“There Are No Markets Anymore”/Gold/Stock Market
Trader Scott’s Market Blog
December 11, 2016
There is a recent interview with a market legend about the current state of markets. I respect the guy a lot, as he is a fighter and has done very well for himself But the interview was pretty pathetic. He is claiming there are no markets anymore. And my assumption as to why he said this is because markets are no longer following his script – they aren’t doing what they’re “supposed” to do. He was saying technology has allowed manipulation to go to basically unstoppable levels. In my early days as a young totally clueless floor trader, I used to hear the old guys bemoaning about how they are no longer able to make money in markets because of technology. One of my fantastic mentors constantly told me to ignore them – he heard the same thing when he started trading in 1970. The basic fundamental behind all markets is supply and demand. And another feature of all markets is manipulation. It’s existed since markets started, and continues. The key to market survivability is being able to do a good job of judging supply and demand. And understanding how manipulation fits in with it is very important. The way markets actually trade is always evolving, but those aforementioned concepts are as valid as ever. The younger traders are always bringing in new technology into markets, but my mentor’s advice to me is just as valid as ever. This business requires a tremendous amount of work and persistence, and an ability to be adaptable, but always stubborn about one thing – risk control. So a weird mix of stubbornness, confidence, rigidity, adaptability, and flexibility is essential. And doing our work and having a game plan, outlook, is required. But none of us has a crystal ball, and we need to always “listen” to the market, and to have a sense of when things are at an extreme. Then, if we’re in a profitable position, experience and an unease should force us to get out of a position in part or in full. It’s what caused me to get out of an intermediate term short position in the stock market before the election. And then my plan was to let the market rally play out. And there would be great trading opportunities in stocks, regardless of my view of the bigger picture. It’s called flexibility – the market had spoken. I learned long ago, and the Nasdaq in 2000 is a great example, when a market is not doing what it is “supposed” to do, it is the market which is right, not I. So when a market is not doing what it is “supposed” to do, I cut way back on my time frame, and just trade very short term – it’s a great way to maintain a “feel” for the market. As I’ve repeated, momentum is a very powerful factor in markets. Some trading systems are built, short term and long term, almost exclusively on this technical occurrence, and understandably so. But momentum almost always peaks before the actual price high is set. The problem is in being able to recognize this. Some fairly dramatic ending action (which we have not had yet) is a helpful guide. Several people have written to me about their frustration about “missing the move”. My suggestion always for “missing a move” is to not fight it, but stay very short term and go with the momentum, while understanding many people are not comfortable with doing this. But there are many different types of market moves, on any time frame, requiring different trading styles. However, being able to switch between styles is very difficult – from the actual recognition of the change to knowing what then to do, and of course, being able to implement it. We can do very well in markets by just waiting for and recognizing only the types of markets which we excel at. It’s called adaptability and flexibility – if we don’t always stay vigilante about that, the tremendous grind of the every day market weirdness and pressures will eventually catch up to us. It’s a constant battle. But we certainly can’t blindly go about thinking markets don’t change. Because just like the types and the trading styles required in markets themselves is constantly in flux, so are the big external forces constantly changing the whole dynamics of markets. Technology, society and demographics are constantly pushing and pulling markets. When I started in this business, I heard the griping about how technology is killing markets. now the griping is about not only technology killing markets, but also central banking.
Several times in late October and early November, I repeated my concern about gold. This was at a time when the gold bugs were unanimous in their gold to the moon scenario, “caused” by the election. This is when my concerns about gold were growing, and goldtrading above $1305 would be a selling/shorting opportunity for me. And lastly, the grotesque upthrust in gold on election night cemented in me the extreme likelihood for gold to break thru support areas and to run sell stops. The election night fiasco caused me to become much more concerned, to adapt/(flexibility). And of course, the usual reaction the gold gurus had to this selling was to claim “paper gold manipulation”. They should learn to understand the “warning signs”, learn to “listen” to the market without bias, and then be willing to adapt/be flexible. But instead, like so many of my fellow American citizens, they’re going to blame someone else for their mistakes. But the worst part of it, is they are costing their clients a tremendous amount of hard earned money. They can be forgiven for being wrong in their market outlooks, we all do it. But to continually make the same mistakes, and then every time to blame others can not be forgiven. And we see this same practice by people in all markets. Learning to surviveand being able to navigate markets is not at all easy, but it most certainly can be done. It’s just persistence, hard work, and flexibility.
This recent post chronicling the markets before and after last year’s Fed meeting, is not meant as a blueprint going forward. It is only meant as an example as to why we should ignore all of the pundits about what a rate increase will “certainly” do to each market. Technically, most markets are set up differently this year. For example, last year gold was set up very well to absorb the rate increase. There had been a couple of selling climaxes and re-tests. In this post on December 9th last year, a week before the Fed meeting, I believed it was finally time to start buying gold. Gold hit its’ intraday low on December 17th, two days after the Fed meeting, when a rate increase would certainly hurt gold. It then proceeded to have its’ most sustained rally in years. This year we could see a bit of a reverse of that, where a bigger rally around the meeting would be a selling opportunity. And then another push to more re-testing and a bigger selling climax in this drawn out bottoming process. The strong hands need to really step it up – a sign of strength – they’re coming in, but not with urgency (which would be a sign of strength). They are covering short positions into the new lows, but they are not stepping up to buy in a big way. It’s their big buying which will throw the supply/demand out of whack. Hence the big surge in volume and price right from the low prices – a selling climax – which will still require retesting. There needs to be big volatility at the lows, not continued drip by drip. Nonetheless, my strategy is the same – using selling waves in gold to cover hedges, and if the miners or silver have enough selling, then continue to accumulate. But still sell some into rallies. As stated last month on November 1, my focus would be on the miners and silver, not gold. My most recent purchase of silver was on November 24th. For people uncomfortable using the bigger selling waves to buy (and selling some into strength), you could wait for a huge sign of strength, and a “confirmation” the “bottom is in”. If it is a jump across the creek (Wyckoff), then it truly is a sign of strength. And then buy into the following reactions (if you get a chance that is). There is no perfect way to approach markets – they all entail risk, there is no way to avoid it. We all need to do what is most comfortable for us, otherwise we have no plan at all.
As to the US$, my extreme bullishness intermediate term remains, but this is an interesting area currently. There is a lot of volatility which has entered the $ right into an important resistance area. As I’ve been stating, we need to be aware of an upthrust occurring in this area. But I will use a bigger selloff in the $ to buy more.
We certainly can’t blindly go about thinking markets don’t change. Because just like the types and the trading styles required in markets themselves is constantly in flux, so are the big external forces constantly changing the whole dynamics of markets. Technology, society and demographics are constantly pushing and pulling markets. When I started in this business, I heard the griping about how technology is killing markets. Now the griping is about not only technology killing markets, but also central banking. These dynamics will change. The higher the bond yields go over the years, the less power the central bankers will have, and then something else will replace it for people to gripe about. Technology will also change, it will likely become too powerful and cause its’ own demise and it too will change accordingly. But we have zero control over any of that. However, we do have complete control over our own approach to markets – and basing it on supply/demand judgement, risk control, and flexibility is tremendously important.
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 12, 2016 @ 7:23 pm Jon
Hi Scott, you probably know the miners were sold into the rise in the PM’s today (AG for one) so looks like the stage is being set. With out looking at charts and just watching prices, I could see they were selling into the midmorning rally (old school watching the “ticker”). Anyway, I”m guessing quad witch on Friday will be the beginning of the final washout. You said you thought this years final lows timeframe would be different from last year. Can you expound? Thanks…
December 12, 2016 @ 7:54 pm traderscott
First of all, my mentor, SW, knew zero about charts. He, like you gleans a lot of info from the ticker alone. It’s a forgotten skill, but it is very powerful. Yes, there were a lot of weak shares today, lagging the metal’s rally. I take it you’re talking about there was someone(s) who didn’t want to see the shares rally. Possibly more accumulation is desired? Last year was more of a buying in Dec. and sitting with it for a while. With gold leading and the shares and silver lagging. This year, it’s more of a sell the December rally and get more aggressive buying into month’s end into a selling wave. There was more pronounced strong hand buying last year. And the selling wave leading into December wasn’t as aggressive. So gold lagging this year has been my plan.