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Thursday, March 30, 2017


“Pick the number 19, and you are there!”

Here we are on market day 7, of what is an amazing run of bat excrement “tail risk” run amok days on the “dead side” of the probability distribution curve; who knew a week or 10 days ago we would be staring in the face of a gold market “black swan”.

Briefly, for those that don’t know, “black swan” events are those described by Nick Taleb in his landmark book “The Black Swan”, where “out of the blue” events transpire in financial markets, wholly unpredictable in nature & scope, where nobody had a clue that what happened just happened, and involve “tail risk” on the probability curve and are labeled as such. [Note: Anybody that would like a PDF copy of this book, email me at and I’ll send it to you.]

And while gambling relates to mutually exclusive probabilistic events, and are guided solely by the math, markets are not mutually exclusive and are guided by market history; but the gambling analogy fits to a certain extent when viewed in the context of the roulette wheel pictured above. If the casino let you bet against the number 19 [which they don’t], and you laid down $38 [double zero wheel] to make $1 if the number 19 doesn’t show up on a spin of the little ball, how many times would you double, triple, quadruple up to get that money back, just so you can make $1?

I made this subtle, but very important point yesterday; eventually everything has to happen! Not kinda, woulda, shoulda … everything has to happen. If you were a gambler at this roulette wheel, how would you handle this situation? Would you even think about this situation you find yourself suddenly in before you went to gamble? I’m betting nobody would say yes.

And yet, in this context of talking about “tail risk”, suddenly I, as a gold trader, am very much like the people standing at this roulette wheel and saying to themselves, “WTF is happening here? … How do I process this? … Where is the ‘battle plan’ for this tail risk I thought most likely would never happen in my lifetime?… Now that this stuff is face-to-face with me, and I’m living through it in real time, it is difficult for me to simply accept this event as somehow ‘normal’ in the infinite flow of time … Come back in 5 million years and ask 1) how many times has this happened to gold, and 2) what’s the longest stretch in time so far?… And after only 40+ years of market history behind it, is that enough data and/or evidence to accurately draw any kind of solid conclusion?

But here’s the problem … “IT’S ALL WE [I] HAVE TO GO ON! … THERE ISN’T ANYTHING ELSE IN HUMAN HISTORY! … and so, the only viable solution that exists that doesn’t end up metaphorically “killing you” is to sit on your hands and wait for it to be over; absolutely NOT saying, “oh, it can’t go past 7 or 8 days like this … it just can’t! … you said that at 4 & 5, now at 7 what do you do”?

This is what’s known as “THE TRADERS FALLACY”; somehow, through twisted mathematical logic that makes no sense upon closer examination, you come to the conclusion that “Mr. Market” just has to go up today or down today … cuz it just has to! … and it doesn’t and you lose more and more money.

Nothing brings this closer to home for me than the other “Black Swan” event of the last 50 years, the great October 1987 crash in the stock market, a 36 SDEV [standard deviation] “tail risk” mutation that shook the world into shock. Prior to the crash, and since the start of futures trading in the SP500, I would have guys [yes, more than one] standing next to me in the pit telling me every frickin’ day, “oh man, Barry listen to me man … OMG, this shit is gonna crash and go almost to zero! … you can’t keep buyin’ this stuff man … you just can’t”! And day after day, week after week, and year after year the SP500 index just kept climbing; and all these people who were literally standing in line to see who could be the most bearish … when the crash came, where the hell were they? I’ll tell you where they were; “they were back in the Pudding Business cuz they bucked the streak … they couldn’t ‘go with the flow’ … they sold it every day for 5 years and got it mostly shoved up you know where cuz they mistakenly believed it ‘JUST HAD TO BREAK’ … JUST HAD TO! … and yet it didn’t until they were no longer there … and when it eventually did what it did, not A SINGLE ONE OF THEM WAS THERE TO CAPTURE ANY OF THE DOWNSIDE CARNAGE CUZ THEY WERE ALL BROKE! … there is a valuable ‘lesson’ to be learned from this, so please don’t ignore it!

What we are now facing in gold is on the opposite side … no headline grabbing news of a “dead market”, cuz nobody finds it “newsworthy” that a market is just sitting there and doing nothing … what people want to hear about are guys jumping out the windows or otherwise ending it all cuz markets are so “crazy”; “OMG, this guy killed himself it’s so nuts”! What ordinary Sheeple don’t understand is that many a professional trader meets his “moment with the abyss” from this side of the probability curve, and I can tell you flat out the graveyard of Chicago traders is filled to the clouds with otherwise smart people who never figured this kind of thing could or would happen in the market they called “home”.

Here at the New York open … day 7, you know the rest.

Half hour in, and that escalated quickly didn’t it? First take out the lingering longs with a dealer stop hunt, and now a rally to punish the shorts; maybe gold is getting back to normal.

Ok, HVALUE greater than $5, however, as I have repeatedly told you, buying/selling breakouts on support/resistance lines is pure folly and will lose you more money the times you are wrong than you can make the times you are right; never got a signal to sell on the rally up off the lows, which weren’t that great to begin with given the last 6 days of building sell stops that you knew were under the market. If the low had been greater than a $12 HVALUE, I would have bought off the lower SDEV line.

And then SHTF in USDJPY with a 40+ PIP out the window waterfall in 5 minutes, and it was elevator up time for gold. The reason for the USDJPY waterfall clusterfark? CNBC, citing unnamed sources [cuz clearly, nobody wants there name on this BS], says Treasury report to say Japan & China are “currency manipulators” … “umm yea, we’ve pretty much known that since from about 30 years ago, thanks”. But it’s not the “news” that’s the news, it’s the timing of the news that matters; to wit, “talking heads” break this story right after gold hits its low for the day, thus giving dealers and bullion banks an excuse to sell the $7 rally that immediately ensued. None of this “fake news” is accidental; it’s done with coordination and timing to ensure the “right” people and/or bullion banks are the ones who benefit. And who do you think the losers are?

Two trades today; both on the long side after the CNBC mess; one worked and the other didn’t. Directly below the two trades.

They should have canceled each other out and been a complete scratch, but the second trade as the market is racing up to its high for the M1 of 1250.55, as soon as I see it go 1250.50 bid I hit the liquidate button [mind you, on the way up] and get filled at 1250.31 … where this bat excrement fill came from I haven’t a clue, so that cost us about $20, and adding it all up for both trades it’s another very small $20 something loss for the day. Truth be told, this is a victory day and will go down as one of my best trading days ever from a decision making standpoint. Everybody likes to talk about big winning days … no, your biggest “winners” were your losing days where you skirted disaster, dodged the bullets, and came out at the end with basically a scratch day.

While saying today was marginally better than the last 6 days, it’s like saying in Phoenix today it was only 117° and not the 122° it’s been the last 6 days, so it’s somehow not as hot and better. No, today was the 7th day in a row of complete bat excrement; granted the HVALUE was greater than $5 … big whoop … still no range, and the infamous doji trademark, the “Flying Wedge of Death” was in full effect today. Here’s a recap of today’s action; 1) open at 1250, 2) take the sell stops out and plummet down to the low just below 1246, 3) fart around a few minutes around the low until the CNBC “unnamed sources” piece on currency manipulation hits the airwaves and then rocket back up to 1251, 4) spend the next 4 hours in a $2.50 range going back and forth over the 50%retracement line about 50 times, 5) scream back to the low as USDJPY attempts [and fails] to make a double reversal on the day and make a new high, and 6) move back to the middle having clobbered both longs and shorts the entire day. Unless you were scalping for pennies, you got trapped and/or took heat or losses, with very few winners. So, open … hit low … go to high … go back to low … go back to high … go back to low … come back to middle … “Thanks, come again”!

In essence what the day boiled down to is following almost tick-for-tick USDJPY, and all it took was a 3-5 PIP move in Yen ± the 111.40 – 111.45 area to get gold racing up or plummeting down; and when there was no follow through, now you’re trapped chasing the bid/offer to get a fill. At the Comex close here at 2:30 P.M. ESDT, USDJPY has in fact now made a new high and run some buy stops; gold for it’s part not participating by hitting a new low, or even coming close [yet]. With less than 5 minutes to the close, anything you do here is likely to not work for you but against you as the dealers widen the spread and liquidity dries up going into rollover and Asia. And in true gold bullion dealer fashion, and so they can cover some short positions, the market gets muscled here after the close to a new low by 5 pennies and proceeds to go straight up about 60 cents; some things never change.

I want to be clear here; I’m not managing funds to make or lose ± $20 or $50 or something similar; by the same token I’m not much interested in putting my head under a guillotine either just to see if the gears work; what I need to see from the gold market before I commit money is a willingness on the part of the market to work like it usually does the vast majority of the time; when it doesn’t work and we get either the “Flying Wedge of Death” and/or small doji’s [which very often run hand-in-hand], the key for me as a trader is to break even and/or take minor insignificant losses that don’t mean anything. In the scheme of things this is the only way to fly the plane without hitting the side of a mountain when in fog.

If I put anybody in a winning $2 per Oz. position, any chimp could make money [well, maybe not … I do know some people]; the problem with gold lately [last 7 days in particular] is that price changes so quickly, you run the risk of a run against you if you don’t react; with most times the runs being “fake outs”, but in the moment you don’t know that, and the way the market is trading right now I don’t have the luxury of a moving market that can make back losses with further volatility later in the day. Hence, the caution. And while today’s daily chart may show an improving market with new lows after the Comex close to simply “pretty the tape” up and make it look somewhat normal, it was day 7 of complete crap, filled with trips to the highs and lows multiple times that nobody wants to see; cuz when you fade these small ranges and HVALUES, while you may make a few coins in the short term, at some point real soon they carry you out in a stretcher from losses that come from a screaming market going against you.

And while I am adverse to any kind of loss from any trade, if you had told me 10 days ago I would be down a hundred and some dollars from trading after today, I would have told you then what kind of market conditions would need to be present for that to happen; namely, doji’s & FWD’s all over the place. Over the years they come and go, and there are times when they hang around for longer than I would like [like now for instance], but they are a necessary condition that has to happen from time to time. I’m not making excuses; just providing some perspective. And by the way, there isn’t any other market that is any better right now; watching USDJPY on that CNBC story, price was gapping all over the place, with bid/offer changes 10+ PIPS in seconds. So it’s not like there was any better liquidity there either, and I would also remind everyone what USDJPY is like when it goes into a 100 PIP range for 6 months, which it has done 3 times in the last 4 years. You wanna see small doji’s with no ranges and/or HVALUES and FWD’s?

So, bottom line is that gold isn’t doing anything any other market hasn’t done either; we just happen to be smack dab in the middle of a pig pen at the moment, where my top priority is to not get “whacked” while attempting to position us for profits. It’s impossible to make a lot of money when the market refuses to move one way or the other without retracing practically all of a move a short time later.

Hopefully, today is a good sign that gold is breaking out of its mess, and that higher HVALUES and ranges are on the way; we’ll see, but in the meantime keep your eye firmly on the prize. Sure, “escaping to success” has to have profits, but it also has to have no big losses as well, cuz when the profits come the tiny losses are made up very quickly and easily. Trading conditions simply cannot be worse than what we’ve experienced these last few weeks; this too shall pass as it’s done in the past. Onward & upward mi amigos, tomorrow is another opportunity.

PAMM/MAM Spreadsheet directly below.

Beach beckons … I’m outta here … until tomorrow.

Have a great day everybody!

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