Sunday pre-game, 4/28/2013

 Hello friends-

I apologize for being out of commission lately. Frankly, I haven't had much to say since pointing out the obvious on Friday, April 12, that hugely important support had been broken and all bets were off.  I've found all the subsequent talk about the "8 standard deviation event" (or whatever) that followed mildly ridiculous. I'm not sure how one gets those numbers, but had the ensuing crash been spread out over a few days, far from being a one in a trillion event, it would've been positively expected.

I mean, going back to the Screwtape silver symposium way back in February of last year, on the topic "When to buy silver?", our very own JdA warned that the day would come when
"you can say hello to $22 silver before you can mutter "I think I'd better log into my trading account". That's when you should buy." 
Granted, she's hated silver ever since I brewed her some homemade "Silvershlager" and turned her blue, but I don't think she was predicting an 8 std deviation event.

[As an aside, looking back, I see that my contribution to the symposium was an exhortation to buy silver. And, in fact, those who took my advice would've made a 10% profit over the following 2 weeks. I also distinctly recall telling my readers to sell at precisely that point, but only in my subscription letter.]

Anyway, speaking of "standard deviations," back on Dec 31, I half-seriously expressed my 2013 prediction for silver in those terms. I felt at that time that a yearly close at the conservative blue trend line would've constituted a 3 standard deviation event. 




Sure enough, we're at that blue line now (see chart below), and I still don't think we'll close 2014 below it. So, as far as I'm concerned, yes, perhaps come 2014 a three standard deviation event may be said to have occurred (~1 in a 100), but not 1 in a billion or trillion or whatever number many analysts have been popping off.


 One unfortunate side effect of the crash is that I've really had to rethink how to trade the metals going forward, or even if I want to keep trading them. My modus operandi has primarily been to use the data of the past 5-10 years (in conjunction with the assumption that the bull market has a long way to go) to find key levels to guide my trades, but as of now I'm waiting for a new pattern to approach.

As such, I'm primarily eyeing various weekly and monthly three line break charts, which have an inherent lag to them, but importantly, when a reversal does occur, I can be fairly confident that it isn't "false."

So, looking at the gold monthly three line break chart (something I mentioned in my previous post), April needs to close below $1439 for a correction to even appear on this chart. (Now wouldn't that be funny if gold recovers from here, and the "8 std deviation event" doesn't even register on this important chart!)



And below that, the weekly three line break chart of the GLD /DOW JONES ratio, which I've mentioned will require a reversal before I'll be open to arguments that the long correction since 2011 is over.

   
Of my old charts, here's one where I had looked for significant envelopes for the price action over a decade. Note that the crash stopped exactly where it did in 2008, and, in fact, the post-2011 correction is starting to look like a "stretched out" version of the 2008 correction. A pattern to keep an eye on…
   

I have other charts but no time, so they will have to wait till next week. Let me just update the "10 yr yields in gold chart", which can be interpreted as how much gold the Treasury would have to give you every year for lending it $1000. Or alternately, the "real" (vs. nominal) yield. My hypothesis is that it cannot be allowed to rise. 
Even though the parabolic channel (left) that I had used to extrapolate prices (and impending doom) did not survive recent events, we see that we're in a tight range -- and in fact, the weekly three line break version of the chart (below) shows that despite the gold crash, nothing has been added to the chart. The final red bar is almost one year old...


27 comments:

duggo said...

Dear Gm
As a chart non-lover I LOVE your "10 yr yields in gold chart", and it's "rigged" connotations.

Can we take it that a break-out to the upside would mean they would have lost control and we could be "off to the races?"

victorthecleaner said...


Duggo,

can they every lose control in this sense? The U.S. Treasury can simply buy enough London paper gold in order to raise the gold price to any value they like. (I want to see the faces though when GATA find out...)

This leads us to the questions: (1) Do they understand this? (2) Assuming they do, have they perhaps decided not to?

Victor

S Roche said...

GM J,

My quick read of your 3rd last chart shows that the 2008 correction found final support after breaching the previous high, which today puts us in line for the (Long Term) low numbers suggested by Bell Curve Trading, (after which they see much higher prices than the previous high). Though interesting, it is obviously not set in stone.

For those unfamiliar with their work I am a big fan, at $900 they called (Long Term) $1700-$1900. They also have Intermediate Term and Short Term price levels. Their work is based on Market Profile, or the weight of money in the market. When accurate it is uncannily so. Being based on past numbers it is entirely mathematical and so can not predict external events. When wrong it is pretty spectacular too as the previous weight of money is caught on the wrong side of the boat.

Apart from clearly identifying support and resistance levels I think their work is really most valuable in assisting traders avoid the trap of following the narrative, not the market.

duggo said...

KWN:- Eric Sprott: "Silver To Skyrocket Hundreds of Dollars in Price"

"Quick! Quick! Buy while stocks are available. This maybe your last chance."

"Until we announce the same thing next month."

Is it just stupid old me that thinks the Silver "pushers" must keep the hype going otherwise they will be left with loads of Silver?

Gwyde said...

I notice you are ascribing a much higher probability for a six sigma event than do analysts. Your experience is empirical, while the analysts' calculus derives from a simple theoretical math formula.

The solution to the contradiction is not that analysts are wrong, but rather the implicit assumption of a 'normal distribution' of daily variations is not correct. See for example following post, giving more evidence: http://gwyde.blogspot.be/2012/05/risk-mispricing.html


S Roche said...

C'mon Duggo, be nice.

Gwyde old chap, words of one syllable? I am working my way through Anti-Fragile, pitch it about there please.

GM Jenkins said...

Thanks, duggo - I guess the way I've always looked at it is that if rates start to go up, gold will have to go up even more to keep the ratio trend down (cf. VTC point that TPTB can control this). But it is true that the 0.009 level has been very strong support - it held 5 times - so maybe the ratio will turn up, either if gold continues to fall or (less likely in my view) yields go up while gold stays down. I don't see how yields can go up when the Fed, Japan, the big vassal banks, etc can just buy more and more bonds, but that's just my impression.

S_Roche: thanks. I recall you vouched for Bell Curve Trading back in December. If I get back to trading more seriously I'll look into it. The more i look at that chart (3rd from last), the more I am seeing a "stretched out" replay of 2008. Perhaps the bottom is indeed in, and the King World Krew are having their stopped clock moment.

Thanks, Gwyde - I checked out your link and it was educational. My criticism of the "8 std deviation event" talk was just impressionistic, in that one doesn't expect to see such an event in one's lifetime --so even before getting into the mathematics of it, how can something like a quick drop to a major trend line be seen as such? E.g. If Sinclair is right and gold goes to "$3500 and beyond" - does anyone doubt we'll have a $350 drop one day, which of course would be a bigger percentage fall than Monday Apr 15. Overall, the drop on April 12 was surprising, but the following Monday's action - especially with all the margin calls -- was not.

GM Jenkins said...
This comment has been removed by the author.
GM Jenkins said...

I've deleted my last comment, which was an attempt at levity and a symptom of my weakness for wordplay, but which, re-reading it now, also was probably pretty offensive to our gay readers. Whose presence was made known to me when several of our sponsors dropped us in the past few hours.

S Roche said...

Sponsors? There you go with that levity again.

All hinges on the man behind the curtain at 2pm Eastern, Wednesday.

What a funny old world.

Allston#1 said...
This comment has been removed by the author.
Louis Cypher said...

@S Roche,
It's very complicated but it's all revolves around blackmailing the Vatican bank, gay prostitutes and leisure wear.
A quick link to bring you up to speed

http://www.guardian.co.uk/world/2013/feb/21/pope-retired-amid-gay-bishop-blackmail-inquiry

S Roche said...

Umm, thank you Louis, I don't think I meant that particular curtain.

It is still a funny old world.

duggo said...

I like Silverfuturist. There, I've said it. He's an intelligent guy with Chickens.
His latest video is:-
"10,000 subscribers! And silver comedy"

http://www.youtube.com/watch?v=xVkKw-fZVsY&list=UUBgYfi5EKCfD7ZJiIBDArSQ&index=1

Worth a watch for all those who think the Comex is "out" of Silver and Gold.

SugarLover said...

And the Bernank opens the door to yet more QE, on the day copper and oil, and silver, show their cards yet again. Deflation is dominating their piffling money printing.
Going to be fun when equities catch up.
$150b a month by year's end is my guess.

S Roche said...

SL,

I think the Bernanke is going to have to hit the gold bears over the head, or between their eyes, with a lump of wood. I follow a lot of them on Twitter and as far as they are concerned there was no change to the FOMC statement...when of course the introduction of the whole sentence about increasing or decreasing purchases was new.

This Friday is NFP Friday and then the FOMC minutes come out May 22nd.

But, as they believe that deflation in commodities is good for the US consumer and therefore a net contribution to the US recovery, and that those who are long gold are hopelessly confused and bitter to boot, only price action will convince them.

SugarLover said...

Well, just wait til $150b a month doesn't work, and they go with $500b a month buying equities, commodity Etfs, Reits, and Fleets of Fords and Chryslers.
Then we might see inflation expectations pick up.

Spicy Guacamole said...

Dwarf lemurs hibernate like bears? Now I understand why we haven't heard from JdA lately.

http://www.livescience.com/29291-dwarf-lemurs-hibernate-like-bears.html

Funky Tape said...

S Roche - Thanks for the Bell Curve shout. I signed up for the trial and I've gotten 7-8 PDF's from them so far. Even the president called me on the phone. I haven't dug into them all just yet, but from what I can see everything looks super tasty. Extremely impressed so far.

Are we there yet? Are we there yet? If you use Google Trends like I have over the past few years to gauge "the public" we're in for a lot of pain to the downside. Try "buy silver bullion" and observe the correlation between the peaks in price in 2008 and 2011 and search hits and you'll see why. Either that or "the public" knows something the market doesn't. Scary!

http://www.google.com/trends/explore#q=buy%20silver%20bullion&cmpt=q

duggo said...

I always thought Dave in Denver (Golden Truth) was one current short of a fruit-cake. Now he's confirmed in by having a bash at Bron Suchecki.

He seems to suggest Bron is part of the "evil empire".

I think Bron should come on and put Dave back in his cake-tin.

Warren James said...

@Duggo, yes it's all a bit odd. Dave in Denver described Bron as a proprietor of the Perth Mint, so even in this short narrative he got his facts wrong - The Perth Mint is 100% owned by the Western Australian government.

It is remotely possible that Australia is somewhat removed from 'the great scramble for physical' metal, but ... nah.

duggo said...

@Warren James

I've just taken a screen shot of this in the comments section of Golden Truth. This was Dave of Denver's reply to Anonymous (same date)

"Dave in DenverSaturday, 04 May, 2013
There's a lot of problems with Bron, the biggest of which is that he's in varying degrees a fraud"

If I was Bron I think I'd punch him on the nose.

Slow Loris Larry said...

@ Duggo

That would be your style.

I think that, fortunately, it is not Bron's.

His record shows that he is far more rational about things, and can ignore emotional and scurrilous aspersions.

I have been reading The Archdruid Report recently with considerable interest. For the last month or so, John Michael Greer, the Archdruid himself, has been writing on the topic of secular religions, in particular the widespread contemporary belief in 'progress'.

The relevance to the present STF discussions is that the vehement outbursts by the 'goldbugs' and, in particular, the 'siverbugs' whenever anyone tries to cast a little rational light on their beliefs is clear evidence of their cult-like nature.

Note also the recent irrational idea that the 'stacker' movement could crash the COMEX on May 2 by all buying just a little more on that particular day.

There is a classic account of how cult members rationalise the failures of their prophetic beliefs, titled "When Prophacy Fails". My copy is in a big box under my house somewhere, so I cannot cite the author for you.

On a lighter and far more entertaining note, I can also highly recommend "Ro of Varna', a case study of an actual cult revolving around an alien ('Ro', perhaps spelt somewhat differently) which existed briefly in a village named Varna near Ithaca, NY, back in the 50s or 60s. Again, I cannot supply more details as if I actually still have a copy that was not lent out and never returned, it would be in another one of those boxes under the house.

Maybe Jeanne d' Arc can help me sort through them sometime.

duggo said...

Agreed Slow Loris.

Direct action is more my style. The World, in my humble opinion, would be a lot better place if instead of people "wringing their hands" and wining on about the unfairness of it all they took a little more direct action.

Bullies soon learn never to pick on someone who fights back.

If he lets him get away with it then he is agreeing by being silent.

Why do you think the IMF let the Russians take their money out of the Cyprus banks. Cause they were nice guys?

By the way "a punch on the nose" was figuratively speaking. It's a bit difficult for someone in the USA to "prendre un poing sur le nez" from someone in Australia but there are other ways.

Slow Loris Larry said...

@ Duggo

Well, I suppose if you put it that way, we are not in any great disagreement.

Let's see what Bron deigns to do!

SLL

S Roche said...

I've recently been reading and impressed by Mark Dow in relation to the markets and PMs in particular:

http://markdow.tumblr.com/archive

As you will read I am about a year late. I don't agree with all of it but from the price action it is obvious that a lot of people do. I love his references to, what I took to be GLD owners, as "macro-tourists". In mid 2012 he prophetically noted that when they looked for an exit they would find it to be a narrow one.

rain bow said...

This article is mind blowing I read it and enjoyed. I always find this type of article to learn and gather knowledge.

mold damage monterey