Trader Scott’s Market Blog
September 22, 2016
The Fed meeting circus did nothing to change my outlook for markets. I spend almost no time pondering what the clowns at the central banks (CBs) are doing. Over the last several decades, the CBs, along with the governments of the Western world (plus Japan and also China to an extent), have done a magnificent job of destroying whatever there previously was of any kind of free markets. By free markets I’m referring to the trade in goods and services. Those markets are trying to speed up the process of correcting the imbalances, but they’re being stymied by our brilliant policymakers. And that is going to continue for a long time. As far as financial/commodity markets go, they have certainly altered them also. But I have total confidence that the excesses in the trading markets will correct in a very “efficient” manner – and much, much quicker than in the real economy.
But that’s the bigger picture – what about markets currently? I have recently spent a lot of time on a shorter term picture of gold stocks (GDX). I use the shorter term charts for short term trading. And I also use them as a tool, along with using longer term charts, as a method to hone my timing – to where/when I believe is the lowest RISK/highest PROBABILITY entry point(s). This is going to get pretty technical, but folks keep asking me about this.
So chart #1 is the bigger picture of GDX. It is annotated , but some further explanation is needed. Starting in late 2011, I wrote/called several times to The Real World of Money with Andrew Gause and Andrew and Patrick very graciously allowed me to view my real concerns about gold and its’ DOWNTREND then.And since several people have asked me about this – I kept stating that we need to be very patient with gold as I believed gold wouldn’t bottom until September to December 2015 with a price between $960 – $1045. And I would not hone the when/where until we saw the first sign of ENDING ACTION. That ENDING ACTION occurred in April of 2013, which on the GDX chart is point #1. That is called a PRELIMINARY SUPPORT and it was the beginning of the huge ACCUMULATION area that technically we are still in. (The beginning of a new UPTREND usually occurs alongside the latter stages of ACCUMULATION.) PRELIMINARY SUPPORT is nota timing tool – it is only a warning sign that the strong handsare re-entering the market and buying. And, as if we don’t need the market to confuse us even more, that first ENDING ACTION is virtually always followed by lower lows. So it’s, paradoxically enough, not even necessarily a good reason to cover short positions. But it is a warning to be watching for the next step in a big bottoming process – and that next step is a SELLING CLIMAX. A SELLING CLIMAX almost never occurs without first having a PRELIMINARY SUPPORT. And you can have several SELLING CLIMAXES followed by retests until THE downside exhausts itself. And we saw that in gold itself, as it bottomed last December 3 at $1044, with a retest on December 17. And well before that, I had already begun to hone my when targethere, here, and here. And in that last postI believed the $1350 area would be a significant RESISTANCE area and gold would see a huge struggle in that area. Twenty months later gold is still struggling at the $1350 area on its’ way back up.. But the struggle this time is RE-ACCUMULATION (re-energizing itself to be able to push thru this RESISTANCE area and on to much higher highs). And so why did I finally recommend buying gold (mainly gold stocks – point #2 on the weekly GDX chart)last December-even tho I believed there could be one more push lower? Because I was/am wildly bullish on PMs on a secular basis, my timing methods were all lining up, the selling was getting extremely exhausted, gold was under tremendous ACCUMULATION by strong hands and the RISK/PROBABILITIES had become extremely favorable.
And a few more words about the weekly GDX chart. The PRELIMINARY SUPPORT is point #1. We have been in ACCUMULATION ever since. Currently the technical position/situation is that GDX is in a young UPTREND/latter part of ACCUMULATION since the January SPRING low. It is very bullish long term. It has a huge RESISTANCE area marked. It needs to re-energize (REACCUMULATE), so that it can push thru the RESISTANCE area. It needs some time/patience. Only buy into weakness. Gold stocks are very volatile – please control/respect the RISK.
Chart #2is the shorter term picture of GDX. I use this for shorter term trading and timing longer term entry points. It’s annotated.
And chart #3 is an annotated gold chart.Notice after the ridiculous short term buying climax/panic in gold post-Brexit at $1362, we have been in a TRADING RANGE between $1306 and $1378. Right now we are in the middle of the RANGE. Never enter any new position in the middle of a RANGE – only at/above the top or at/below the bottom.
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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.
September 23, 2016 @ 8:22 am Martin
Thanks for your posts. Would you be able to post other chart examples of “Ending Action” and “Selling Climax” from other markets?
September 23, 2016 @ 11:04 am traderscott
Sure. Intra-day and longer term also – they occur on all time frames.
September 24, 2016 @ 8:49 am John Chew
What sample size and statistical evidence do you or ANYONE have or has that proves the validity of chart patterns? I will pay $millions for proof.
September 24, 2016 @ 11:30 am traderscott
I agree with your premise John. But I don’t use chart patterns.