Trader Scott’s Market Blog
December 27, 2016
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It contiues to be my belief that a major bottoming process in gold started forming in April-June of 2013 and the current technical situation is a retest of the major low from December 2015 (January 2016 for the HUI). Within this there will be its’ own ending action, rallies and retests. Market bottoms are characterized by signs of strength (SOSes). There are different kinds, some to the downside (ending action), and some to the upside with an increase in volume and price spread. And some more subtle, like going to new lows below support and then rallying back, even without a surge in volume, a so-called spring. The ones with more volume are more significant, but these signs add up. I discussed some of these things last week, and in the comments sections, like fromDecember 20th,regarding buying silver, and the SOSes in silver and GDX into the new lows last Tuesday.And just like last year, the relatively stronger individual miners are showing much more impressive SOSes. Last year, my focus was on gold and a few individual miners, and also GDX and GDXJ. This year it’s totally about silver, and the individual miners showing great outperformance to the group. It’s really instructive to go back and look at gold market bottoms in the past – to reinforce that there are different buy points within a bottoming process. And it is a process, not just one day. The light volume today in the miners isn’t a big deal. It will show up again. But the rally today just reinforces the point about stepping up into extreme weakness when it’s there, and when it’s the hardest thing to do.
It’s nice to buy right near THE low, like last December’s low, but we can do very well in markets by buying into any of the lows in a bottoming process. And once again, if we’re not going to sell any into the greedy upthusts, then buying right near the lows is pretty meaningless. There’s so much time spent on where/when to buy, and not nearly enough on where/when to sell. No one gets it right every time, but there are two parts to this business – getting in and getting out. And of course, we need to be patient, but when the opportunity arises the thinking has to stop and we just have to act.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.
December 28, 2016 @ 3:39 am Dmitrii
I guess you think this coming rally must be sold?
December 28, 2016 @ 11:58 am traderscott
Yes – and partial vs. full.
December 28, 2016 @ 3:41 am Aamer
Can you explain in more detail about selling levels ….how are these determined ? My biggest mistakes tend to be selling too early….and once sold it is difficult to get back in….! This means I usually end up making 30% of gains instead of the 300% . Short term trading is great in bear markets but usually in bull markets it dilutes the profits considerably and uses a lot of mental energy.
Stop losses make sense in any strategy / investment but my personal experience has been quite poor at selling …..so any discussion and insights on this would be great and perhaps using the PM”s as an example during the 2016 period to present.
December 28, 2016 @ 11:55 am traderscott
A lot of selling just has to do with our own greed levels Aamer. I ALWAYS sell too early, but I buy pretty well so it balances out a bit. But once you sell, DO NOT look to get back in. The great buying conditions are no longer there. Just wait for the next one. I agree about the bull/bear thing. If we get a little better at determining how much accumulation there is, it can help with our staying power in a position. And using resistance areas and the big surges in greed. I started selling gold on 2/11 – way too early. But the rally thru January and then the huge surge in volume, price spread and greed on 2/11 impelled me to start doing some selling. So the sudden surge in price and volume, after a rally has been going for a bit, is helpful. You may also want to learn point and figure charting. And I use 2 accounts – one for investing and the other for pure trading – point A to point B stuff. Like QQQ today – pure trading.
December 28, 2016 @ 4:57 pm Aamer
Thanks. I like both ideas….will put it on my to do list for 2017.
I guess it’s time to start selling out of PM positions ? It’s been 2 days of higher prices and am still trying to figure out whether we have seen the bottom or its just another pump & dump move. But based on what you are saying and the EWT guys we may see another low before resuming an uptrend…..
December 28, 2016 @ 6:43 pm traderscott
Are you just trading or accumulating, or both? Aamer, don’t listen to anyone else. You have good instincts and you’re trading well. If it’s purely a trade and are you feeling greedy – then get out of at least half into strength. None of those other factors matter when trading. But in the bigger picture, the sentiment in PMs and bonds is awful, and, apparently, thanks to Trump the $ and stocks are going to the moon. There will be more volatility in gold. It’s why I did those longer term charts of the bottoms in gold, and the same with all markets, but this requires patience. Our own greed and fear are some of the best tools.
December 28, 2016 @ 9:10 pm traderscott
Meaning the sentiment in stocks and the $ is a clear path higher, geez I mean what could possibly go wrong. Just like the sentiment in gold was before the election – what could possibly go wrong. Now the sentiment in gold is what could possibly go right.
December 30, 2016 @ 8:52 am Aamer
Thanks. Had been accumulating….but too early and now trading more ! Currently lightening up a little and trying to recover previous losses. Think the general idea is to recover first ….and ride this wave up as much as possible once established.
Trick is to understand where the flows will go next year and how mkts will be used by policy makers to achieve their non mkt goals.
December 31, 2016 @ 2:37 pm traderscott
See where the speculative flows are leaving Aamer. Those are the markets which eventually start to become the best buying candidates – for trading or investing. Markets will always be used by the policy clowns. We need to just wait for the great entry points and let Mother Nature work for us.
December 29, 2016 @ 11:26 am David Parker
I think we are in the process of making a secular low in the PM complex as you have mentioned many times as well. Right now every newsletter writer and his mother are predicting sub 1100 gold if not lower. So again have to agree with you on the sentiment. It is awful.
From a cyclical perspective, we may see some volatility in the next few months but then we are we are headed higher for the next 3-5 years. There will be corrections along the way but the line of least resistance will be up. So don’t you think the most money will be made by sitting tight and not by over trading? While a seasoned pro like you can trade along the way while keeping an investment position, for those who are novice traders, wouldn’t it be just better to hold on for the big move that is coming and just forget about being cute and trying to time the moves? Just look at what is happening today. PM markets move so fast that if you think you can sell high and buy back lower what will end up happening is that you will just be out of your position.
Here is an excerpt from “Reminisces of a Stock Trader” by Edwin Lefèvre that was lesson well learned for Jesse Livermore.
A Crucial Conversation – “It’s a Bull Market”
Listening to the (repeated daily) advice of an old stager in the offices of Fullerton, it suddenly dawned on him why he was making less profit than he should. Whatever question the old fellow – known to everyone as Turkey although his real name was Partridge – was asked about the market, he would reply, “well, it’s a bull market.”
At first Livermore thought this was a mere platitude. Hearing “It’s a Bull Market” daily, he began thinking about it more. Then, listening to a conversation between Turkey and Elmer Harwood – a young trader – he realized that it was more than a platitude – it was the missing piece in his own education.
Elmer: “Mr. Partridge, I have just sold my Climax Motors. My people say the market is entitled to a reaction and that I’ll be able to buy it back cheaper. So you’d better do likewise. That is, if you’ve still got yours.”
Turkey: “Yes, Mr. Harwood, I still have it. Of course!”
Elmer: “Well, now is the time to take your profit and get in again on the next dip,” said Elmer, “I have just sold every share I owned!”
Turkey: “No! No! I can’t do that!”
Elmer: “Didn’t I give you the tip to buy it?”
Turkey: “You did, Mr. Harwood, and I am very grateful to you.
Elmer: And didn’t that stock go up seven points in ten days? Didn’t it?”
Turkey: “It did, and I am much obliged to you, my dear boy. But I couldn’t think of selling that stock.”
Elmer: “Why not?”
Turkey: “Why, this is a bull market!” (The old fellow said it as though he had given a detailed explanation.)
Elmer: “I know this is a bull market as well as you do. But you’d better slip them that stock of yours and buy it back on the reaction. You might as well reduce the cost to yourself.”
Turkey: “My dear boy, if I sold that stock now I’d lose my position; and then where would I be? And when you are as old as I am and you’ve been through as many booms and panics as I have, you’ll know that to lose your position is something nobody can afford; not even John D. Rockefeller. I hope the stock reacts and that you will be able to repurchase your line at a substantial concession, sir. But I myself can only trade in accordance with the experience of many years. I paid a high price for it and I don’t feel like throwing away a second tuition fee. But I am as much obliged to you as if I had the money in the bank. It’s a bull market, you know.”
Jesse Livermore realized that Turkey’s consistent message was that the big money was to be made not in trying to trade small moves on the tape but to catch the major trend.
“Nobody can catch all the fluctuations. In a bull market your game is to buy and hold until you believe that the bull market is near its end. To do this you must study general conditions and not tips or special factors affecting individual stocks. Then get out of all your stocks; get out for keeps! You have to use your brains and your vision to do this; otherwise my advice would be as idiotic as to tell you to buy cheap and sell dear. One of the most helpful things that anybody can learn is to give up trying to catch the last eighth-or the first. These two are the most expensive eighths in the world.”
December 29, 2016 @ 11:35 pm traderscott
David, my first and favorite book about markets. And it is a fantastic passage. Secondly, the key is – is this the secular low. I agree it is and this is just a retest of the December lows. But two things – Jesse Livermore was also a trader. He has this passage in the book, but it is a matter of perspective. If you read about Livermore and his basic trading system, which I don’t use, he used six point reversals. He was a trader. This passage from Turkey, I believe, has beem mischaracterized. This is more about not jumping in and out, and I agree with that. We all have to figure out what time frame we are comfortable with. This last 5 years in the shares, there were many great intermediate term trends to trade. Even in a secular bull, there will be selling opportunities with very large reactions. It’s up to the individual. I have suggested to people to find their way here. And one suggestion for people is to buy the deep selloffs, with only a small portion of funds, and hold – layer in. As I said, it’s what I’m doing with silver. My first long term buy last week was $15.68. The next deep correction I will buy more. I’m not selling it. So yes, for many people the best thing now will be just to sit tight. But David, I can tell you from what I see, very few people can do that. It’s very tough to sit thru the selloffs. And there will be more volatility next quarter. Later next year, we should finally be able to start a real bull market. The passage is great and it’s a great question, and people need to really assess their own psychological makeup. It is the #1 step in a trading course which I’m working on. And there is no easy, nor right answer to the question. Every approach to markets has its’ upsides and its’ downsides.
December 29, 2016 @ 12:09 pm traderscott
For those who emailed for my list of relative outperforming miners, one was MUX which has rallied over 30%. From a trading perspective, I took some profits when it went above the 12/6 high today – remember tho, I always sell too early. But buying pretty well balances it out. The big resistance in GDX is around 22.25. And no, I did not sell the silver bought below $15.75 on 12/20 – see the comments section. It is physical, and part of a layering in strategy. More later. And the stock market – some of the very strong bank stock leaders are setting new swing lows, as well as the Russell. They have not done this in over 6 weeks.
December 29, 2016 @ 12:14 pm traderscott
I am still bullish in the big picture on MUX.
December 29, 2016 @ 12:27 pm traderscott
The stock market – and from a perversity of markets standpoint, often these areas showing a change in character in the BIGGER picture, are often turning points in the very short term.
December 29, 2016 @ 12:17 pm Jon
Big volume in the mining shares today (watching the tickers fire). I’m doing some light selling of jnug bought last week into the “rhino horn”. Thanks Scott..
December 29, 2016 @ 12:23 pm traderscott
From a trading perspective great job Jon.
December 29, 2016 @ 1:16 pm traderscott
Over the last several weeks I’ve been repeating about the extreme positioning/bearishness in Treasury bonds (prices). Now a new swing low today in 30 year, 10 year, and 5 year yields.
December 29, 2016 @ 1:59 pm David V
A rare day for an expiry week, do you think there will be any follow through in to the first two weeks
Of January? Miners left a lot of gaps behind.
December 29, 2016 @ 2:20 pm traderscott
It’s about the time frames perspective – trading vs. investing. The shorter term character of the market first started showing something had changed with the SOS last Tuesday which I wrote about, and then one more SOS before this rally. There are trading rallies and reactions within a bigger timeframe within a bigger time frame. I do believe GDX “wants” to temporarily go above 22.25. I have written many times that this bigger picture time frame is about a retest of last year’s major low, but there will definitely be retesting within the retest, so to speak. This current rally is different than any rally since September. It’s good to always judge the different buying and selling waves. Look at the rally out of last year’s major low – different than anything since 2008.
December 29, 2016 @ 6:45 pm traderscott
Yes – it is a sign of strength today in the miners, and not just a minor SOS again.
December 29, 2016 @ 7:03 pm Jon
Instead of greed, I’m feeling fear. Too many gaps…
December 29, 2016 @ 7:49 pm traderscott
Good Jon, I learned to reverse my emotions long ago also – getting progressively greedier as they fall and progressively more fearful as they go up. I look for an”excuse” to sell. Nothing wrong with your emotions – it will serve you well.
December 29, 2016 @ 7:15 pm David V
Closed on a high today, I guess we’ll know if resistance is broken tomorrow,
Sold JNUG today probably too early as usual, those big spikes make me uneasy.
Today’s SOS was one that I picked up on, could we see quick reactions at resistance lines now
or could we see some sideways action/accumulation?
December 29, 2016 @ 8:09 pm traderscott
If you’re buying really well, then selling early is actually a good fit. Low risk in and taking off risk out. Perfect. It’s amazing how these things will usually eventually go well below where you sold it and set up well for another buy. There will be more volatility next quarter David and yes accumulation and retests.
December 29, 2016 @ 8:15 pm traderscott
Look at this as a huge multi year bottom. It’s what will bring those claims for where gold is eventually going. I’m going to abstain from those projections, but it will go much higher down the road. And it’s the miners which are the most interesting.
December 29, 2016 @ 8:52 pm David V
Thanks, that was my other question. Then the next big run
Starts the process all over again?
December 29, 2016 @ 9:20 pm traderscott
Sure, but eventually this turns into a pure bull market David. We need to clear this huge accumulation area first. That is the August highs of 2013 and 2016 of about 32 on GDX. We will do it eventually, but there is more volatility to come. I will run that long term GDX chart again in the post tonight. And now, it’s the gold bears’ turn to doubt themselves.
December 30, 2016 @ 5:28 am nico
you think GDX will exceed 32 $ in (summer ?) 2017 ? or later ?
December 30, 2016 @ 11:09 am traderscott