who have patiently waited for new lows, you have the opportunity now certainly.
December 15, 2016 @ 6:02 pm Jon
Can’t wait to see if we strike the lows tomorrow like last December. Naw, that would be too easy…
December 15, 2016 @ 6:17 pm David
Earlier on you were looking for a low some time late November early December. I suppose that is not the case anymore. Also, you were looking for gold to bottom at a higher low than it did in 2015. From what has happened since Trump was elected, PM complex final low has been pushed out to spring of next year with the possibility we are still in a bear market and make new lows next year?
December 15, 2016 @ 7:28 pm traderscott
David, a low or high is a process. It’s my approach I talk about – the ending action and all of the retests, etc. And the 3 parts – the time frame, below a certain price, and the most important part – the technical action. They are guides. So for several years, I kept repeating about Sept. 2015 as being the time frame. But as you can read back then, it wasn’t until December when I felt it was time to start stepping it up – the process of the bigger lows and highs take time vs. the shorter term rallies and reactions. You can have the first powerful rally out of the lows and a retest of the lows down the road. So the thing about the Spring 2017 is a time frame for the high in the $ to start forming, so leading up to that can put a damper on PMs, but the actual low can be well before, which is my belief. But I do believe this is the ending stages of accumulation which has been ongoing for several years. I wrote about it several times, that strong hands are not done accumulating, and will attempt to keep a lid on. And yes the ridiculous buying before the election and on that night certainly did not help.
December 15, 2016 @ 6:19 pm Jon
Sorry for the multiple posts, but it just occurred to me, when the higher low in gold is complete there will be a 12 plus month double bottom base. This bottoming for the sector is totally different than in the past- from what I have looked at anyway. Thanks Scott..
December 15, 2016 @ 7:31 pm traderscott
Yes I look to look at it as the retest, but it would be a double bottom.