PM's / Market Update and Trade Management

OK, so we expected this move last Friday and prepared for it in the trading portfolio (equities only, no options) by using DGLD (3x short gold) and in the options portfolio with a February SLV $20 Put as we have seen clearly, precious metals tend to have an inverse relationship with the market, thus a market bounce should lead to a PM's pullback.

When we consider multiple timeframe analysis and multiple trend analysis, this is the baby move as both gold and silver have large bases that are mature and judging them on their own merits, look like a small pullback is all that's needed before both breakout from the stage 1 base and move to stage 2 mark up (the trending phase).

Assuming the correlation we have observed for quite some time between precious metals and the market holds, that would mean the market should do the opposite and after the bounce in the market ends, it should see a significant move to the downside which would be the inverse of precious metals.

From a staging p.o.v., if PMs are moving from stage 1 (base) to a breakout and stage 2 mark up, the inverse/opposite of that for equities /the averages would be a move down from a stage 3 top (the opposite of a stage 1 base in PMs) to a stage 4 decline (the opposite of PM's stage 2 move to mark up).

I hope that all makes sense. This is only 1 piece of the puzzle, but it's one that fits really well and has worked really well.

So in looking at the SLV put, we have a gain this morning...

 Our SLV Put is up over +20%, I wouldn't blame anyone for taking that quick profit, especially considering the wild card that is the F_O_M_C minutes being released tomorrow afternoon, additionally we have the F_E_D knee jerk reaction while it may be meaningless (or it may not), it's another wild card, both quite extreme.

It's interesting because the signals we have get cloudy right in the area I'd associate with tomorrow's release of the minutes.

Lets take a look at Silver first...

 SLV 1 min was clearly leading negative Friday when entered and yesterday, price itself has "caught down" to the divergence, a sort of reversion to the mean, at least on the 1 min chart.

The 2 min chart shows essentially the exact same thin. There is no positive divegrence here, there's no reversal process in place so I wouldn't expect this move down to just abruptly end.

***Whenever we talk about trends and signals in the precious metals, that should have you immediately considering the effect on the market as the PMs trade and tend to act opposite so there's information about the market in the PM charts, use it.

At 3-5 mins, about where I'd expect signals depicting the expected move for a longer timeframe that goes in to tomorrow, there's no clear signals which is interesting, however if we move just past that to the 10 min chart, we still have a significant leading negative divegrence.

My gut feeling if I were analyzing SLV (and/or GLD) alone, would be they are making a move like this.

The base/range is clear in SLV, this has been my gut feeling for about a week. SLV moves toward the bottom of the range, executes a head fake/shakeout move and then moves from stage 1 after the head fake to stage 2. This would likely make it worthwhile to lave the SLV put in place (assuming new information doesn't come in to play).

The knee jerk on the F_O_M_C minutes could cause the market to play along as they are usually inversely correlated, however, considering special circumstances of both the minutes and this Friday's Non-Farm Payrolls, both about as important as you can get regarding the taper short of an F_O_M_C policy announcement day, a short term dislocation in the correlation would be understandable, in essence either the correlation could be weakened on a "Relative performance basis" or it could just break for a short period.

In any case, as of right now, this is what I would expect of PMs based on Market Behavior and some longer PM charts like 10 mins.

 Silver Futures intraday 1 min are similar to SLV intraday, except they are showing a little accumulation which at 1 min can be a consolidation or a correction.

This fits with the charts of the averages I captured...

 Intraday there's some weakness I pointed out earlier in the Q's 1 min chart above, this is in line with SLV and GLD intraday, however...

The QQQ 2 min (longer chart) has no damage.

The point would be, whatever slight accumulation or possible PM upside intraday, looks to be intraday only as the 2 min Q chart would confirm.

GLD

 Intraday GLD shows a slight positive divegrence, it's within the rounding reversal process and a larger leading negative divegrence, again suggesting an intraday consolidation or correction.

GLD 3 min suggests that GLD continues to the downside (as I drew above on the SLV chart expectations for Stage 1 and 2.

GLD gets cloudy also from  5 mins, but at 10 mins, there is a larger positive divegrence representing the eventual (not too far off) breakout to stage 2 mark up. However there's a leading negative right now that also fits well with the SLV chart I drew in above. The leading negative divegrence representing the move toward the bottom of the range and perhaps the head fake/shakeout below it and the overall larger positive on this chart representing the breakout to stage 2 mark up.

Just follow the SLV chart which is the 4th down from the top of this post.

Gold Futures

 Intraday 1 min they went from in line to a slight positive divegrence, again at 1 min this can be a lateral consolidation or a correction (like a bounce in to the gap).

At 30 mins as the 5 and 15 are also cloudy, we have an overall large positive divegrence representing the move to stage 2 mark up and to the far right a smaller, but still sharp leading negative divegrence.

(NOTE ALL THE HEAD FAKES IN YELLOW JUST BEFORE TREND REVERSALS)

Unless I get different information, for now I intend on leaving both the DGLD long ,hedge in place as well as the SLV Put option as I think they have more downside, although that may see some noise as we are just starting to see in SLV and GLD price.

To try to make this more simple, the intraday moves right now in both PMs, I consider to be noise and as such see no reason to close the PM short positions.

As for the averages, we can deduce some things from trend expectations in the precious metals, however I'm trying to make the point that the usual "opposite correlation" may not behave as such being we have 2 events that are wild cards, tomorrow's release of the minutes from the last F_O_M_C meeting and Friday's Non-Farm Payrolls as the unemployment rate is being used (at least publicly) as the barometer for tapering policy.

As I mentioned, the F_E_D HAS BEEN CAUGHT RED HANDED emailing out the minutes a day and a half before their release to 154 major hedge funds, private equity firms and investment banks, I don't think that was an honest mistake. So there's a strong chance we see inside information through 3C in the market which could diverge from the precious metal's correlation, it could diverge by having an even more extreme correlation , the correlation could warp in terms of relative performance (either better or worse) or the correlation could be destroyed briefly altogether and the two assets move together.

This is what I'm spending a lot of time on today, LOOKING FOR THAT POSSIBLE LEAK,

BERNANKE SHOULD HAVE RESIGNED AND THEERE SHOULD HAVE BEEN A CONGRESSIONAL INVESTIGATION IN TO THE RELEASE OF THOSE MINUTES PREVIOUSLY, BUT IT WAS JUST SWEPT INDER THE RUG AS A MISTAKE. THESE GUYS DON'T MAKE MISTAKES LIKE THAT.