Morning Gold Fix: September 15 - At Crossroads
Submitted by FMX Connect
Daily B-Bands widen ever so slightly- but that is all that you need.
bottom Band on the Daily chart widened intraday yesterday and we picked
up an extra $12.00 on the upside, essentially letting gamma run on our
buys from the previous 2 days. The question for today is: If the market
pulls back, do you buy it? The short term evidence is mixed. Yesterday’s
new highs did not bring confirmation in the RSI. At this point I’m
still more likely to buy into strength for day trades than dips. If the
bottom line on the weekly chart capitulates then I’m a dip buyer. For
now, stay aware that this could very well be the pump and dump many have
warned about. If you buy dips, consider stop outs below the 20 day
moving average as dictate d by the B-Band signal. Volatility is
expanding. Trade less contracts with wider stops and you will have a
forgiving market with multiple opportunities to make money. Or you can
be long gamma like us.
Volatility breathes in cycles. Already
today it shows the bottom band tightening a little, but that will change
intraday. Ignore it until the close. Ranges will increase in scope, and
direction will be definitive. Again, we are NOT buying dips yet. We may
miss opportunities, but it is not worth the wash out risk.
Implied Vol was out over 1% in Oct10 sloping down to .5% in Dec 11
told the story once again. As funds came in early and often buying
calls, call spreads and butterflies while some Dealers scrambled to get
their Gamma back before “something happened”. This is significant
because since GLD became the dominant vehicle for gold investment, the
options market has behaved in a decidedly put skew manner. Meaning
implied vol would often decrease in a rally and increase in a fall.
Yesterday was not the case, and we suspect several large market-makers
and dealers have some upside exposure. The call skew is confirming this.
Much to our joy, funds are no longer buying the 1 option in back
spreads. This translates to a fearful upside. Furthermore, in the GLD
product, the call selling is drying up, making it hard to spread Comex
shorts against GLD longs. Which we think is totally backwards since being long Comex gold has less counterparty risk than GLD, but that is another story.
Our Sprott Indicator
Eric Sprott has stated that Gold could be in the beginning of a
parabolic move. We hope he is right but cannot act on the statements of a
man with a product to sell, as good as that product is. Nobody can ever
be truly objective. As stated before, here and here,
at the beginning of a move, the B-Band volatility tool is the best way
to gauge breakouts we have seen. Unfortunately they do not consistently
serve well for exits, at least not for us. Look for that lower band to
drop and you’ll be happy you did before you pile on the longs.
for our fund, we are lightening our load in AU, NGD, and GDX, but
remain long and getting longer Gold short dated and long dated
straddles. And if all this options talk is putting you to sleep, look at
the open interest this morning. If it went up, that is a good thing. If
it decreased in the rally, be careful if you are long. For Market Prices Click Here