We’re now starting to see warning signs pop up that a correction is imminent.
Despite the market making new highs breadth is diverging badly. Aka the market is being driven higher by fewer and fewer stocks. When this starts to happen late in the daily cycle a correction isn’t far away.
We now have a large divergence in the McClellan oscillator.
If we happen to see a down day today the slower 10 day moving average will turn down and join the faster 5 day average on the new high/ new low chart. Granted that doesn’t always lead to a correction but when it happens late in the daily cycle it’s a pretty reliable sell signal.
Thanks Gary for the newsletter. I am all cash waiting to get in still. Now where to pick stuff up, hmmm.Lets see how gold reacts to the 1340 area.
I believe Gary said a move below 1347 puts a big dent in the runaway move theory. I’m staying long what I have and patiently looking to add.
Just be patient. Gold probably isn’t going ot bottom until the dollar tops. That won’t happen until the stock market bottoms.
We probably have at least a week and maybe two before we see a bottom.
Great call Gary!
Looking forward to adding leverage back on in gold when the time comes!
Nice call, Gary. Of course, now I am wishing I’d sold some of my GLD and GDXJ. I did sell my SLV and SIL and will buy those back (and even add to those positions) when we start to see a bottom.
Gary, gold has dropped all the way to 1334 this morning. Do you have a gold price that will alert you to the possibility that perhaps we’re in for a bigger drop than just the daily cycle low? Like maybe the start of the D wave? If so, what is that price? 1300? 1260?
There’s virtually no chance of a D-wave with a dollar crisis brewing.
They are hitting it pretty good today. I am a bit surprised that the banks are holding up quite well though…
This is why I have been shorting stocks. I am long a good amount of PM’s, but my account value is flat today. Preserving my gains for the year will give me the room to buy more PM’s at the bottom. Just pointing out that there are lots of ways to play this game other than just sitting through a drawdown. Gary, if you help me catch the PM bottom I may need to fax you a mexican dinner!
LOL I’m not sure how that would taste.
Probably taste flat 🙂
AGQ down nicely this morning. Lovin’ it. I recently transferred some cash to my brokerage account I’ve been wanting to put to work. Wouldn’t mind a full week of days like this!
Well, the XLF is holding up pretty well.
now that gold is trading around 1241, does this mean that we don’t have a runaway move anymore?
i take it you expect further downside? What would be the signs of the USD topping?
Yes I think we’ve killed the runaway move scenario (thank God).
I have a sneaky feeling that we may see the dollar tag 80 before the dollar crisis resumes.
Any concerns that $HUI has already dipped below 500, down a strong 4.7% and the move down into the low has only just begun?
I would have thought 500 to be the bottom and resistance for this entire low.
Don’t get wrapped up in the technicals. This is a long way from being over. I would like to see the HUI hold above 500 to but just because it drops below that level doesn’t mean that it won’t still soar to 700-800 during the final leg up of this C-wave.
Gary, any logical guesses where GLD,SLV,XAU, HUI may find lows?
No idea other than we may see the dollar tag 80. That’s where I would take a shot at trying to pick a bottom.
Okay, I will re-word my question: What price would the dollar index have to exceed in order for you to change your mind about the longer term trend for the dollar?
Right now you can draw a downtrending channel from the June high. Top of that channel is currently around 81. So we could hit that upper channel line and as long as we don’t break it to the upside, the downtrend is theoretically intact.
I know you’re convinced that Ben is destroying the dollar. And he is. But so are most other central bankers who control other currencies. So the dollar relative to those currencies just may not tank as fast as we would expect.
You do not expect the weakness in PM’s to continue like today (as the dollar index possibly tags 80) do you? Perhaps an initial thrust down and then maybe sideways(like) consolidation before DXY rolls over again?
I would have to become convinced that we aren’t going to see a 3 year cycle low which has come like clockwork for over 40 years.
No idea. What I do know is that scary corrections like today are the hallmark of bull markets.
Does anyone have a correlation of UUP with DXY?
For example, where would UUP be with DXY at 80?
Frank: not sure what you are asking. If DXY rallies another 2.5% so will UUP, no?
Haven’t posted in a few,
But my fear(not really) of the pm story being over has completely been destroyed. We are finally getting a scare out, and the gold bull is still very much intact. Price action is meaningless. I was slightly worried that if the gold bull simply kept running up, that it would catch on to the general public premature and end this great bull run quicker than I and we would like. Seems like we are finally getting what we need.
Frank, It looks like UUP would be around 23.25 when the $DXY hits 80.
I wasn’t sure if DXY is exactly correlated with UUP in terms of the currency basket, etc.
Gary, there is some BoW on the SPY all morning….should it stick End of Day, you think this is all the correction we get in the SPX before the cycle continues to stretch to new highs and maybe 1200 odd?
XLF is green with COF (Capital One) up nearly 7%.
The company admits that it has $82 billion in dodgy mortgages that have some degree of repurchase risk and has less than $1 billion in reserve.
I would say that this signals a bottom to the “fraudclosure” trade.
i dont see how we are getting a scare out from one day drop. We need to see a sustained drop to shake confidence.
Frank, According to Deutsche Bank their index for UUP is an in house one but is pretty close if not a replica of the $DXY.
We have a lot of bullishness to reduce. There’s no way a one day 1% drop will do it. If we go up now we’ll just need a bigger drop after that rally peters out. Once you get too overdone there’s almost no way out but down. Sideways can occasionally generate fear of a breakdown…at which point the market breaks up, but not in a market like this.
I guess my expression is more of hope than an actual current event. We are very much due! If for some reason we were to completly reverse, my wall of worry would begin again…We really do need a correction in gold at this point.
Fraudclosure is just getting started. Right now the market is focused on the recent earnings.
Trust me it won’t be long before the market starts to focus not on what has already happened but on just how much money this whole mess is going to eventually cost the financial system.
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Things finally dropping and now, in SLW for example like I mentioned earlier, the PUTS are no longer there to support the stock.
The metal sector has conditioned people that pullbacks are quick and shallow. I think the market will now hurt people who believe that or who are buying on a single day decline.
My target for gold is near 1300 (raised it due to the rally of last week which went higher than expected). Below about 25.50 and we should see some nice acceleration and panic in SLW also.
I’m just waiting for now.
The stock market dip buyers have been at it all morning. Until these guys are burned more than once, they will keep at it.
I think we will get our dip, but it won’t be instant gratification.
Wes: If I remember correctly you posted yesterday that there were “strong market” conditions and that as a result we couldn’t drop right now. I am not playing “gotcha” but wanted to know your thoughts on this. Maybe SMC doesn’t mean we can’t dip for a couple of weeks? Is it more intermediate term like Gary’s SoS?
Gary: BoW number is actually quite large now (+$148mm). I know it can go away, but IF it stayed there or at least over $100mm what would that meant to you? They are often early, so maybe it just supports the “short, sharp” correction idea…?
This late in the daily cycle it doesn’t mean anything to me. The cycle is going to run it’s course.
Maybe we get one more pop higher and maybe we don’t. But I certainly wouldn’t read anything more into the numbers than that. If I remember right we had one of the selling on strength days at the beginning of the rally. I chose to ignore that one too.
I’m gonna print until we’re all millionaires, just like everybody in Zimbabwe!
It’s been a pretty good day for daytrading the short side for a change. Haven’t been this active in 4 or 5 months. Still waiting patiently to add to my Ol’ Turkey pm’s.
The guys with the money (and the algorithms) will now steadily push the metal sector lower until they reach the capitulation point of people who chased or overly margined.
It will take at least a few days.
GDX 54.28 50dma + horizontal daily support. GDXJ h.support @ 33ish w/ 50dma @ 32.33.
I would warn against trying to pick a bottom based on technicals. We need to see real fear in the stock market. When that arrives there will be margin selling in everything including PM. Fear has no respect for lines on a chart.
Right. Just keeping an eye on stock action at these points.
I don’t entirely agree. There are areas of a chart which are higher *probability* points for a bottom than others. If a person has good risk control, they can purchase these points with stops. I have argued in the past that usually you only have to attack 2 or 3 such levels (on the way down) before you actually find the one that is the bottom.
If each time you risk 1-2% (whereas gains, as we have seen lately, are 25-50%) then I suggest it is a valid strategy with acceptable risk/reward.
My first such level will be near 1300 on gold. The next would be about 1265 then 1230.
SVM already down 10%..at this rate, maybe it will go back to $6 in 2 days giving up 3 months of gains in 3 days…
any thoughts from anyone? Gary?
Juicy decline. Looks like BAC might get putbacks.
Uggh…. this is turning into quite the rout.
This is hardly a rout. It is mostly the FIRST day of a decline. Your perception of a ‘rout’ shows either:
a) you have been focused on looking up instead of down; now that you look down you realize how far up we went and how much a NORMAL correction can be.
b) OR…you bought/chased/leveraged higher and now are having second thoughts;
I don’t say this with any offense…i HAVE BEEN THERE MANY MANY times unfortunately.
I take that back a bit, actually the gap down open on GDX is actually pretty large. Regardless…after two months of rallies with almost no pullbacks I could be expected (although I surely expected it much sooner and was wrong many times calling for it)
This will be the first leg of the decline. This is the leg that wakes people up who got complacent or overleveraged. Now they are going “ugh…why didn’t I sell” or “why did I get excited and chase”. So SOME sell today, but most hold and say “Maybe it won’t be so bad and return back higher like all the other ones in a day or so.”
So then we will tick up a day or so giving hope (some will sell on the small tick up).
Then it will resume going lower and those who waited will go “Damn..why didn’t i sell on that tick up and lighten?” or the leverage will burn them up and they will have to reduce margin.
That 2nd leg down will be at least a couple days away and will be a more solid buying point.
We are only in the “wake up” phase today where people are now regretting recent decisions (or complacency).
Gary, the BoW number has kept getting bigger and bigger…by the looks of it, we could have a number close to 300M which should stick by end of day.
The large amount of puts on GDX are 55 and 56, HOWEVER…these don’t expire or take effect till Nov 19. A month away. Similar to other mining/metal securities.
So like I said earlier, things didn’t drop last week, in part, cause there were huge put options right at market prices. We rolled over the weekend and they all expired. Now we are on a new month, but there are 4 weeks of time.
Thus, gdx and other metal securities can drop for a week or two, then RALLY BACK UP and still clear out those puts by time Nov 19th comes around.
Essentially we have now entered a window where the securities can drop, blow people out, then recover and result in the maximum money retained by the ‘smart’ traders.
the thing that is frustrating about the bottoms of gold is that they snap back in minutes. We have to place an order ahead of time or we risk missing some action.
TZ, thank you for that great explanation that I could understand. One more note of things to check on for me. This is a pretty good learning site Gary has going.
The options stuff is not fixed in stone. It is a guideline like maybe cycles or 50dma’s or anything else.
I didn’t use to follow or pay attention to such things until recently when I got slammed in May by a decline which clearly would have been warned of by looking at options.
Now I watch and try to think it through.
In the last two months the strong buying seemed to steamroll any options games that wallstreet might have pulled off, but that’s life. They simply hedge, adjust, adapt like anybody else. But when they CAN move things and pick up extra money, they will. Staying tuned in to when and where those points may be is an advantage.
Gary, I know you have mentioned 80 as the level to watch for the $$$ to reverse.
In terms of cycles, what would you be looking for that would invalidate your theory of a $$$ crisis at least for the near term? (i.e. once $$$ reaches 80 it goes towards 88 rather than a yearly / 3 year low?)
My reaction was precipitated by the “new normal” with relatively modest declines in miners in recent months. NGD and SLW (two of my core holdings) are down 7% each. (No leverage here. My average in on SLW is 4.16.)
When was the last time we had a decline like this?
I bought some UUP calls yesterday. Some protection in SLW would also have been a good idea….
GDX options again:
Not only are puts useful, so are calls. All things being equal, if we drop now, then rally back within the next month, you would ROUGHLY expect the rally to STOP/pause Nov 19 around 57 or 58.
That is where the bulk of calls are located (20k), and it is also above the majority of puts at 55,56. So that zone wipes out the majority of options on both sides, but we don’t have to be there for 4 weeks.
(AND, of course there will be buying and selling of options during that time which will change the picture and price zones. Regular checkups are warranted to see if things change).
Again, just guidelines.
TZ: I agree about entry points and tight stops (We apparently trade similarly) I shorted BAX simply because it was right at its declining 200-day line and I am bearish. I was willing to risk a 25 cent move against me as a stop point—why not? As it is it is now down, I am still risking only 25 cents and may net a few points if we keep going down. I’ll trade anything in the direction I think is coming if the stop point is clear and tight enough. Takes discipline, but after having my rear end handed to me as a young trader, the scars remind me to act appropriately.
You can see a graphical representation of the ‘max pain’ points for an options expiration for a particular stock from this site:
Put in GDX (and it defaults to Nov 2010 option expiration). Push submit and view the graph.
It shows the amount of money PAID OUT by option WRITERS as of expiration and depending on the price of the stock at that expiration. Option writers are smart money with deep pockets so they want to pay out the least. Hence currently around 56, 57.
TZ: I appreciate your comments on puts and calls. Please post your read on it as we approach November expiry. Do you have any studies/links that support your claim that prices move to wipe out the largest number of options near expiry?
“max pain” means the point where the options BUYERS (the masses) get the least amount of money and thus suffer the most.
Option pain only becomes important in the final week. It’s not unexpected that the current max pain is around $56 at this point.
In fact that site has a new subscription only resource called Current Pain that only looks at purchases since the last expiration.
Great site, TZ! That max pain website is very interesting. Thanks!
My observations on options is casual. I don’t have explicit studies for you and this isn’t really part of a trading “system” as much as it is simply something I watch every now and then and try to incorporate.
The conclusions are simply common sense. Wall street has become a game of shark eat minnow. The deep pockets and large computers simply swim around and gobble up weak hands and easy money wherever they can.
Moving a stock is simply about COST. Anybody with a largeish account knows a stock will move if you try to buy or sell to quickly.
So if you are big money and play big options, then knocking out those options is simply a game based on mathematics. Little guys don’t have deep pockets and don’t write options – so they are the targets.
The fact that options expire IN LUMPS on specific days each month increases the gaming.
Think about it…there is NO REASON that options must expire once a month. We could easily create a system where the can expire all days of everymonth. You can buy an option of ANY duration in days.
But this would hurt the big money cause they wouldn’t have big lumps to gun for.
AGREED. I don’t want to give people the impression that suddenly a grand and no-miss tool has landed in their lap. It hasn’t.
The options stuff doesn’t really have much effect until you get close to expiration. And even then it doesn’t work well of the market is overpowering (or if the AMOUNT OF OPTIONS is TOO SMALL.)
Even then there are nuances, like you mention, where that site suggests that RECENT purchased options are more indicative than long standing purchases going back months.
Devil is in the details.
Yes, your argument is completely sensible. I have learned over the years, however, that sensible is not always born out by facts. It why I like Sentimentrader so much: Every claim is studied and either supported or refuted. Some of the most sensible ones simply don’t hold water in actual trading reality. That said, I will watch this max-pain idea and do a little digging myself. I will let you know if I find any good studies.
Approaching 25.50 on slw. It will probably hold that point for a day or so, then have another large drop. Lotta weakness once that support level falls.
$23 would seem a reasonable buy point for some shares.
TZ, that would be about a 50% retracement on the Fibonacci.
i dont think we will see silver below $20 again
So, TZ did you load up on some SLW puts again?
Thank you Gary for saving my ass on buying PM the past week+.
Only bought those Sept puts from earlier. Expired worthless.
I then actually then bought some Oct puts (and didn’t tell you guys), but closed them out roughly even a few days later. Had I held they would also have been worthless.
I’ve said before that options are a great way to lose money. Those puts were me going against my own guidelines (which worked once.)
Generally I don’t buy puts and I’m not inclined to make a habit of it. Recent action shows how it isn’t in my best interest.
Well, that wasn’t hard. Here’s a paper by two finance professors at U of IL and one at Hong Kong U of Science and Technology that stated:
This paper presents striking evidence that option trading changes the prices of underlying stocks. In particular, we show that on expiration dates the closing prices of stocks with listed options cluster at option strike prices. On each expiration date, the returns of optionable stocks are altered by an average of at least 16.5 basis points, which translates into aggregate market capitalization shifts on the order of $9 billion. We provide evidence that hedge re-balancing by option market-makers and stock price manipulation by firm proprietary traders contribute to the clustering.
I got a chuckle out of you thinking I said the market couldn’t drop once we got “strong market” conditions. I’m pretty sure I didn’t say that, as how could you ever get out of such a condition, but you can check what I actually said.
When I get “strong market” conditions, I don’t take the next sell signal. If, after a down leg, the market doesn’t regain “strong market” conditions before the next sell signal, I take that 2nd sell.
This morning we didn’t rally back to “strong market” conditions, so I didn’t post anything about it.
Actually, I’m all out and have been that way for about a week, so I have nothing to sell.
I’m fighting the urge to pick up some more AGQ with silver down so much in one day.
I’m counting on a few more days of strength out of the dollar and for silver to do its customary violent/scary correction a little while longer.
But if tomorrow is anything like today, I’m buying more silver at the close!
Wes: Apologies for misunderstanding, then. Of course I didn’t mean “can’t possibly go down” just that “the system says…” I thought it was like Gary’s saying “the market won’t enter an intermediate decline until we get a large SoS day” but clearly your SMC idea is more nuanced than that. Thanks for clearing it up for me. And nice to be out on days like this, eh? (or short). I will post when I start to cover.
Can you help me to determine where this current gold daily cycle began? Just trying to figure out how many days we are into the cycle.
What level on the HUI did you say we might not see again during this bull run? 515? Pretty ferocious sell off on the miners!
I recall 500.
I don’t think you’ll find any information about option prices trending to maximum pain prices as I think this is just market lore. I checked it a few years ago and optimum pain was just bunk.
Now, prices do tend to be pinned around strike prices, and I think this is what the article you found actually says.
But maximum pain prices are a whole different animal. Maybe things have changed, but I don’t think so.
If they have, let me know. Otherwise I’ll continue to think maximum pain is just not worthwhile.
Does today qualifiy as bow? So the correction seems to be very shortlived?
Thanks, Wes. Jason also said it was bunk. That’s good enough for me.
Gold appears to be on day 27.
I thought there was a chance the HUI might hold above 500. However don’t get tangled up in technicals. The gold bull will mangle technical levels in an attempt to shake off riders.
Ultimately before this C-wave is done the HUI will be many percentage points higher than where it was last week.
This correction is just getting started. The BoW might indicate a bounce tomorrow but this isn’t over by a long shot.
if this correction is just getting started. are we looking at the 25-30% correction in Gold?
Not a chance. That would be a D-wave and that just ain’t going to happen in the middle of a currency crisis. I’m going ot go over this in tonight’s report. During corrections it’s important to keep the big picture in focus so you don’t get side tracked by what in reality is a meaningless little wiggle.
4.5 weeks of GDX/HUI gains wiped out in 2 days. THIS is the reason I was repeatedly (and repeatedly) not chasing or buying on the way up. It hurt like hell but I stuck to my guns.
Of course I was expecting such pullbacks earlier and they never showed up. But the longer a market doesn’t correct, the more brutal it will be when it does.
NOTE: what I have to be careful of NOW is not getting full of it and actually using this pullback to buy in. The classic mistake would be for me to talk and keep looking DOWN as it bottoms and rushes back up again – with me not on board once more.
I think this correction might take us back 6 weeks on most of the metal securities before finished. Not a bad entry if you missed the last one, imo.
It’s probably going to be a waste of time looking at the HUI for a logical entry. Just watch the dollar. If it can tag 80 that is the buy signal no matter where the HUI is and no matter whether you catch the exact turn or not it will be close enough.
I missed the boat out of the gate this summer on my trading position (have my old turkey core), so I traded in and out of various miners and GDXJ/SLW. This was the exact reason I could not go old turkey this late in the game. I sold off all my mining positions last week and early this week. Had a good chunk of PHYS too and held on with a hedge of SH. I’m waiting for the tag of 80 on the DX to get fully invested and finally be old turkey with the PMs until next Spring.
Yeah, I sold all my miners last week and yesterday, yeah, that’s what I did.
Sorry, but it’s kind of silly to show up here saying such things in past tense. Meaningless and silly.
Really. Who knows if you actually did it or not. And saying so now just comes across as silly anonymous, unverifiable bragging. Just sayin’…
Like I said before this currency crisis comes to an end miners will be many percentage points above last weeks levels. it really makes no difference if one holds through thsi or not. It will be brief and then metals and miners will get back to the business of protecting us from the machinations of the Fed.
Sure enough, the steady and uncharacteristically non-volatile run up of PMs from the July low has lulled many into a false sense of security of some sort. Today was a nasty drop, no doubt. But really, if it’s a surprise to anybody they haven’t been paying attention or are newly invested here without having studied any past history.
Look at the run up from last summer to the Dec high. Several nasty set backs along the way. For that matter all the way from the Fall ’08 bottom. For that matter, well, forever. That’s what comes with investing in PMs, and especially the miners. This is but a minor flesh wound so far.
Gary has said it plenty of times, but still folks start freaking on a day like today. And we also pretty much knew that after that steady run up we’d get a nasty drop or two. Just as TZ has pointed out.
Of course knowing just when it would come is key, and despite Gary’s very timely calls of late, it;s really not usually that easy.
You are wrong. I’m holding some PHYS, but I admitted I didn’t catch the the summer swing low and missed most of the move up waiting for a correction. I have been trading in and out and have not done well…kind of like Gary circa 2003. I guess I just wanted to ring the cash register a few times on this run. I readily admit that I suck and have blown it big time this year trading vs old turkey. (Gary can testify to this.) However, getting burned big time going in pretty big back in Jan has me a bit defensive on the miners…So I refuse to get my ass handed to me and want some kind of pullback before betting the farm.
I’m in mostly cash right now in my trading act. Here’s my order history for you since you called me a liar.
Actually, have do ok trading. Been making some $ on quick swing trades, but coulda woulda shoulda bought early in the cycle and went to the beach. 🙂
are you still bearish on the financials, ie are you still holding FAZ?
Unless you get an update from me stating otherwise my positions haven’t changed.
Just in case you haven’t figured it out yet I never day trade 🙂
Well, it’s my birthday. I guess I should expect big things. The stock market crash of ’87 happened on my birthday also.
i’m too scared to even take a look at my account today…and this might last for another 8 days…*gulp* haha
Gary, what do you think are the chances we can hit 1500 on gold by year end?
I didn’t call you a liar. The point is that there’s really no way to know for sure one way or another in this kind of forum. And frankly, most don’t care.
And it rubs people the wrong way when folks go on a blog and say they bought the bottom or sold the top – after the fact. It just comes across as bragging, etc.
That’s all. Sorry, I just had to say my piece. Hope you’ll get over it.
LOL, dude you did mock me and call me a liar is so many words. Whatever.
As far as bragging goes, I admitted I didn’t not catch the low like most here (who also cheered and went nuts as their miners went through the roof thanks to Gary-which is fine with ME!). I also admitted I was a pussy and only traded in and out as I was nervous about a large scale correction. You call that bragging? LOL It is verifiable as I showed you by posting my dated sells on GDXJ, JAG, PHYS, etc.
In the long run we will all be fine. Sorry you are so sensitive and it rubbed you the wrong way. The correction should be over soon and we can all be happy with our pms.
For the short term traders…..
Tomorrow is POMO blast day – expect big things after the big sell off today.
Buy on the close the day before POMO
It’s a pretty good bet usually.
Fear, greed and boredom. Which is the most difficult emotion to manage when it comes to dealing with money? They each present their own set of challenges!
Yesterday was a 90% down volume day. It’s not unusual to have a bounce after a panic selling day like that, whether it happens to be a POMO day or not.
It’s not going to stop the move down into the cycle low though. The market really is too big for anyone to manipulate direction other than in the short term.
By 2012 we are going to see a test of the March lows despite all the trillions of dollars Ben throws at the market. Actually it will be because of Ben’s printing press, as it is going to create terrible inflation that will destroy the fragile economy all over again.
I know I’m going to get this question today so I’ll go ahead and answer it now.
No I don’t think yesterday was the cycle low. Certainly not for the stock market and probably not for gold even though it should have some kind of snapback rally today.