Gold...

We have had some fantastic trades in the precious metals, just this week we had a 1-day 93% and 95% trade in gold and silver respectively, we have had great signals and these are my least favorite assets to trade.

After hearing JPM accounted for 99% of all gold selling on the COMEX over the last 3 months, this email response made PERFECT sense.

This is the actual response to a member's email question about gold.

"Nothing drives the market more than what the market "THINKS" about what the Central bank will do next or what they think the market will do next, it's called sentiment and it's more powerful than what the market is doing right now.

As for GLD, it seems to be a little short term toppy, a little H&S-type top the last few days since it gapped up, gaps are almost always filled now unlike the past.

The first gold chart is a 2 min 3C chart, it's short term moves in gold over a day or a few days, sometimes the same day. At the green arrow 3C is moving up with GLD, that's 3C/price trend confirmation, basically all is fine with the trend in that timeframe. The red arrow is why I closed the positions, with options even a short term pullback of a day or two can lead to a situation in which you never get to that level of gains again, even if gold moves significantly higher, unlike holding the stock. The negative divergence at that level also went leading negative in the red box, that's not good short term. The yellow box is the gap up and the white box is the area where price is making a small Head and Shoulders top, filling the gap becomes very likely, I'd rather take profits now and open a new position after the pullback is ending at lower prices and make the profits all over again rather than lose the profits from the trade just closed. That's what I see near term and why I closed the GLD options.

Chart 2 is pretty self-explanatory, but it is a 10 min chart, the difference between a 2 min chart (chart 1) and a 10 min chart is huge, the 2 min chart doesn't show as strong of a flow of funds and typically not institutional size funds on a short term basis, although the 2 min trend can show that over a longer term chart. A 10 min chart is very serious, it can effect trade with its signals for weeks, I don't like this most recent negative divergence although it's not horrible yet, it's not something that was there before.

Chart 3 is a 60 min chart, this is a huge timeframe, VERY important in telling you what smart money has been doing. There's a huge leading positive divergence in white, just look at the flow of funds (following that positive divergence) and compare the amount of institutional activity at Point A (compare where 3C is and price) vs point "B". 3C shows a lot more institutional money flowing in at point B even though prices were higher at point "A", although this is a very long term chart, the signals here tell you the trend, but they are not fast enough to tell you where to get in or out. If I were an investor rather than a trader and wanted to buy and not look at it again for several months, this chart would tell me to buy, of course price will go up and down, but if that chart holds up, the overall trend will be up and 3 months or 6 months from now GLD will be much higher.

Chart 4 is a 2-day chart, this gives signals that are in the timeframe of primary trend or what you'd call a bull or bear market. At the green arrow there is 3C/price trend confirmation, at the orange arrow it loses momentum and tells us smart money is starting to sell shares in small pieces in to higher prices that they may have bought in 2005. I can send you our analysis from this time frame, but right around the white box/line in 2011 there was a large triangle top that I thought was either a primary top or at least an intermediate top, meaning the long term trend in GLD had changed, you can see the heavy selling/3C distribution in red and not too long after prices starting to fall on at least an intermediate timeframe and maybe a primary timeframe.

Finally chart 5 is a 2-day chart with a 75 bar moving average (150 days), notice how the moving average holds every pullback in price from 2009 through most of 2011 and then it starts failing right at the yellow arrow that shows a "Triangle Top", the same triangle that when we saw it in 2011, I thought it was one of the two tops mentioned above. So far it has turned out to be one of the two tops mentioned above.

We saw some of the strongest moves in gold while the longer term trend was turning bearish so there will be very strong shorter term moves up and down, but the longer term chart looks like gold is heading down on a primary trend basis, from a bull market to a top to the start of a bear market. However bear market rallies are some of the strongest rallies you will ever see as we already have recently in gold. So you have to look at each of those timeframes and react accordingly with regard to the trade you are making.

Very short term on chart 1 I think that gap gets filled below over the next week or so, the 60 min chart suggests we are in one of those very strong bear market rallies,  the fact that the 10 min chart is starting to look negative tends to confirm this. Divergences start on the fastest or shortest timeframes and if strong enough, move to longer timeframes so if that 10 min negative divergence gets worse it will move to the 60 min chart eventually.

This all makes sense, the primary trend is bearish, but this is over probably at least a year (GLD should be lower according to what we know now in a year), but that strong 60 min chart shows we are in the middle of a strong bear market rally, remember what I said about bear market rallies. The 10 min chart shows that the bear market rally is starting to see some weakness introduced, some institutional selling in to higher prices. My interpretation of those charts on different timeframes is that in the next few days/week, gold pulls back and probably shows some positive divergences in to the pullback and moves to a new high for this move up, as it does, the 10 min chart and eventually 60 min chart will turn more negative as smart money sells in to higher prices, this may take 2 weeks, it depends on how the 10-60 min charts progress, but at some point, the bear market rally ends and gold on a 1 or 2-day chart will make a lower low, continuing the newly started bear market. You just have to align your trades with the timeframe you are trading in, you don't take option trades based on the 2-day chart, you might take a long term IRA or 401 k trade that only allows you to trade 1 or 2 times a year and short gold and you should be fine, but if I were just to buy something for a swing trade of 2 weeks or so, I buy gold as or after it pulls back in the next few days and hold for a few weeks, there will be short term moves up and down, but at the end of 2 weeks gold should be higher.

This is all based on what we know right now, if Central bank policy changes or the Yen or Europe change, then the charts will change and we have to adjust because there's nothing alive that is more dynamic than the market, people who say, buy this or sell that and don't look at it for 5 years are foolish, things are changing every day now and fast, we are in a time like the world has never seen and what happens in Japan now has huge effects on what happens in Europe and the US. We make decisions based on what we know right now and adjust according to the charts.

Luckily smart money takes positions so large, it takes them time to do it and 3C can show us what they are doing before anyone else knows, before price itself even moves, allowing us to get in and get out at the most favorable areas."

Looking Ahead

Friday afternoon I basically summed up where I thought we were short term, that was to say. "I don't think there's any need to rush in to anything, I think we have time to let this play out and find the best positioning". As I often mention, I'd rather miss the trade than take a subpar, rushed position.

See the link above for the gist of how the market developed Friday.

Here's a possibility I see for the market (remember as of Friday my opinion was and still is that there's more room on the upside, but I think we get an interruption here. After that, the market looks a lot closer to some very bad downside a lot closer than I had previously though).

 Whether a H&S price pattern or possibly a broadening top, it appears the SPY is going to pullback to the gap in yellow.

 As for a H&S price pattern, this is a custom cumulative volume indicator, people often don't verify a H&S price pattern with volume which is crucial. With a H&S pattern, volume should fall in to rallies and build during declines. In the red boxes you see the custom volume indicator falling as price advances and the yellow arrows show volume rising as price decline. Although this is far from a textbook H&S pattern, it does have all of the components of a H&S short term top.

 According to the price pattern implied target, $150 is approximately the implied target based on the size of the price pattern. If 3C verifies this early this week, we may very well have some short term trading opportunities. Also note that this target isn't too far away from the gap pointed out earlier.

Looking at price alone, is the market capable of such a move in a short period of time? We have almost the exact same candlestick pattern before the last, volatile pullback. The next day we saw a 2.3% move down in a day, the market is doing nothing but getting even more volatile, it's very possible.

However, based on some of the short term charts that you can see from the post linked above (
from Friday), there's a decent chance we see a short term pullback to $157.70 area, this seems more plausible for a quick short term move down, finish the short term move up and then move toward the bigger, longer term move down. I think 3C will give us a good idea if we see positive divergences as with price pulling back, again, that offers more short term trade opportunities, we'll just have to let the market tell us where the probabilities and trades are.

This is an excellent example of the short term action, the possible area of where price may pullback to, finishing the rest of the short term move before we reverse to the downside in a much bigger way.

This is where I see the short term positive divergence and a possible pullback to this area around $157.70, if we finish our short term move higher off this level, we will know early on as the market pulls back toward that level whether 3C is confirming by showing short term positive divergences like the one we see in white or not.

As to futures tonight... I don't see anything of interest as far as our short term indications go, which is usually what I'm looking for Sunday night, however as far as the bigger, NEGATIVE move I feel there's some very clear evidence.

 ES 30 min leading negative divergence, also note how volume has declined in to the advance, this is very bad news for any bullish sentiment.

NQ (NASDAQ 100 Futures) daily chart to give some longer perspective...
From a chart with pretty good confirmation to a deep leading negative divergence this entire year.

TF (Russell 2000 Futures) 30 min also showing a very negative divergence, this is part of the reason I think the downside move is very close.

As for currencies, the Euro and the EUR/USD both look like they are going to see downside based on 3C negative divergences, this would be a market negative move in the currencies which fits our short term market outlook for earlier this week.

 A negative divergence in the EUR/USD, this implies a move down in the FX pair, this would be market negative.


The Euro futures alone also have a negative divergence, it started right on the open of FX trade for this week, sending the Euro lower and has a new leading negative divergence right now.


The $USD is confirming by showing a strong 15 min positive divergence (this supports the idea of the EUR/USD moving down), this is a market negative, in fact negative for almost every risk asset.

$USDX 15 min leading positive divergence.

Then Yen has opened this week's trade by moving higher, I wrote about this 3 weeks ago as something I thought was very likely, although it goes against conventional wisdom when a central bank like Japan's BOJ took such aggressive easing steps, this is one of the potential black swans I think few people understand or will see coming until its too late, I will keep an eye on it, but just as I showed Friday, there's a strong leading positive divergence suggesting the Yen moves higher and that is exactly what it is doing, this is market negative and if it moves as sharply and as high as 3C seems to suggest, this could be the cause of a market collapse.

So tomorrow we'll see what 3C tells us and take new trading positions based on that message of the market, which we'll have a line of long before anyone sees anything reflected in price, giving us a very sharp edge.

In addition, I want to touch on gold tonight, but I'm going to post an email response I sent with the charts as it explains everything with GLD and longer term members will remember everything I mentioned, I say this now as information breaks that JPM has been responsible for 99% of all gold sales on the COMEX over the last 3 months, my email response was before I heard about this, but it makes perfect sense as far as what we are seeing on the 3C charts and as I said, longer term members will remember when we found a triangle top in GLD in 2011 and I suggested it is at least an intermediate trend top, if not a primary trend (bull/bear market), that post is coming next.