Gold vs Silver, the US Dollar vs Gold and the US Dollar Index

Fibozachi

Gold still has an explicit price extension target just overhead at $1152 - $1168 spot, where wave 5 equals wave 1 within wave B (circle) at c. $1152 and where $1168 equals the 1.382 price extension of wave A (circle), which is the most likely extension target for an expanded flat; as per Prechter's "EWP", Neely's "Mastering Elliott Wave" and Nison's "Applying Elliott Wave Theory Profitably.”

In stark contrast to the handful of “banks” (staunchly led by JPM) who continue to amass near-record short paper positions (futures), the COT (Commitment of Traders) and DSI (Daily Sentiment Index) each show that public sentiment has reached mesospheric levels; where fast-racing momentum driven meteors “burn up” and die within earth’s orbit.  The Monday evening Short-Term Update from EWI, written by Steven Hochberg said:

".... The Daily Sentiment Index (tradefutures.com) has been at, or above 90 percent gold bulls since November 3, a string of 10 straight days. The only other comparable streak of optimism over the past 22 years of data is leading up to the December 2, 2004 gold high when the DSI was at, or above 90 percent for 20 consecutive days. At that time, prices made a high at $458.70, declined over 10 percent, and did not exceed the December 2004 high again for the next 10 months. But during this entire 20 day stretch, optimism never reached the single day extreme that today did, with fully 97 percent of traders optimistic on gold's future prospects."

As for a quick overview of price action within the primary domestic equity and international currency markets ... yesterday’s internal market readings were reflective of only one thing: HFT algos attempting to pin XOM et al. ahead of  OpEx as the DJIA takes decisive leadership across domestic equity markets while the NDX-100, SP-500 and RUSSELL 2K considerably under-perform.  For a more detailed explanation of this concept, please see “Technical Profiles of 8 Key Stocks: AIG, BIDU, CAT, CELG, DRYS, GS, IBM, SKF.”

VOLD lame … ADD weak … TICK highly erratic while the VIX continues to coil lower and register serious positive divergences on the weekly.  The $DXY US Dollar Index plotted a new swing low yesterday at 74.68 yet reversed sharply to close well over the 75 handle.   ONLY a 135 minute (1/3 the cash) or 144 minute close above 75.77 will shift the hourly profile from bearish to neutral; and until there are two consecutive closes above 76.89 there is NO uptrend to speak of.  The EURO appears to be initially confirming a possible USD bottom.  Swissie (CHF) and EuroYen (EURJPY) are the next two majors/ crosses needed to confirm any possible US Dollar bottom.  For a more detailed explanation of both the VIX and the $DXY US Dollar Index, please see “Comparing the 6 Primary US Equity Markets, VIX Fibonacci Cycles and the US Dollar at a Critical Juncture.”

After plotting a Three Inside Up candlestick pattern on Monday (11/16/09), the @ ES (S&P futures continuous contract, current basis December, ESZ09) shook off a possible Hanging Man plot yesterday at 15:54 and closed with its real body above the daily 610 EMA (1105.40).  This level had not been touched since 5/20/08 at 1412.99; just 1 day after the onset of Intermediate wave (3) of Primary wave 1 (circle) of cycle wave c (we know, it is a mouthful and does sound like gibberish).

To regurgitate our chat room thoughts from 11:17 yesterday morning:

'...
don't be caught dead in XOM ... DOW components are going to see a
massive influx of interest over the next few days/ weeks as traders/
investors sell beta and move to the alleged "safety" of blue chips; can
keep running into 1121 IF enough people jump on board the short train
and open new put interest.  There are three singular issues that
traders MUST be aware of - XOM, IBM and AAPL. 

XOM for its
mkt cap weighting and its function across ETFs ... IBM bc of its
massively outsized weight within the Dow Divisor ... and AAPL bc it is the true ringer within the NDX, the NASDAQ 100, at 17% of its weighting (thanks Allocation Committee, really cute) and the
'Cult of Cupertino' is THE cult du jour for everyone's sister, neighbor
and local fast food cashier.
 
As
the equity markets continue their topping process, being led by
currency, leading commodities, lagging the Bond markets and paying no
attention at all to credit spreads or such notably leading metrics as
the Ted Spread ... $$$ will flow into blue chips and $$$ will come OUT
of risk assets and anything beta-driven.  Therefore, for equities this
means that the RUSSELL 2K and NDX-100 will decisively under-perform while the DJIA markedly leads each of its higher beta brethren into a rolling top for all of Primary wave (2) circle.'

Bottom line: it is a scalpers market, best suited for those who work across interval periods of 2-3 mins or the tick. 

Quantifiable inter-market divergences – check

Subtle hints from the VIX, $DXY, EURO, average true range, short-term volatility and extremely low volume – check

A frenetic NYSE TICK (11/17/09) yesterday, which repeatedly touched +900/ +1000 (+1051 high) before plunging to -300/ -600 (-951 low) during yesterday’s session – check

A frenetic NYSE TICK (11/18/09), which today plotted an intra-session high of +1082 at 10:31 and an intra-session low of -914 at 13:26, as of the MOC (market-on-close = the cash close from 15:30 - 16:00) where we attempt to finally put this piece to print after a hectic day – check and check

We at Fibozachi contend that during the last two cash sessions there have been blatantly obvious HFT algo trails of 20 second pulsed basket orders/ flashed futures orders, specifically surrounding non-confirmed TICK induced bear traps.  We firmly believe that this 'market' is NOT structurally sound and that anyone who remains an "investor" ought to weigh their effective risk/ reward at this extremely high probability juncture of time, price and sentiment.  Yesterday (11/17/09), marked the exact 50% time extension of Primary wave 1 (circle).  In addition, yesterday also marked the exact calendar day where (Y) = 1.618 the time component of (W), within the double zigzag structural composition of Primary wave 2 (circle).

Boiled down to its base elements ... Predatory algos, which are distinctly different from the Pips-Hunter family/ type of EA/ strategy are basically just using what THEY know YOU are using to help screw you by forcing your "technical" trade, which is based on specific parameters.  Either click this sentence or gurgle “PrizmaL interview” to read about the the winner of the 2008 Automated Trading Championship,  in one of the most uniquely vague and oddly fascinating design developer interviews that we at Fibozachi have had the pleasure of reading.  We have provided some of the interview's most pertinent snippets below.

Interviewer: Vladimir Lekhovitser (PrizmaL) didn't wish his photo to be shown now. He explains his position as follows:

"I am not superstitious, but there are certain natural laws I try to follow. For example, I think that it is really possible to manipulate or to change the fate of a person imaged in the photo". However, in case he wins, he promises to send us a picture of him holding the prize. Vladimir works in the Software House Kaful FS, a company that develops and codes AI (Artificial Intelligence) for automated trading on the markets of Forex and Futures. The company has developed over 70 profitable trading systems since 2004."

Interviewer: Hello, Vladimir. Could you tell us about yourself, please? What is your education? What do you do?

"I don't think a formal education influences the man's way in life. It is the society's stereotyped world-view which just doesn't exist for me at all. I can give you many examples that break this world-view: It's sufficient to read the biographies of eminent persons or have a look at the statistics of the disasters the persons responsible to which were well-educated constructors or specialists in certain fields of science. There are talents and there are swots. A person who is connected to the "bank of ideas" is well aware of his or her capacity potential and goes in for learning something he or she would love to do in life. I'm an autodidact, so I make my decisions considering the voice of my soul or my intuition. Knowledge and information come to me by my request, I only should find and interpret them sometimes.

I submitted to ATC 2008 an EA I developed together with Mr. Shay S. We represent the Software House Kaful FS, a company concentrated on developing and coding AI (Artificial Intelligence) for automated trading on the markets of Forex and Futures. Our company has been existing since 2004, and today it employs 14 persons. We try to find some structures that suit us to obtain ideal results in our work. For this purpose, we use various tools, programming languages, all kinds of analyses, strategies and systems. During this time, we have accumulated in our arsenal over 70 stably profitable trading systems coded on different bases.

.... It is a normal phenomenon - the "cloud" of an idea is spread widely.
Those adjusted to certain waves can get the same idea simultaneously,
like it was with that of radio or telephone.

.... As to our EA, PrizmaL, it belongs to the family of PH
(Pips-Hunter) strategies. Those comparing it to scalping, or pipsing,
are mistaken. Perhaps, they lack information or experience in trading.

The main difference between those systems is that a quality EA based on
a scalping strategy observes the price changing bar and catches price
leaps up or down. Once having recognized such a leap, the EA opens a
position in the direction of price changing or in the opposite
direction, according to the trading idea it is based on. There is
another, cruder alternative for trading by scalping: It differs from
the first one by that the EA tries to open dozens of positions within a
relatively short period of time. However, no broker would allow such
trading. Both versions of this strategy have similar disadvantages.
Testing such EAs in the Strategy Tester, you shouldn't rely on their
results. The reason is the logical code of the program, which attempts
to overcome the file of historical prices, that's all. This situation
vividly shows the relationship between an EA and the Strategy Tester.
The Tester doesn't, basically, give troubles processing the requests of
such an EA and allows it to open technical positions differing from
those of real trading. That was many times tested by comparing the
results of real trading to those obtained from the Strategy Tester for
the same period of time."

Interviewer: In the description of your
contest EA, you wrote that 17 external parameters had been used in it.
Many people (including the well-known authors of books on technical
analysis) believe that such a large amount of parameters is an evil and
may result in fitting the trading system to history. How would you
comment on this?

"I respect people writing books on the topics they don't work at in
their life. 17 versions of parameters were obtained during
optimizations for the 10-year history, which have been bringing us
profits on real accounts for a long period of time. Fitting means the
setting parameters obtained within a short-term optimization on history.

.... There
is no ideal trading at all. We have many strategies that hunt hens,
too. I chose this strategy for the Championship just because it was the
best one considering the conditions published in the Championship
Rules, and because it produces stable profits without hoping for a
chance.

It is impossible to give an accurate estimate of a trading system without knowing how it behaves ....

.... I
never comment on people or their work - it doesn't produce anything
constructive or useful. I'm ready to use my time for enjoying the
results of the work, no matter mine or others'. Radiating negative
emotions always implies a destructive element. On the forums of and in
discussions about the Championship, in the topics devoted to trading,
traders often talk about that their EAs are good, but not often
profitable: either entering was ok, but closing failed, or flat started
and his EA is unlucky on flats; or something happened and the price
upset all StopLosses; or today their EA shows itself in all its beauty
and tomorrow it omits closing a profitable trade and takes only the
rests; and those whose balance charts are moving up accurately complain
of that their EAs don't work on real accounts. A depressing picture.
The vector of these traders' intentions is initially doomed to failure.
And it is not important how much time they would spend on sitting and
studying speculations on markets. There are traders of two types only.
Traders of the first types are those whose thoughts of their EA working
on their account or of their open positions makes them feel that the
ground is slipping from under their feet, which at best results in
stagnation. Traders of the second type are those just enjoying the
results of their work."

Interviewer: If ATC 2009 takes place, what EA would you submit: the same one or another one?

"We are developing a system now the indicator of which
should be connected to ESA (European Space Agency) or, more
specifically, to Kopernikus GMES. This indicator can get information at
first hand. It will be connected directly to a space fleet of various
sattelites informing about forthcoming crises on the Earth. This will
be like getting weekly weather forecasts from meteorologists. Having
such information, the indicator can inform us about forthcoming changes
on the market before the crisis starts affecting it. This indicator
will probably accompany other trading ideas that you may get to know on
the Championship in 2009."

There is a voluminous list of burnt "strategies,” which are so glowingly radioactive that they make Derek Jeter's ‘blazing copper’ Ford Fusion look like Sammy Sosa's pigmentation.  A quick list of basic (read: crappy) 'strategies,' which kill retail traders and boutique firms alike, includes:

VWAP (lol);

TICK divergence;

ADD/ VOLD/ TICK/ VIX derivative ratios;

intra-day trendlines;

any Bill O'Neil (IBD) pattern;

intra-bar breakouts across small interval periods of either time, tick or volume, which are extremely susceptible to stop hunts when the wick of a candle triggers obvious sell/ buy stops while its real body closes well away from the assumed line of demarcation;

Elliott Wave by its lonesome;

almost any/ every standard indicator/ oscillator with default settings ... and this just barely scratches the surface of basic, secondary conditional filters, which make easy fare for Predatory algos.

 
Low volume baby trend days, like the past two, typically crush retail speculators/ options traders who aren't taking high probability scalps of 0.5 to 1.25 ES points or say a single dime within the Q's (QQQQ) or CL (oil futures) but rather are looking for swing trades of 50 - 100 YM points (DJIA futures) or 2-5 points on Goldilocks (GS) and Gurgle (GOOG). 

To summarize basic price action from today’s session: 144 min $DXY showing POSSIBLE inverted H&S ... after registering a Bullish Engulfing & Tweezer Bottom candlestick pattern this morning, closed 10:24 at 75.00, the very next candle, closed 12:38, plotted a Hammer with a Tweezer Bottom whose low was 75.01.  The greenback's technical profile remains squarely bearish until 75.10, 75.23 and 75.36 are achieved on the hourly whereby those levels must then begin the process of morphing from resistance into support on either the 135 (1/3 the cash session) or 144 (Fibo) minute; those are the levels right now for the 144 minute.  A daily close OVER 75.62 and 75.77 would be a VERY, VERY strong initial signal of a POSSIBLE bottom by breaking both the latest downward sloping trendline and price channel, which, unlike either Ralph Waldo Emerson's "Concord Hymn" (Panic of 1837) or Bobby Thomson's pennant winning walk-off homerun from 15:58 on October 4, 1951, will NOT be a "shot heard 'round the world." 

Strong positive divergences within the $DXY US Dollar Index continue to abound across innumerable technical methodologies; and even if this recent bout of nimble short-covering turns out to be but a small fourth wave upward retracement before testing an extremely strong band of lateral multi-year support between 74.46 - 74.50, with an initial downside overshoot target that surrounds 73.80 ... we at Fibozachi firmly believe that the $DXY is on the cusp of a 6-16 month, hellaciously impulsive jaunt higher towards a first target of 81 - 84 and an ultimate target of 93- 96 with the outside possibility of a parabolic overshoot that reaches 103-107.  Much as gold could exhibit a similar blow-off move to the upside ($1340 ish) over the next 3 to 5 weeks should it blast through a target that surrounds $1168.  As per the far-reaching ramifications of a significant US Dollar bottom across global equity, bond, currency, commodity and credit markets: consider yourself forewarned !!

As always, we hope that this quick overview is helpful and thank you for taking the time to read our thoughts.

Disclosure: no positions held overnight;
anticipate becoming long the $DXY and short ESZ09 once a multiple confluence of proper trading signals confirm themselves

For similar technical takes, market calls and insights, please visit our brand new website, www.fibozachi.com. 
There, you can view both our complete body of analytic work as well as
detailed explanations of the unique design development and technical
methodologies within the proprietary technical indicator packages that
we use daily to perform a comprehensive technical analysis of stocks,
options, ETFs, futures and FOREX across interval periods of time, tick
and volume.

Comments

[Fibozachi]

Very well said RT.  To each their own; in all walks of life. 

In terms of trading, we each must not only determine but also define our own personal style ... which starts with an introspective evaluation of personally preferred trading instruments (stocks & ETFs vs futures & options) and then moves on to choosing singular vehicles/ issues therein (GS vs JPM vs BAC vs HCBK vs XLF etc.) as well as specifically defined interval periods of time, tick and/ or volume. 

From that starting point, the actual nuts & bolts of constructing a customized, written trading plan splinter out into all kinds of directions.  As a starting point for how to think about trading itself, we strongly suggest that traders/ investors of all stripes click on each of the five names listed below and check out the websites of psychologically-oriented, emotionally-introspective authors like Ari Kiev, Brett Steenbarger, Corey Rosenbloom, Mark Douglas and Van Tharp. 

For those willing to venture a little further out to sea, who are interested in developing a greater understanding of what indicators/ oscillators/ metrics/ functions/ filters/ variables/ secondary and tertiary conditionals, etc. ... check out our recent long-winded rant about systematic design development, Four Basic Qualities of Great Technical Indicators & The "Stochastics Default Club" ... which speaks directly to: the "fixed period drop-off effect;" the differences between moving average methodologies; the true nature of the term "fractal" as applied to the structural composition of systematic design development; the "four basic qualities of great technical indicators," as espoused by Mark Jurik; and a little-known practical nuance within stochastic calculus that can help you anticipate what others are about to think.

Thanks for getting a convo started RobotTrader ! We'll keep popping in throughout the night to see if we can help answer any questions. 

Thanks for taking the time to read through all this slop ... have a great night all !

[Fibozachi]

... love duplicate posts, by Mo Rons like me?

[Fibozachi]

doncha just ...

[BRAVO 7]

LATEST ON THE FORT KNOX BANK ROBBERY, SOMEBODY CALL 911

November 19, 2009
Jim Willie, The Golden Jackass

The rise in gold pre-sages a currency collapse, led by the USDollar. Gold vaults at commodity exchanges in New York and especially London are being drained by delivery demands. Gold demand is skyrocketing, as distrust for the USDollar is broadening and revolt against the US$ is deepening. The quintessential finance war is between the United States and China, with the battlefield being the US$ and Gold. The race over the $1000 price level came in the face of mammoth shorting by the same Usual Suspects on Wall Street, which do so with paper, but without the required collateral. The gold market is poised for a surprise upward move from a basic broken condition, as the Powerz are losing control. It would be a joy to watch except for the extreme hardship due to come to the betrayed American people.

$$$ THE BIGGEST GOLD CRIME STORY OF THE CENTURY MIGHT BE SOON COMING TO FULL LIGHT. EVIDENCE IS BEING ACCUMULATING THAT THE CLINTON ADMIN WITH RUBIN AT USDEPT TREASURY REPLACED PERHAPS THE ENTIRE CONTENTS OF THE FORT KNOX GOLD WITH TUNGSTEN BARS PLATED BY GOLD. THE SALTED GOLD BARS ARE FASTING BECOMING A GLOBAL CRIME ISSUE. HONG KONG DISCOVERED THEM, AND NOW ASSAYERS ARE TRYING TO AUTHENTICATE MOST OF THE GLOBAL GOLD HELD IN BANKS. ENTIRE NATIONS ARE AT RISK. BEFORE LONG THE USGOVT COULD BE DECLARED A ROGUE NATION INTERNATIONALLY. $$$

Evidence is being gathered by perhaps a dozen key gold traders with diverse connections to the gold industry. They tie the delivery systems, the authentication processes, the assayers, record keeping, big financial firms, and trading platforms. Evidence mounts that as many as 1.5 million 400-oz gold bars were replaced at Fort Knox during the Clinton Admin with tungsten bars covered with a thin gold plate. This was a complex metallurgical feat, from what is told. The first 'salted bars' were discovered in Hong Kong a month ago, reported by the Hat Trick Letter. Since that time, tens of thousands of bars have been examined, usually using four test holes drilled for direct sampling. Other non-invasive methods are being used as well, such as electro-magnetic tests to detect the actual lattice structure of the metal to distinguish gold from other substitutes. Word came this week that almost every available assayer in the world is currently tied up, charged with proving the authenticity of gold bars worldwide, right now! Rob Kirby suspects that the Street Tracks GLD exchange traded fund might be loaded with such salted bars. It is a perfect destination for them, since the Wall Street syndicate prevents any audit. The total value of gold removed within the plot was worth over $500 billion. So where are the real gold bars stored? My guess is the same location where the Madoff money is secretly held.

My view is the story is not only credible, but it is the climax to the US financial collapse. In time the United States will be isolated, declared a Rogue Nation, unable to fund its debt except with monetization, whose leaders and former leaders face international prosecution. The resulting inflation will undermine the USDollar to the point that it will not be accepted. A USTreasury default will be forced, all in time. To be sure, some demand for gold might be frozen into inaction obviously, as customers would fear owning fake gold bars. However, the significantly greater effect is that sellers of gold will scramble to purchase real gold bars, so as to avoid fraud charges, criminal prosecution, and jail time. They will be motivated to repair the fraudulent transaction with full expedience. The replacement effect will cause an extraordinarily huge demand. Only at that time, will the risk of exposing the stolen gold come, as the thieves will want to cash out on their crime, at least partially. The removal and illegal swap of gold has precedent. In the 1960 decade, around 1968, President Lyndon Johnson ordered the removal of 7000 of the 8000 tons of gold from Fort Knox, and had it sent to England. The motive was to support the gold price at the time. Just a few years later, the US under President Nixon abandoned the US$ Gold Standard, as dictated by the Bretton Woods Accord. The gold was replaced during the Johnson Admin in Fort Knox by lead bars plated by gold. A contact of mine was in the USMilitary Police at the time. He reported long caravans exiting Fort Knox for weeks at a time, but the details of shipments were not known to the guards, only their duties.

For some excellent forensic financial analysis on the fake gold project, called Operation Grand Slam, see Rob Kirby's article. It is entitled "On Doing God A New Take On Operation Grand Slam With A Tungsten Twist HERE), dated 12 November 2009. $$$ GOLD MARKET BREAKDOWN IS WITHIN VIEW. LONDON GOLD IS BEING DRAINED BY THE CHINESE. A DISMANTLE OF THE CRIMINAL APPARATUS IS THEIR GOAL. UPON FULL BREAKDOWN, THE GOLD PRICE WILL BE RELEASED FROM PAPER TENTACLES AND RISE SHARPLY. $$$

Pressures mounted in early October at the London metals exchange as gold contract holders demanded delivery of gold. My source tells me that the parties demanding gold were almost exclusively Chinese. It is mostly private billionaires. Their stated motive was to diversify out of US$-based assets. Their rumored motive was to ruin the exchange, expose the chronic fraud linked to government ministries, and force the USDollar to fight in the open to demonstrate value or lack of value. The source said the next round of gold contract delivery pressure comes in late November, then again in March 2010, and finally in June 2010. He said the gold is gradually being drained in London, and that all demands for gold delivery were met in October, using legal force, the courts, and powerful attorneys. Not a single gold contract was settled for cash with a 25% dividend bribe. He concluded that the financial system will be broken at the gold-USDollar cross beam. He openly stated that he could not conceive of the system holding together past June of next year, and a severe test is likely in March 2010. He said with sly tone, "There is a saying: Watch out or you become shit before your own shovel. That is what is happening to the BOYZ right now. The people in the driver seat of the bulldozer have clear instructions what to do in the gold market." When the breakdown comes, it will be next to impossible to trade in USDollars, to settle commerce in USDollars, to finance the USTreasurys, to supply the USEconomy with credit, and to maintain the US banking system. The banks in the United States will then shut down in all likelihood.

My view is that a battle royal is being played out with gross global pressures, between the old broken insolvent corrupted powers of the West versus the new wealthy ambitious powers of the East, led by China. The future chapters will possibly involve the Intl Court in The Hague for prosecutions against the Wall Street firms and former USTreasury officials. It will possibly involve a wave of murders from the middle levels, working up, since the guilty parties operate with impunity and government protection. It will surely involve relentless attacks on COMEX and London CME for gold deliveries, where collateral requirements are not enfoced. The practice is known as naked shorting, illegal. It will probably involve the isolation of the United States, with full recognition of a crime syndicate lodged within its government ministries and capital markets. These are truly incredible times.

[truont]

+10

[LittleSambo]

Could you define "nipple bottom"?  I can picture it, but I'm not sure.