I have said it more then once, GLD and SLV are my LEAST FAVORITE trades to try to analyze. There's known and proven manipulation in the silver market and the COMEX seems to simply be an arm of Wall Street, doing favors for the likes of JP Morgan who inherited a large silver short when they took over Bear Stearns. Blythe Masters of JPM fought off the viral web campaign to break JPM's short and when it appeared that was happening and SLV crossed over the $30 area where the battle to contain SLV (silver) went on for months, SLV shot up like a rocket to $48 plus dollars. It wasn't long after that, (days) that the COMEX initiated margin hikes. OK, SLV was getting volatile, a margin hike sounds reasonable, but 5 consecutive margin hikes, nearly 1 every day and even after the uptrend in SLV was broken, looked excessive and it appeared to me that the F_E_D may have called in a favor to the COMEX to help out JPM who helped out the F_E_D when they took over Bear Stearns. From there, SLV dropped over 30% in less then a month and ultimately back down to $25. JPM could have easily made some nice money adding to their silver short near $48 and covering at $25 or so. These are the kind of events that can't be predicted, they come out of the blue and unless you have a direct line to one of the key players, you are not going to know about it until it's too late. That is part of the reason I don't particularly care for the hysteria surrounding precious metals.
From personal experience (this is not scientific), I have suspected a bubble in gold. I know the arguments for gold and they are strong, dollar debasement, inflation, stagflation, supply, etc. I also have seen a few bubbles in my time and I have studied just about every bubble since the Dutch Tulip Craze. The one thing all bubbles have in common are the words, "This is different". The Dutch Tulip mania was certainly different, a rare disease caused tulips to have spectacular colors, that's different, that doesn't happen much. However when it got to the point that one tulip bulb was worth the same as a home, it was getting out of control.
The Tech bubble was different, it was revolutionary, still it popped. The housing bubble! I had a lot of friends who were stay at home moms who became real estate speculators. You couldn't go to a party without all of the talk being about who was flipping what house. In South Fl where I live, the argument was, "They can't build any further west, it's the Everglades. This is all the supply there is", yet even after 2008, there were more cranes dotting the Miami skyline then there were towers and nearly every tower was dark at night.
So once again, those same friends are buying up silver eagles and every piece of scrap they can get. I've already pointed out to a friend how some silver jewelry bought at a garage sale was merely silver plated as a link had a chip on it and showed him how some silver eagles had seams on the edge of the coin, clear counterfeits. Mania? What could possibly go wrong? Confiscation? It's happened once in the US already, but that's just a wild thought.
Here are the charts and again, I'm not thrilled to try to analyze GLD.
The last time we looked at buying GLD on a long term basis was during 2011. GLD had been tracking the 150 day moving average very well and that seemed to always be the perfect place to buy on a pullback so we were going to wait for the next pullback to the 150 ma.
However, when that pullback came, I was not thrilled and instead of calling it a buy, I said, "Let's wait and see". The problem was how GLD arrived at the 150, a very volatile move down in the yellow box and rising volatility is often a sign of a top.
GLD went on to form a large triangle, again another sign of a potential top after an extended uptrend, then GLD broke below the triangle and the 150 day ma that had been support for years-glad I didn't make the long call. As is almost always the case, I was looking for the volatility shakeout after such an important break, it came at the green arrows and set up a nice head fake trade we took a little over a month ago for a 211% return in days on some GLD puts. GLD is back below the triangle's apex and the 150 moving average and the average is starting to turn down.
Daily MoneySteam went negative at the very top in GLD and leading negative since.
Compared to the SPX in red, GLD has acted strangely, sometimes correlated to the market (green arrow and box), sometimes like in the yellow box, looking like a flight to safety trade. As to what it is doing now in the red box... ?
On a 15 min chart we can see correlation with the SPX, we can also see breaks of that correlation.
On a 5 min chart in the yellow boxes, GLD has looked like a flight to safety trade, other times it hasn't.
I suspect this probably has more to do with coincidence, cycles the market has set up and currency correlations.
Over all the 60 min 3C chart has been moving lower with GLD, in the red box you can see the reason for our head fake trade in GLD with puts.
To be absolutely honest, I like 3C because when it gives a strong signal like yesterday telling us the market would not see follow through selling, but rather a bounce today, there's a strong edge. When I don't see a strong edge, I prefer to move to the next chart. I don't see a strong long term edge in GLD, I see a lot of confusion, no really great correlations that help light the way and some long term signals such as the triangle and the dropping 150 day m.a. that tell me, on a long term basis, I'd rather just leave gold to those who think they have an edge, I don't see it. On a short term basis, I'm willing to take any trades that show a high probability and low risk.
