Graceland Updates 4am-7am

Feb 5 2010

1. Yesterday was a massive day of loss-booking for the gold community and the fundsters. The number of stoploss orders below 1075 was gargantuan.

2. The Brain had another sleepless night, as they stayed up all night on Wednesday after piling on a sizable short position on gold futures early Wednesday evening. By 11am on thursday it was over. They cleared out their position and are taking today off from looking at the market.

3. As I told you before, at the top of the gold trading food chain, sits, The Brain.

4. The gold community right now seems to be divided between those who were sure that 1075 was the bottom, and just got blown away, and those who think we’re going far lower.

5. My view remains unchanged: this is the neckline play. A pullback from the breakout on the weekly chart head and shoulders bull continuation pattern. The most likely bottom is somewhere between 1035 and 980. But it could be higher or lower than those numbers.

6. Price can move slowly at times, quickly at others. Just because price fell to the gold 1050 area from 1125 quickly, doesn’t mean you should assume this is “the bottom” and back up any trucks. Your buy orders should remain unchanged except for minor personal tweaking.

7. It was Jan 19 that I wrote my “Save Gold, Buy the Dollar” piece, carried by the gold sites. I had hoped the gold community would place money into a bull usd range pgen, rather than throw their gold and gold stock in the garbage on weakness. A few listened. Most didn’t. I’m still booking profits on some of my metals shorts and dollar shorts positions. These are small for me, but enough to prevent me from acting irrationally with my bull gold positions. Many ignored my dollar rally call, and then threw their price-chased gold away yesterday. The banksters are not interested in a DESTROYED gold price, just a volatile one. One that keeps the bulk of the gold in their hands.

8. Remember the sad story I told you of the guy who contacted me on the evening of gold 1225, demanding I give him gold stock buy recommendations? I said, “take the pain”, the pain of not buying, of not chasing price. He told me he’d “fire me” if I didn’t give him immediate buys, because he was “missing out”. I told him to fire me. He bought elsewhere. I wonder how he feels today? Sad Sack sent me an email yesterday that he’s in a “bloodbath” and “there is no bottom”. Settle down, Mr. Sack, this is a simple pullback to a neckline, not a bloodbath. Not a bottomless pit.

9. Could price decline further than the neckline lows? Of course it could. This is the market, and ALL is possible. But working yourself into a paranoid frenzy that the pattern might fail is not how a professional speculator operates in the market.

10. Sammy the Bull, our resident gold dealer, was on the gold buy yesterday. He sent me copies of emails he’d sent to various brokers and letter writers who tried to call the bottom at 1075 with leverage. Leverage is very dangerous. Leverage YOUR winning track record, and NOTHING else.

11. Looking at the Euro, RSI on the daily chart is down to the 30 level and we are approaching support in the 135-136 area. Will that support hold? Who knows. I bought anyways.

12. I was also filled on my latest GDXJ buy at 22 yesterday. I mentioned before the idea of having your “non=whole number” buy orders BELOW the round number. A few of you sent me emails about buy orders between 22.05 and 22.20 for gdxj. I would rather see you place the orders BELOW the round number. Like 21.95 or whatever. Err on the side of risk, not reward. I use round numbers because I place so many orders that I don’t worry if one doesn’t get filled.

13. I’ll give you 99% odds that the banksters increased their usd long position this week, and booked profit on more of their gold short position. Both actions in major size. We can’t know because today’s cot report only carries the action thru Tuesday.

14. On that note, open interest, or Oi, refers to the amount of outstanding futures contracts on the comex. When you get massive volume days like we just had, some of you may be interested to see how much gold changed hands in New York. You KNOW that if gold is down, the banksters are on the buy and the fundsters are bailing, and what the open interest change statistics do, is give you an idea of what happened. Let’s say there are 5 contracts outstanding, with the banksters short 4, long 1, and the fundsters short 1, and long 4.

15. If price soared, and open interest rose to 6 contracts, odds are high that the banksters added to their shorts, while the fundsters added to their longs. You might then see the banksters holding 5 shorts and 1 long, while the fundsters would be holding the other side of the trade, which is 5 longs and 1 short.

16. Of course in the gold market tens of thousands of contracts change hands most weeks, but you can be fairly confident that if the banksters are on the buy, whether it is a buy that closes out short positions, or adds new long positions, then YOU should be on the buy too.

17. One of you sent me a video from youtube of some guy who was buying the dow with leverage on a Sunday nite, and the dow fell 300 points. He was screaming and swearing. That’s what trading too big does.

18. If you are feeling anything but mild discomfort, here and now, you are trading way too big.

19. Silver has fallen from the 19 area to 15. Some see this area as long term support. Others see it as “critical” support that must hold. I don’t see it as anything but another buy point, with 14 more below here, all the way to zero.

20. Generally speaking, the commodity charts still look a bit nasty in the short term. Here’s the CRB general commodity index chart. Note the blue circle I put on “hook” on the short term stochastics indicator. When a market gets hit hard, then the indicators bottom out, what I look for is a CLEAN upwards hook. We got a meandering situation this time, and now the indicators have hooked back over, suggesting Queen Price may not be finished on her downside mission. CRB hook

21. Regardless, guessing about whether there is “one more leg” down or not is a waste of time. If you bought into 1050 this morning, you are already sitting on a $15 profit. My guess is the banksters try to blow it down some more.

22. The $72 area on oil is starting to become important. A move under 72 could start a panic sell-off as an intermediate uptrend line would be broken.

23. Remember that if you are able to make 8% a year with modest drawdowns you are doing very well. The first step on the road to winning is to cut losses. You do that not by pretending you are a stop loss master, but by managing the size of your buys so you can stay in the game. Do you see the banksters booking losses in the cot reports? No. Once you get into the mindset of loss booking as an amateur, you are basically setting yourself up to take yourself out of the game. You won’t get the timing right more than you are wrong.

24. I don’t think the US dollar is going to zero. I think it when it turns down hard, it will take out the lows at 72 and drop into the low 60s or the low 50s from there. But it is still an asset. It is very calming to be able to book profit on long usd positions while gold is going down, even if it is a smaller portion of capital. This gets back to my discussions of “air pockets”. When you buy a position with a plop, if you get it wrong, all you can do is sit there and stare at red ink, growing red ink. If you only run range pyramids, you can find price way below your predicted bottom.

25. If price is moving against you and it is difficult to handle, you may want to consider building some pgens in contra-gold assets, but do it on price weakness, and keep in mind that as we speak, the banksters are shorting the USD in size.

Cheers