End game and do charts work in a manipulated market?

Do Charts matter in a manipulated market?

Most will argue that they work only because we think they do. Some disingenuous players like Buffett will tell you he never uses them. Some like Prechter will say they predict social mood etc.  I will simply say they do work if enough people think they work and leave it at that.  It’s simply too big a question to answer in single blog post.

So let us assume they do work for our purposes.

Whether we agree that there is manipulation or not doesn't matter because the manipulation has been going on so long that it is now PART of the charts.

Manipulation will effect the short term charts and throw them out of whack when they make an unexpected or desperate move but longer term they don't change.  You can see it clearly if you look at the historical silver charts for example and match it up with margin requirement changes. It’s a direct intervention in the markets to cool things down. So manipulation works obviously.

My theory is if the manipulation is applied on a regular basis then it becomes part of the trade. It gets built into expectations and therefore the charts.

So whether you think manipulation is real or not doesn't matter. It only matters if the degree of manipulation changes. For example; if the Morgue doubled down on their short position tomorrow it would potentially skew the charts in the short term but those looking at the longer term charts would see it as an opportunity.

This is my round about way of saying at some point all the manipulation in the world won't matter in the long run and eventually the fundamentals win out over the manipulation and the charts.

IMHO The Morgue are trapped. Short term tricks like raising the margin requirements are having less and less effect. Notice how as the price increases the margin requirements have gone higher and the margin requirement (although more frequent) changes are having less and less effect. It used to take weeks or months to absorb or digest the margin requirement changes but now it's days.  Massive margin requirement changes or throwing out the rule book like back in Hunt Bros days can have massive effects obviously but they are running out of ideas here.  Kind of like the Fed cutting interest rates they eventually run out interest rates to cut.  The Fed have run out of interest rate cuts so they only have one direction left. They cannot hold negative interest rates (taking inflation into account) in place forever except through dollar devaluation.

The Morgue is running out of Silver and Margin requirement changes.  At some point they may run out of position by the imposition of position limits. I'll believe that when I see it.

The Fed is running out of Gold and rate reductions. Their next move is move the goal posts / rule book change.  What that rule book change could be I have no idea but it would have to be fundamental. A requirement that you have to deposit physical in order to participate would have the desired effect.  It would give the Morgue control of inventory which they desperately need. Unfortunately for the Morgue this would be a temporary fix as traders will simply move to another exchange and the Comex would lose relevance. Short term though they would be able to cover their shorts and destroy us bugs.

I know nobody reads this blog so I feel safe putting this notion out there :)

As we keep going higher in price the leverage decreases for traders but they are expecting the margin hikes and are ready for it. Only the degenerate gamblers are going all in with no room for error or margin requirement changes.

 

Also, as the leverage available decreases it stabilizes the prices as there is less profit in the trade and there is one less bullet in the manipulation clip. At some point they will run out of bullets.  

The big picture is the Morgue are playing a game with real money using fake money that is devaluing faster than they would like. Their backer the Fed is trapped in a similar no win situation.  You need physical silver to sell short in the market or someone will call your bluff. The bluff has been called.  Their only option now is to attack gold to scare the Silver bugs but with China etc. waiting for cheap gold that could really backfire when the Chinese show up to take delivery and pay for it with greenbacks.

The jig is up. It’s end game unless something really fundamental changes in the way the Comex conducts business.

P.S. Thanks Warren for my avatar and as always thanks Bill for the great charts.