25 thoughts on “CHART OF THE DAY

  1. Jay

    I will reiterate what I said earlier:

    I’m glad I graduated from trying to trade in and out of volatile sectors with surgical precision, which only results in ultimately getting chopped to death. My advice to anyone reading this is: find a way to hedge your position from the moment you take that position. Make sure the hedge doesn’t invert your position, and make sure there is no risk of losing 100% of your investment in the hedge itself either. (even though the hedge may decay gradually over time). In other words, learn to hedge your drowning positions BEFORE they go underwater. 🙂

  2. gary Post author

    I’ve never really understood the need to buy a seprate hedge position. If you buy a position and then hedge let’s say 75% of the position, for all intents and purposes you’ve just reduced your position size by 75%.

    Couldn’t you accomplish the same thing by just adjusting your position size to 25% initially and not have to bother with the hedge?

    And if you are hedged how do you know when to lift the hedge? Let’s say the position starts to rally and your hedge is losing money and preventing your core position from realising it’s full profit. So you exit the hedge and no sooner do you do that and the core position corrects. Do you put the hedge back on? And if you do and the position starts to rally again, then you are faced with the same dilemma again.

    You end up having to manage two positions instead of one.

    1. tom

      I’m not being critical of anyone in particular, I screw up plenty, but it’s amazing the cluelessness of folks in regards to their market operations. People just don’t get risk and how to deal with it in their entries and exits Couple of things – if you enter your positions “appropriately” meaning buy extreme weakness and sell extreme strength, of course with some technical action that gives you an edge that it is a turning point for that market, then you’ve mitigated alot of the risk. Why in the world would you hedge if you enter at a time of extreme weakness. But you still need to you some type of stop, in case the market goes against you.
      Also, if you’re long, hedge your position into a good rally, when the market gets “overbought” on some time frame appropriate to you. But there is no better hedge than exiting all or part of your position after a good profit has built up. If the market keeps going and you’re already out, that’s life. Markets are 100% unforgiving.
      So yes Gary, I don’t understand that theory either. Just cut down your position size, but certainly learn how/when/why/if to hedge before putting on bigger positions. You’re way better off just dealing with the original position, that’s difficult enough.If you enter appropriately, you’ve already cut your risk way down right there.

    2. Richard Greulich

      I basically agree with your thoughts, Gary. The type of hedging you described is always good for one participant…the broker. Wall Street has always been adept at creating products ( “investment vehicles”) that add complexity but often no real value over the long run except to itself. True hedging is best left to large institutional financial entities or investors who actually do have a need to hedge…life insurance companies, etc. There is always a price to be paid in order to participate in a “hedge”. Unless you really know how and why you need that hedge, it is usually wise to not pay the vigorish that hedge will extract.

  3. Tom

    Back in 2011 when the metal bull market parabola topped, Gary’s blog was getting 200+ comments. In the bear market bubble burst we are at about 25 average currently. Those of you judging the comments based on sentiment, well…it looks like we have a ways to go in this bear.

    1. gary Post author

      I moved the comments to the premium newsletter. We are still at about 150 comments a day or more. So far today we’re at 115 on the premium site.

    1. Jay

      I just discussed the next best thing in trading to the holy grail, and nobody here agrees it is worth doing. 🙂 At least that will help keep the cost of my hedges more affordable! 🙂

      1. Bill in Tokyo

        Jay, I thought that Gary and Tom’s explanation was good. Given that (stops, position size, etc.), what is net the reason to hedge?

        FYI my Dad was a stockbroker, and he loved being hedged. Never made nothing – never lost nothing either. I always thought, why not be flat and by a CD – at least one get’s interest!

        But, if you try to trade or invest, you need kahunas, and stops.

  4. Dan

    Why comparisons to the 21st century only? What is stopping this commodity bear market from being as horrific as the ones of the early 20th century? Unless you believe China has bottomed and all their skeletons are exposed, be careful. Again, I’m nibbling on physical silver on the way down only.

  5. Theryl

    I keep an eye on these bullish gold blogs, and when the authors start to have negative sentiment that’s when I will buy heavy. The only volume bars will by the shares I purchase.

  6. Bill

    Once again Gary the pattern is clear..thank you. Anyone short this sector is just flying above hoping to get a pick at the bone.

    Vulchers, there’s nothing left…

  7. zkotpen

    The purpose of hedging is more for asset holders who, for some reason, are in a non-liquid position. For example, a producer of some sort who must buy raw materials (commodities) to use in production. A producer must have a reliable cost of goods sold, and they are focused on the market they are selling in. If the market they are buying in — that of their raw materials — shows risk of turning against them, they can hedge using options, like buying insurance against the market turning against them and hurting their profitability overall.

    Thus, as mentioned by Gary and others above, their goal of hedging is to break even in all cases:

    If the market they buy from goes favorably, they lose the small percentage they pay to hedge, when their options expire worthless, but they gain since the underlying market has favored them. If, on the other hand, the market they are buying in turns against them, they profit from the options hedge, and that profit offsets the loss to their core position in the raw material they need to produce their goods.

    For gold bugs, the question of hedging becomes one of emotion: They FEEL the need to hold positions as dear as (or dearer than) a bond of marriage… either way, their position is, for all intents and purposes, not liquid, as in the case of a manufacturer who buys other raw materials used in manufacturing.

  8. David Silver

    Mr. Savage,

    This is my new revelation as of today:

    1) SPX is not going down to 1772 as I first thought, instead we should chop around here until Thursday’s FOMC meeting then eventually head higher to her 40 DWA aka 2070.

    2) Gold same target $1025 (evident of her current weakness)

    3) Crude same target $33 (evident of her current weakness). Currently short 

    4) Bonds rising (as shown today with support of her 50 DMA (was bearish)

    5) US Dollar rising (as shown today with support of her 50 DMA) hence commodities down (was bullish the Euro);

    Just my opinion and clearly 180 degrees from your view but am I crazy?

    Going to add some long equities next couple of days on weakness to play out my revelation going forward.

    Thank You,

    David Silver

      1. David Silver

        Apparently their trends are still down, they say the trend is your friend and if it’s not broke then why fix it?

        Why not wait for your weekly swing signal in the CRB and both daily and weekly in the HUI?

  9. Bill

    For gold bugs, the question of hedging becomes one of emotion: They FEEL the need to hold positions as dear as (or dearer than) a bond of marriage…

    Another ridiculous statement, funny how you skeptics never talk of the Bond bugs or the Stock bugs, always the gold bugs are wrong, its hilarious really. Just More bottom convincing noise, the more angry or more ridiculous the comments get the more I add on the dips.

  10. zkotpen

    Whoa there Bill!

    Looks as though you’ve quoted my comment about as far out of context as humanly possible — so I guess I congratulate you on that feat of written English!

    If, however, you read the comment, my point is clear: That the goal of hedging is to produce a break-even scenario in the face of a market turn that goes against one’s positions that are not liquid.

    The comment about the gold bugs is to simply illustrate that the perceived need to hold a position may be physical, such as the need to supply raw materials for a production facility, or emotional, such as the need to hold on to physical metal as insurance against uncertainty.

    In both cases, it is the perceived need that prevents the holder from exiting a position, even if the holder suspects the market may turn against them. In the case of an unfriendly market turn, the profits from hedging offset the losses sustained by the holding of the asset. There are no monetary profits from hedging, rather, one is able to achieve other goals (production, a sense of security, etc.) by holding positions, without suffering the undesired effects of the market turn.

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