- Thursday’s Asian move was likely a VWAP slam.
- Volatility is “telling” us that the downside is capped
- Shorts started to cover Friday and a momentum reversal signal tripped on the 60 minute chart
Old Floor Trader:
History does not repeat itself, but it frequently hums the same tune
Ricky Bobby.. may be long gold:
Indeed, the pieces of the puzzle are in place for a multi day short covering “slingshot” rally. To hope for more would be remiss. To trail stops in a rally would be divine however. – LGW
After an interminable wait, it truly seems that Gold is ready for a rally spurred by lopsided short open interest. The CoT report continues to show shorts in charge and that is not new. But now we see an infrequent but important signs that the move is lower is over for days if not months. Open interest, Wednesday’s Asian session activity, Implied Volatility, and a familiar candle stick formation all closely echo what happened in mid December 2017 when we called a bottom in Gold. History is indeed humming a similar melody now, and a short-covering rally is in the works if Friday’s activity afternoon is likely the tell.
Before getting all bullish. CAVEAT: This gets negated on any high volume or longtime spent back under $1185. This is risk reward stuff based on asymmetric factors we follow. Not prediction based… we are handicappers who put our skin in the game like the rest of the Opportunistic Trader team.
How We Got Here
In the nutshell, and after having explained the situation in last week’s report here is a synopsis:
Gold began selling off months ago on Venezuelan liquidation because, you just can’t pay your debts in Gold. Therefore they had to sell their metal to get USD. The selloff continued as we believe other EM started quietly selling for similar reasons to increase their USD reserves.
Next, GoldCorp, who announced last month that they missed earnings by a huge amount, admitted poor hedging of risk. We believe this announcement came after they rectified the situation by selling metal. We also feel they were not alone in this error. Then the perfect storm came.
Trade Tariffs/ Wars slowed the velocity of USD needed for cash flow and debt service. It also weakened the Yuan. Related, the Turkish Lira collapsed. If Turkey was a buyer or Gold before in Lira, they were not so able to continue now. The result was that in a “risk off” environment, entities that used Gold as a hedge against calamity actually had to sell what was most dear to them to pay off their debts. China’s shrinking Yuan for tariff or other reasons lowered their prices for buying any and everything out there.
One more thing. Argentina has reportedly asked for help. The IMF is ready to “help” Turkey although Erdogan wont permit that if he can. Remember, when the IMF steps in to rescue you, they don’t ask for collateral; they ask for liquidation.
Greece had to sell some Gold to get help too…Just Sayin’
So the downside may not be over. But the bounce is here as far as we can see , and hopefully this will help explain why
Changes Last Week- The Risk is in Being Short Now
Several things converged on Friday: The CoT, a negated 3 month old Vector Sell Signal, Wednesday’s Asian VWAP activity, Option Vol, Open Interest, and an infrequent but reliable candle formation combine to say that the risk is in being short next week.
Commitment of Traders Has Had It ( no really, it has)
The CoT Report continues its trend towards short dominance. Yes, we could get a lot more shorts based on history. However, taken with other info paralleling the rally called in December, the market is short enough. CoT data is through Tuesday of last week. The shorts started covering on Friday
chart: Peter Boockvart Bleakley Advisory Group
- H/T Laura Stein
It is not an uncommon tactic for macro positions to begin being closed late in the week because the CoT data stops at Tuesday in its Friday report.
Requiem for a Weekly Sell Signal
The weekly chart gave us a Vector Trend Momentum signal lower three months ago. We captured only $10 of this massive move for our clients, due to shorter term time frames; but the signal kept on going.
There really was no true volatility, just trend post this signal. Gold and all its metallic brethren marched in one direction, lower. Gold actually held up better than Silver, the PGMs, and Copper due in no small part to its remonetization. But now, that signal has finally said: ” If you sold when you were supposed to, it is time to get out of those shorts”. This is based on several factors, the most obvious being the red line crossing over the blue at bottom of the chart above. So, yea, it could go lower; but one spot on signal is now a dead soldier saying “Get Out”.
Wednesday’s VWAP Game and the Candle it Left Behind
When a broker is handling a large sell order, perhaps executed over months, it is very common that the last piece of that order is not executed as carefully as the first pieces. This ensures a “good fill” where the last price is much lower than the Volume Weighted Average Price or VWAP. August 15th, during Asian hours, Gold was slammed very hard on high volume. And that was the low of the day. Here it is on the hourly. Note the hour afterwards containing almost equal volume and ending higher.
Not compelling by any means, but it got the attention of some other than us who have antennae for things like this. This is an early “tell” . In fact fund manager great Larry Benedict tweeted ‘this could be a nice level to buy’ that night. Here is the post form Larry’s OT twitter account. Presciently posted 7:30 Wednesday night US ET.
And then there is that same swooning last Wednesday reflected on a daily chart. Looks decidedly more bullish to us.
Gold Daily: New Morning Star?- We think so
For good measure, here is the last time we saw a pattern closely resembling the above.
The Morning Star of December 11th- 13th
The Home Run Result then
From that article:
Essentially Vince’s point here is that OI first shrunk on a green day, Indicating the possible penultimate shortcovering was beginning. The very next day saw a significant increase in OI during a very strong rally. This is indicative of a bottom to us; or at least a great asymmetrical bet to be long above that low.
Full Article: The Street December 17th, 2017
Keeping this short. We were pricing the 20 delta put in December Gold options before and after the Wednesday night washout. One considered plan was to buy hedged puts before the next move. The volatility was 12.3% before the washout in that put. Thursday after the washout , the volatility was essentially unchanged. This is antithetical after a move like that. It almost always brings out hedgers and bullion dealers who see potentially more downside. Even Gold bulls would be buying more protection. But NO ONE CARED. Not only is that bullish, it gives even more reason for us to buy that put and (over)hedge it. For now however we are expressing our directional opinion in long futures.
Current Position: Long Gold A.O. Friday
Echobay got long Dec Gold and said as much in the OT Team chat for subscribers
This was not a typical Vector system trade. It frankly was a very small “punt” which we will add to Sunday night, Monday morning given any combination of several things like: Vector System momentum signal, a gap higher in US hours, and more Open interest confirmation. We have also recommended to a multi $BB macro fund client to be on the lookout for a buy alert from us Monday morning as Echobay advises active trading Gold sub-strategies.
Gold Opens Higher Sunday: if Gold to gaps slightly higher Sunday night, then we will decide either to buy strength, buy a pullback above 1185 or take profit on our “punt” and reassess.
Gold Opens Lower Sunday Night: If lower but above 1185, we will consider adding. Below 1185 we will be out of any new longs and possibly Friday’s position. If we can’t come in above $1193, that is a problem that will make us reticent to buy pullbacks near 1185
Technical Analysis Courtesy Moor Research
Buy against 11671-55; reverse below. If we break below here and back above, look for short covering. Buy against 11494 for a solid bounce; get short below on a solid penetration and look for continued pressure to come in. Buy against 11472-65. If we break below here and back above
WITHOUT taking the trendline above out solidly, look for short covering to come in. Buy against 11388-66; reverse below. If we break below here and back above, look for short covering. Buy against 11286-73 for a decent bounce. If we break below here and back above, look for short covering to come in. Buy against 11243-27. If we break below here and back above, look for short covering to come in.
Get long above 11887-90 and look for continued strength to come in. If we break above here and back below, look for profit taking to come in. Sell against 11945-68. If we break above here and back below, look for profit taking to come in. Sell against 12051-74; reverse above and look for continued strength to come in. If we break above here and back below, look for profit taking to comein. Sell against 12142-44 (-.8 of a tic per/hour starting at 8:20am) line; get long above the line on a decent penetration and look for decent strength to come in. If we break above here decently and back below decently, look for decent profit taking to come in.
On a macro basis: We broke above a well-formed macro line in the week of 8/7/17 that came in at 12629. The break above here projects this upward $105 minimum, $414 (+) maximum—$330 of which will likely be attained within 3 months (if we are going to see it). This had been back in play preliminarily since the open on 12/14/17—we have seen $105.8 of this, and fully since the break above 12755-56–we have seen $89.8 of this; but the 4/11/18 failure of 13622-23 put this on hold. This line comes in at 11494 this week—if we take this out solidly, this will open the downside to much lower trade, and a likely run down toward the 10470 (-) area. The decent trade below 13356-51 projected this downward $32 minimum, $53 (+) maximum. We have seen $168 of this so far, but this is now on hold. We have seen $135.6 of the renewed pressure we are looking for from the failure of 13027, but this is now on hold. The solid trade below 12731-27 projects this downward $94 (+). We have seen $115.6 of this so far, but this is now on hold. I cautioned Friday this week has a high likelihood of being a range expansion week—we have more than tripled last week’s range, and more than quadrupled it from Friday’s close. The break back above 11797-837 now warns of short covering and I would be out of all shorts for the time being. Solid failure back below here will take the bear calls off hold. On a short-term basis: The decent trade below 12147-45 projects this downward $11.5 minimum, $24 (+) maximum. We have attained $45.5 of this so far, but this is now on hold. A maintained gap higher will leave a short-term bullish reversal below that will warn of
decent short covering to come in. Trade above 11887-90 is a sign of strength on the day.
For subscription info: MoorAnalysis@gmail.com
Note: This is professional advice given to subscribers of Michael Moor’s and these are levels to trade off of if the client chooses to do so The disclaimer is simple. Make your own decisions. Neither Michael nor Echobay Partners nor myself personally advise you to do anything. WE state what we are likely to do.
Gold Charts That Matter to Us
Friday’s 60 minute Vector buy signal (we were already a little long)
Commitment of Traders
The Weekly Sell Signal says, “Get Out”
The Monthly Vector Chart implies we will now have expanding Volatility. (rectangle represents the Weekly Vector sell signal duration)
240 Minute Chart Gives No Indication Yet of a “Buy” signal
But the hourly…
Previous LGW Reports
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