Feeling the psychological effects of a four-and-a-half month decline in
gold and silver prices, I decided in July to refrain from trying to fight the
forces of intervention and suppression for the balance of the summer and
instead try to focus on companies that carry sufficient project strengths so
as to (hopefully) withstand the debilitating pressure of commodity price
weakness and ensuing investor apathy. However, the last two COT Reports (for
gold and silver) have changed the landscape in a serious fashion to the
extent that I now feel comfortable in calling the August 16 capitulation low
in the December gold contract at $1,167.10 as "THE" low for the
move and for the year. It further appears that the senior and junior gold
miners have also marked their respective 2018 nadirs with the HUI (NYSE Arca
Gold BUGS Index) touching 138.96 the very same day. The wretched TSX Venture
Exchange limped into its 2018 low on August 15 with a print of 665.35 in
tandem with copper where the December contract had its 2018 low at
$257.45/lb.
These are across-the-board synchronized correlations and as I wrote
about last week, the computer-driven "algobots" exacerbate and
exaggerate every short-term trend in virtually all markets around the globe
and since they never sleep, when Chicago shuts down, London picks up the
reins and when London retires for the day, Tokyo carries the mantle such that
over and over and over again, the pattern-recognition-driven algorithms
implanted into the brains of the algobots feed upon themselves and overshoot
their marks every single time, as happened on August 15 and 16 in (again) ALL
markets. Now these pulse-less, robotic vermin are trapped and quite possibly,
in deep trouble.
I wrote last week that the August 14 COT Report was "wildly
bullish" and indeed the lows were seen immediately thereafter as we did
indeed get that "massive reversal in volume to the upside" that we
were all praying for. Below I have posted the August 14 COT and beside it is
the August 21 COT so you all can see just how "crowded" the
gold-short trade is right now. It is already nearly $50 off the August 16
lows and we aren't even through August yet. What pleases me to no end is that
the seasonality trade finally kicked in so if the Indian wedding season
(Diwali) and the restocking by the Italian jewelry trade is the fuel and fan
required to ignite this tinderbox of dry twigs, we may be about to witness
one of the biggest short squeezes of the last 50 years. Mind you, those
primary drivers I spoke of last weekend are still forces with which to be
reckoned and while I am placing bets on the good guys, I want additional
evidence that the algobots have flipped over to BUY mode, which means these
idiot computers will keep covering until they have stretched the market into
massively OVERBOUGHT territory.
The SPDR Gold Trust (ARCA) (GLD:US)(U.S.$114.16) is the proxy most popular
for the institutional community and is therefore highly liquid and infinitely
visible. The GLD October $115 calls at $1.60-1.75 look friendly as a
speculative bet on my earlier thoughts and might even surprise us as no one
truly knows the impact of an algobot-driven, MINDLESS short squeeze if it
grabs hold in the Crimex gold pit. The underlying premise for this trade is
the notion that the elasticity of the gold volatility band will allow the
'bots to chase the market to an egregiously overbought condition, which, I
should add, is somewhere around $127–129 on the GLD which was the range the
last time RSI pressed through 70 (back in January). What I am targeting for
this trade near-term is a range between the 50 and 200 dma marks at $116.44
and $122.38 respectively. With zero premium, that gives me a printed range of
$1.44 to $7.38 as an exit price for the calls. If we get an acceleration to
the UPSIDE approximately equal to the same downside deceleration seen in the
past few months, the returns could be scarily good. If the
"best-case" algos-gone-wild scenario takes hold, these calls will
be worth $12–14 and I will be re-stocking the bar with single-malt by the
liter as opposed to the "local blend" by the barrel, a welcomed
change in all aspect and view.
As always, look in the mirror before you act upon these
"suggestions" and make damn sure your wife knows about your
activities because if you wind up blowing the money that was supposed to pay
down your brother-in-law's credit cards, you are going to be sleeping in the
guest bedroom. You will also be getting a visit from your brother-in-law's
biker buddies over his drug debt, an item the nature of which his sister
(your wife) conveniently forgot to mention AFTER WHICH you will be accused of
gambling away the "family fortune," the origin of which was
entirely the product of your work and effort. Life, as we know it, takes all
turns and trials.
Back up the truck and caveat emptor.
[NLINSERT]
Charts courtesy of Michael Ballanger.
Michael Ballanger Disclaimer:
This letter makes no guarantee or warranty on the accuracy or completeness of
the data provided. Nothing contained herein is intended or shall be deemed to
be investment advice, implied or otherwise. This letter represents my views
and replicates trades that I am making but nothing more than that. Always
consult your registered advisor to assist you with your investments. I accept
no liability for any loss arising from the use of the data contained on this
letter. Options and junior mining stocks contain a high level of risk that
may result in the loss of part or all invested capital and therefore are
suitable for experienced and professional investors and traders only. One
should be familiar with the risks involved in junior mining and options
trading and we recommend consulting a financial adviser if you feel you do
not understand the risks involved.
