S Roche's Week In Gold

 The week started poorly with indistinct signals. Mindful that his trading would be reported by this writer

at the end of the week Roche made an effort to inform himself on the likely outlook for gold. He noted sombrely that Goldman Sachs predicted $1,200 yet Citi predicted $1,675 but was heartened to see that Goldman Sachs also predicted $1,825. Armed with this valuable information he set himself to work.

 After putting on a series of unsuccessful small short and long positions (1) Roche became convinced that $1700 would be bested (2):

 However, his committed long positions, though larger, fared no better and every time he closed or reversed one directional bet, the market would immediately move in the original direction he had foreseen. With losses mounting, he took several breaks from trading. In hindsight, there were clear signs of a potential topping:

Clear signs of a potential topping at the beginning of the week...

Confirmed by the end of the week...

 Roche was aware that the difference between Netdania charts, the Interbank Market, and Stockcharts, the Comex Market can be crucial. What he saw on Netdania that he thought was an attempt to break through $1700, was in fact repeated failures to best the 50 Day Moving Average, the blue line:

 Roche finally saw the failure to best $1695 as a key indicator and went short, somewhat late but in any event a profitable trade that saw him recoup losses to within 3% of his starting balance for the week.

 With the $1700 test still in his head he closed the profitable shorts and started building a long position at $1667...all the way down to $1558 (2). This may not be as unfortunate as it seems, though Roche is presently sitting on quite a large unrealised loss (3).

 Roche is betting that the Options Expiry in gold on Monday will play out something like Turd Ferguson foresees:

"Also, never forget that when we head toward option expiration on the heels of a rally, there's always Cartel money to be made by putting the fear of God into those who foolishly sold puts into the expiration. Recall that it works something like this:

  • Sheep hedge fund/money manager sees the rally and thinks, "Hey, I can sell the 1675 puts for $X and, as long as gold is above 1675 on Monday, I'll never have to cover them. This looks like free money".
  • Uh-oh. Price starts to fall away from 1690 and said Sheep begins to get nervous.
  • At 1680, Sheep begins to consider covering at a loss but is unwilling because price may still rally back and, sheesh, expiration is only two trading days away.
  • At 1675, the Sheep panic. Now at a steep loss, the only sensible move is to sell some futures contracts to hedge.
  • This additional spec selling drives price even lower.
  • At this point, The Cartel fleeces the sheep by buying all that The Sheep are selling and price reverses.
  • Ultimately, by option expiration, price is back above 1675 and the "sold" puts, so vigorously defended by the Sheep, actually do expire worthless.
  • The Sheep have been fleeced and The Cartel [+1, Ed.] rings the register on another easy trade."
Lance Lewis at Daily Market Summary sees it much the same way but in less colourful language, and his is a subscription service. Lance reports that Spec shorts have indeed increased.

In being long in quite a large way for the opening next week Roche is trading counter to some very clear negative signals for gold in the short to medium term (4), as noted by GM Jenkins in his Friday's Metal Wrap and by Trader Dan Norcini here.

I am hoping to get an update from Roche on Monday night (5).

This Week's Performance: -18.24%

This Week's Quotes:

(1) "Trader impatience is more a function of inexperience than anything else" Paul Tudor Jones

(2) "Traders must avoid getting married to a single trading idea. This can lead to severe losses if not derailed by strict risk management” PTJ

(3) "I really don't care about the mistake I made 3 seconds ago in the market. I care about what I am going to do from the next moment on" PTJ

(4) "Make the hard trade, not the obvious trade" PTJ

(5) "75% of all highs and lows are made on either Friday or Monday" PTJ

You can follow S Roche on Twitter @srochetrading. He doesn't Tweet much.

UPDATE: 4 hr chart at the open of trading this week:

S Procheimian


Kid Dynamite said...

S Proc: since I'm guessing that you've already read this post, which cannot be repeated enough, since it's clear that many of the PM bloggers still don't understand it:


let me proffer an alternate explanation for the behavior you see around first notice day: it is the LONGS, not the shorts, who are "Trapped" in their positions (and don't want to take delivery, and everyone knows this, so they get raped trying to sell/roll their positions)... ponder that...

S Procheimian said...

Thanks KD,

I can see the selling pressure by longs who do not want to eat Cheeseburgers in the front month, but presumably they buy the new month with identical gusto...a wash?

On Roche's brilliant trade going into today: it sucked. If gold pops now Roche will have been right for the wrong reasons. It's happened before.

77 said...

comex silver stocks reach highest level since 1997...GLD and SLV holdings decreasing ever since that one large inflow day in SLV as well ... so hopefully the silver shortage hype will stop..

looks like it's all up to bubblin' crude oil in the CCI.x as the cci held it's 38.2% retracement of the 549.44-567.76 rally at 560.71.


Warren James said...

.. so the wife turns to me and says 'gold is down anyway..'. She had heard it on the television. Funny the media should mention gold price going down and not the surge preceding it. Game on.