Wednesday, September 7, 2011

Let them have it

8:26 am (Hawaii) It's times like this, when I'm still lying in bed, a cool breeze blowing through and a warm Hawaiian sun rising above the mountains that I feel thankful. Especially when the market is sometimes puzzling, as it has been this week. But I'm at peace for one reason: I didn't have any conviction about direction and stayed out of the game.

When the Swiss National Bank devalued the Franc yesterday, it could have (should have?) been bullish for gold. Instead, the Franc lost 10% (no surprise) and gold swooned. Brother Turd Ferguson explained this morning that it's the SNB that is playing the yellow metal like a seasoned poker player using a rigged deck. So, until the selling in gold ceases — Turd sees a dip to 1750 or even 1675 — what to do? Turd advises sitting out.

Sitting out is fine for an uber-bull, which I'm not. I'm no bear on gold or silver, but I don't trust the puppeteers, whether they be CME mafia or SNB. I'd rather wade into the fiery river of paper gold and paper silver when a multitude of factors are in my favor. Not just one or two, but many factors. Otherwise, I'm just fine laying here and studying events and the twists and turns from afar.

An agnostic or bear would've stepped in by now to ride gold down via puts, shorts on paper gold, or an ETF like DZZ. Or ZSL (silver ultra bear). I mentioned recently that the downside effect of DGP at 60 or AGQ at 200, or FAZ at 55, even 50 would whet my appetite again. Right now, we have DGP at 66.33, AGQ at 223.03 and FAZ at 55.08.

The Dow Jones is +253, right about at the high of the day. AAPL was up 1.5% yesterday, which I noted as a possible tell for the market. Sure enough, AAPL is up another 1.3% and pulling the market up with it. This is bizarro, of course. AAPL at 384 is still rather cheap based on fundamentals. But with so many companies ready to announce lower expectations for Q3 and Q4, this move up by the indices is purely technical and I suspect owned by the space alien HFT machinery.

I don't bemoan these algo computers. I just stay out of their way unless I'm brainy enough to anticipate the next move, then plant my seeds accordingly. A genius like Le Fly was buying in yesterday, dumping his bear trades along the way. He has his own set of indicators (the PPT) and it has worked quite well for him (and his subscribers) from what I've seen over the past year or so.

As for gold, with the margin requirement hike in China over the weekend, plus the SNB/gold shenanigans, that's far too much to overcome for peon traders (like me) if we are strictly on the bull side of the battle. If spot gold returns to 1725, as Turd says, then it's not far away. After hitting 1920 overnight on Monday, then dipping below 1800 today, another 75 points down could happen in the next 12 hours.

In other words, it's probably too late to trade on the bear side at this point. Fine with me. My guess is that the monster machines will read the chart, as it did with FAZ on the recent massive gap up, and take DZZ higher tomorrow. The shorts will ride this out further and lower as DZZ makes traders more fiat. But like FAZ and most gap-up plays in this murderous market, the run will be done soon enough.

Today's gap higher on strong volume will unlikely be followed by a change in direction overnight. Intraday tomorrow is another story. Spot gold went from a one-time high of 1818 to 1700 in days. The recent high of 1917 was met by a steep decline (to 1700), and was topped by the run to 1920 on Monday. If today's slide to just below 1800 proves to be support, so be it. If not, cheaper entry points will be welcome. I'm not trying to time the bottom and be perfect. It's just good to be aware on a pristine autumn morning in my favorite place in the world.

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