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Monday, February 27, 2017


“What’s more fun than waiting for HVALUES to go up?”

“Oh goody … it’s an hour from the NY gold open and we’re 57 cents from Sunday night’s open, with a whopping HVALUE currently at $3.17 … USDJPY all but comatose as well … neither market coming as yet close to their respective minimum HVALUES for the day [from the Asian session and early Europe] to trade [$5 for gold; 40 PIPS for USDJPY] … welcome to part of the ‘new’ normal”.

Since the start of 2017, almost like somebody flipping a light switch to the “off” position, the gaggle of traders who make up the Asian session have gone completely off the grid when it comes to bidding gold higher. Except for a couple of days, most of the last 8 weeks has seen zero action; have these guys/gals wised up or is there something else in play here I’m not seeing? … some economic reports due out at 09:30 NY time; are the markets waiting for fantasy numbers now? … in order to get anything to move, do we now need to wait for North Korean coal production last month too? … I’m sitting here wondering about the traders who are attempting to trade gold with $0.35 - $0.60 + spreads [and in some cases RT commissions to boot] and asking myself how they are not going completely insane watching a market that hasn’t gotten out of the spread for over 10 hours … maybe everything is collapsing into a singularity with President Trump’s State of the Union address tomorrow night, and appetite for risk ahead of this is at or near zero … and then [good or bad, bullish or bearish] the explosion in markets one way or the other … “tail risk” here a distinct possibility.

Well, an hour into this manic “lovefest” and we’re lookin’ at … crickets. Nothing new here, as we’ve seen this about a thousand times since the New Year started … I want to emphasize again how important these USDJPY & XAUUSD thresholds for trading are; the statistics on this are mind blowing, in that when these 2 markets can’t achieve an HVALUE for the day higher than the threshold, the profit ratio [PR = HVALUE / LVALUE] is in the “1’s”, and when these 2 markets trade above their respective thresholds, the PR = 4.3+; this is a huge difference. So while I don’t like sitting here any more than you like sitting in the dentist’s office, it is very much to our advantage to wait. The other reason we wait is because of “signal noise”; when PR’s aren’t very high, there is a much higher probability any “signal” we get isn’t going anywhere. Now what?

I got to admit, coming into today I thought USDJPY was going to be the “mover”; bunch of reasons, none of which is really important, but instead easing European election “tensions” [meaning, according to the MSM in Europe, when people stand up and want more freedom from EU Apparatchiks that is defined as “tension”] has made EURJPY the big mover today to the upside while USDJPY stays very quiet … “hmm, somebody in Europe forgot to send me the email telling me of this (snark)”.

And once again, at 10 NY time, traders get a lesson in “tight ranges”, along with an advanced course in “stops” from a Reuters report on something President Trump reportedly said RE infrastructure spending & taxes; and this is exactly what I was referring to above about thresholds and tight HVALUES DURING THE TRADING DAY, NO MATTER WHEN YOU COME TO TRADE. Ignore the thresholds, and you are begging for pain; the stats over the years and decades, both in USDJPY & XAUUSD, are clear as Caribbean ocean water. Until you reach the $5 threshold in gold, and the 40 PIP threshold in USDJPY, your risk is 5 TIMES GREATER YOU WILL SEE A REVERSAL IN PRICE THAT TAKES OUT THE OTHER SIDE [and then promptly goes nowhere]. In addition, in gold over the years since it’s been above $1000 per OZ., once the threshold of a $5 HVALUE has been achieved, there is less than a 20% probability the market reverses on that day. So, like I said, ignore these probability stats at your peril. If you allow yourself to get caught up in them, they have the potential to be some of the most painful trading days you can imagine, as you sell the low X times and buy the high Y times looking for some kind of breakout.

In general for both markets, this happens about 15% of all trading days; usually they will “cluster” either around Holidays [Easter, Chirstmas, etc.] or around large event risks [elections, NFP reports, and/or central bank interest rate decisions]. It’s been a while since we’ve seen any, so I’m more inclined to think today and possibly tomorrow could be impacted due to the State of the Union address and the possible event risk it could unleash if the “tone” of the event turns a bit ugly [understatement]; and for that reason alone, “tail risk” in gold and USDJPY is higher than it usually would be after the runs they have had, not to say anything about U.S. stocks, which are so overbought it borders on insanity. So, we could very well be in 2 days of below threshold markets; maybe, maybe not, we’ll see.

I want to mention 2 tangential points from yesterday’s special weekend blog post; 1) the various markets that are available to us, and 2) the nature of the buy/sell signals.

I’m going to tackle the second point first; it’s far easier to identify engulfing patterns [bullish or bearish] and reversals in price from a top/bottom than it is to remember the math behind them [fractals, stochastic momentum, and probability theory]; and, even in slower markets the signals will produce profitable results, especially considering we are buying breaks [at/near/ or over the yellow line] and selling rallies [at/near/ or over the plum line]. You don’t have to be perfect, all you have to be is “close” [general area] to the lines, wait for a move to happen first, and then wait for the pattern.

As to my first point, trading through Turnkey has opened up many FX pairs where the “net” cost to trade them is significantly below 1 PIP; while Europe is open and the U.S. follows shortly, even GBPJPY has a “net” cost around 0.6 – 0.7 PIPS, which is remarkable when you consider 10 years ago Saxo Bank had the best spread on the planet at 6.5 PIPS! So, the door opens for you, if you desire to trade other pairs,  to use the version 3 algorithm on FX pairs where the “net” cost to trade is below 1 PIP [2nd digit price for 3 decimal pairs, and 4th digit price for 5 digit pairs].

OK, shortly before lunch hour in NY, gold finally sees somebody panic buy the market shoving the HVALUE above $5; can it do anything now, or is this just a stop hunt for a large resting order that was above the market? USDJPY is still struggling to find its legs lower to get to 40 PIPS, and while I’m not asking the 2 markets to correlate “tick-for-tick”, I don’t have much confidence in the gold move other than as a suckers play, up/until/when USDJPY decides to start moving lower and get an HVALUE of greater than 40 PIPS.

Keeping yesterday’s special blog post in mind, and even though we had no buy signals in gold today due to a restricted HVALUE until about Noon NY time, let’s assume there was in fact a buy signal earlier; market rallied up to the SDEV [plum  line] & the old RM=1 exhaustion line [dashed aqua line] which would have meant liquidation. However, above this, were there any sell signals after this up move near the top? The chart from today directly below.

There were 2 bearish engulfing patterns that developed; and after the 2nd one, the algo’s took the hint and sold the market off quickly. My point in bringing this up is to prove to you via example just how powerful these engulfing & reversal patterns are at tops/bottoms after moves have taken place, and even in this “dead” market price sold off rather fast. [Note: Just because I want to exit a long and liquidate, doesn’t mean I want to be short. As I have said before, you have to be very careful about being short near the high of the day and long near the low of the day after the market has congested and gone back and forth some; you open yourself up and risk a large spike against you that can fill a stop far away from where you intended, and therefore the risk/reward isn’t worth it.] The computer driven algo’s did the math and then sold; if we were in this we could have seen it coming seconds before the algo’s hit the market. That’s why I said yesterday, we’re smarter than the damn computers.

Ok, here we are in early afternoon NY time, and I’m calling it quits for the day in both gold & USDJPY having made no trades today; Yen never did reach its threshold 40 PIPS HVALUE [31 PIPS as I write] for trading, and outside of a buy stop order [don’t know for sure but guessing] in gold that got ripped $3 in less than a minute, it wouldn’t have made its threshold either. Trading action in both pretty terrible, but gold definitely the worst by comparison.

Just to give you a “heads up”, tomorrow I’ll be trading USDJPY [assuming it hits its 40+ PIP threshold overnight], as the trading action has a more “normal” flow to it than gold; right now, today’s gold trade flow is as bad as I have ever seen it, and it’s hard for me to see how it could possibly get any worse. The entire trade day encapsulated in about 3 M1’s, and after that complete and utter … crickets. Considering what transpired today and what’s likely to happen tomorrow, USDJPY is the better trade choice by far. To give you an idea how bad today was, directly below the Daily candlestick in USDJPY with Ichimoku cloud formation & the plum/yellow ± 3 SDEV; today was almost as bad as the 2 hour Sunday session before it. The daily candlestick looks like a pencil “smudge” compared to recent days and weeks; all in all, a day to avoid.

The best trade of the day was not doing “stupid poo poo”. I’m outta here. And just before I finish and head off, USDJPY explodes up and takes out the 112.50 area stops [and lurches gold downward], filling the lucky buy stops around the 112.65 – 70 area and expanding its HVALUE above 40 PIPS. Great, where were you 5-7 hours ago when we had some time? Now, here just about an hour before things wind down in gold & FX for the day and prices go “sleepy time”, you “reversal day” this in USDJPY and clean out stops; meanwhile, all those “lucky” buyers in gold get to panic before the close because they got nowhere to go and are getting “zilch” help from USDJPY.

And if you’re sitting there reading this and wondering how all this can happen and what’s the reason for it, I can explain it simply in one sentence. “This is the kind of stuff that ‘happens’ when Asia & Europe do nothing and everything is left up to the dealer banks in New York; more often than not, somebody is going to get trapped into the afternoon close and be forced to puke positions they don’t want”. It’s as simple as that; and of course, once the stops are “run”, it’s back to … crickets.

End of day PAMM/MAM spreadsheet directly below.

[click to enlarge all tables, charts, & pics]

Have a great day everybody!



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