Yen/Gold
Trader Scott’s Market Blog
December 6, 2016
We received a good question from Frank asking about the correlation between the Yen and gold. There is an interesting relationship going on there. It’s a fairly new phenomenon, as far as the somewhat tight correlation, which really started in earnest in July 07 (3 months before the GFC Dow high on 10/12/07). I don’t use moving averages, but this relationship acts basically like a moving average to each other. Meaning, sort of a coincident trend indicator. In the bigger moves they tend to correlate well. But like the subject of a previous blog post, the relationship misfires when it’s needed the most, at the turning points. They don’t bottom and top together. There are 2 charts to use to compare the Yen and gold, going back about 10 years. The Yen chart and the gold chart(please ignore the squiggles for now) show that in the bigger picture they tend to trend together (for now, I expect this relationship to change). I don’t actually use this relationship, but because so many people view this correlation favorably, a while ago I spent some time researching it, and then updated it today. And it still is the same situation to me. It’s at the short term, intermediate term, and longer term turning points (entry points) where the divergences show up. And it’s the entry points (timing) which are so important in markets. Divergences are very tricky to work with. They’re lagging indicators, meaning you’re looking in the rear view mirror to use them. Because it’s only after the fact when you “know” whether there is a divergence or not. This situation leads to guessing, which is a dangerous tactic in markets. I need to know in real time when/where to enter into a market, lagging indicators don’t help me. But some people like to use them, so my suggestion is to go thru these charts and very precisely see how the 2 markets trade vs. the other. For instance last year as gold was going to new lows in July, November, and December, the Yen was setting higher lows. This could potentially be of use to some people. And in the bigger picture between gold and the Yen, do you notice what’s really going on anyway?
As far as the Yen itself, since the June 24th high, it has come down quite a bit. There is a lot of support below .85 (around 118). I am very bearish on the Yen long term, but we’re in a time frame for a shorter term bounce, along with a pause in the $. As far as gold, the miners are attempting to lead the complex. This will take time, there will be more re-testing, but there are bigger bullish forces coming next year – for all commodities. An upcoming rate hike is assumed to be bullish for the $ and bearish for gold. This was also the assumption last December.
About
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.
'Trader Scott’s Market Blog – Yen/Gold – December 6, 2016' have 10 comments
December 7, 2016 @ 5:37 am Aamer
Hi scott,
Would it be possible to give us a road map for the PM’s – maybe indicate levels and time frames with charts to navigate the coming weeks. I suspect that once we are past the JAN period you may get less questions but now your help is much needed to navigate both the treacherous and difficult time period.
My road map has PM’s rising till mid month….hopefully…..and then correcting again till early JAN….where it will be a good entry point….that may last for some time with minor profit taking periods.but your insights and trading skills are much needed here…..
I don’t have knowledge on many of the things/ tools you use which actually provide real information on the mkts ….what is really happening and more importantly when not to rush in etc
Thank you,
Aamer
Thank you,
Aamer
December 8, 2016 @ 12:40 pm traderscott
As you already know Aamer, it’s always about patience, and not having the mindset to “miss out”. But your general idea is fairly close to mine short term. What’s going on in gold is mainly “trading skills” based, with a little methodology mixed in. And also, is it a trade or an investment – are you accumulating or are you trading the volatility.
December 7, 2016 @ 10:38 am PRice
Good morning Scott!
What time frame do you use to determine a retest? For example, GDX went down to 20.63 on 12/5 on half the volume of the 11/23 low of 20.14. Is the high today so far of 21.74 useful in your determination? If 12/5 was a retest, did it affect your short-term trading?
I saw your trading terms definitions a few weeks ago, but don’t see them today.
Thanks.
December 7, 2016 @ 11:20 am traderscott
First of all, I just checked and the terms’ pull down menu is still there, but here is a direct link: https://oneradionetwork.com/glossary-of-terms/
The time frame thing is really nuanced and tricky. But one thing to keep in mind is to separate out the different waves and make sure your work is taking into account what is that specific time frame – for instance, if this is a bigger accumulation area, then each selling wave gets “added up” and is part of a bigger time frame. But you can trade each part of the accumulation area separately, it’s how i do hedging within a bigger picture accumulation area. But still understand it is a much shorter time frame, for that specific trade. And the same thing with looking at relative volumes. Your analysis is good, to look at relative volumes – that is one of the keys to this. You need to see a distinct ending action first to “set” this process in place. Then you start the process judging from that event. I understand this is not well explained, but I will get to a blog post regarding your question, hopefully later today.
December 7, 2016 @ 2:15 pm David V.
Geez, is the market smoking funny foreign funds. Is it time to buy some SPXU?
December 7, 2016 @ 5:33 pm traderscott
That’s not my inclination David, but if it is yours, maybe stick to the QQQ based ones, on a further rally. I covered a short position there last week, but it’s the weaker one. Momentum is self reinforcing.
December 7, 2016 @ 4:00 pm PRice
Thanks again! I wasn’t looking for the terms page in the right place this morning – a submenu item of your blog, which is a submenu item of the Blogs menu.
I internalized your points about risk and entry points right away. It helped me, for example, close out large PM stock positions, several of which I’ve reentered in small amounts. Not quite up-to-speed in other areas.
December 8, 2016 @ 12:31 pm traderscott
It’s all a process PRice, and i’ll get that post up soon.
December 7, 2016 @ 1:19 pm Stan
Scott, I’m new to your blog site and have to commend you on your brilliant work and thorough analysis. Do you see spot Silver hitting lows below $15.50 within the next couple of weeks/months? Or is Silver to be accumulated on dips?
December 8, 2016 @ 12:35 pm traderscott
Stan, it’s not my approach to pick exact points. It’s areas, and using ending action to “set” the process of then using support points and buying below them. So I’ll still be using weakness to accumulate and rallies to sell some. That is, until I feel we have truly “broken out”, at which time i’ll let it run for a while – until some ending action on the upside.And yes, the continued lagging by gold is concerning.