Dave from Denver this morning…

I thought I smelled way too much fear

in the market on Thurs and Friday. In fact, one of our clients popped over to my partner's office and expressed interest in selling mining shares - that's a rock-solid bottom indicator. Another interesting occurrence is that we shorted a large amount of $50.50 strike AGQ puts, either to collect the premium if AGQ closed over $50.50 on Friday or to take delivery if AGQ closed below $50.50. Well, AGQ closed at $50.27. Historically on short puts that close 23 cents in the money, we would get delivered 100% of the shares. We were only delivered 24% of the shares, unfortunately. Someone else obviously smelled a bottom on Friday and didn't want to sell or get short AGQ shares...

Two more points. India was closed for most of last of week with a holiday. Despite a weaker rupee, India showed up as a heavy buyer last night. It confirms that India is buying gold aggressively whenever the U.S. market takes it near $1700. This observation has held true now for several months. In addition, per a chart in zerohedge, there has been aggressive selling the past four days on the Comex between the Comex open and London closing. This is typically indicative of black box hedge fund behavior chasing the market lower with shorts when technical levels are smashed by the cartel. This is always indicative of a bottom followed by aggressive short-covering. The Indian demand for physical will help this process.

Finally, for everyone aware that Japan is getting ready to go parabolic with the printing press, this chart shows that yen/gold is getting ready to break out of an inverse head and shoulders pattern - you don't want to be short this, i.e. short gold:

http://www.forexpros.com/analysis/gold-looks-great...if-you-live-in-japan-143962

The technicals

Jesse on gold this morning…

19 November 2012

Closer Look at Gold's Potential 'Cup and Handle' Formation

There is an inverse head and shoulder formation within the developing handle of the cup and handle formation.

The inverse H&S pattern measures to 1810 as a minimum objective. That is also the point at which the handle would be at a breakout to validate the entire cup and handle formation.

I would expect gold to break out and run to that point, with resistance heavier around 1790-1810. There may be some time to actually break out, as the shorts will attempt to hold a strong line there and at the next major objective at 2100 or so, which is the first objective of the cup and handle.

In a major liquidity event, all bets are off of course, as everything gets sold, and some extraordinary deals may be had for the longer term investor, what we call 'buying opportunities' on the charts.

For those who are not comfortable with trading, establishing a strong long term position is the best strategy in a bull market. Some do both, hold a long term core position that is never touched, and also use a smaller amount of capital to 'trade around' the intermediate term swings and dips.

The most important thing is to never panic and lose your entire position while the bull market remains intact, because it is very difficult for most people to summon the will to buy back in. I have seen many who sold out, and who have never gotten back in because they kept waiting for some extreme 'bottom' that never arrives.

They often fall into 'trading their egos' with paper trades on chat boards, seeking company in their misery of having been right, and then losing their way. Their bitterness is best to be avoided since it weakens and distracts.

A wise trader rarely seeks to obtain 'the bottom' or 'the top.' This is a mug's game. An experienced trader waits to find the true trend, and not exhaust their account in pursuit of perfection, pride and 'followers.' The truth is what it is, and it reveals itself to us in its own time.

My own experience tells me that the louder and more strident the person, generally the less that they know, except when they cry out against some grave injustice that cannot be tolerated by decent people.

We are now in a period of 'hysteria' when the unworthy will be blinded by their own pride, and will thrash about in fear and loathing. Lies will abound and the love of many people will grow cold. When in doubt, look to see if a person's words are crafted in love and caring, or in pride, greed, and hatred. This is not certain, of course, since nothing human is without error, but it is a way to avoid the most dangerous and common of deceptions.

One can see the genuine even amongst practiced deceivers, but only with long practice and much patient learning. It is the bigger lies oft repeated that seduce many. Always look for love, because the great deceivers have none but for themselves, and this is how they betray themselves.

There will come a time to sell, but I do not think that we are there yet. Is the economic crisis over? Has the financial system been reformed? Is the debt well founded and under strong management? Is there transparency that appeals to our 'common sense?' Is the global currency regime well-ordered and robust? These are some of the signs that we will look for in seeking to find the next plateau.