This week's COT report once again confirms that the Large Speculators are
arguably the stupidest group of gold traders in existence. To be certain, as
criminality is to the Commercials, brainlessness is to the Large Specs. They
are constantly long massive positions at major turning points in gold and
silver and are consistently on the wrong side of the trade. Pundits love to
refer to the Small Speculators as "dumb retail" or the typically
green, blindly optimistic newcomer piling into gold futures after receiving
an e-blast from one of the blogs praising the regenerative powers of gold and
silver. However, I have been watching the Small Specs for a while now and
they have actually been on the right side far more often, but without
question, residing forever and a day in the House of Pain, are the Large
Specs. The last two COT reports illustrate this point perfectly but first
take a peek at the last 30 days of gold trading.
You
can see how the gold market traded down in the two COT weeks ended February 6
and 13 amidst massive liquidation by the large speculators.
Now observe the massive liquidation of all of those positions bought in
late January as high as $1,370 as the blogger world chortled and chimed
"$1,360 breakout!!!" Recalling "MJB Rule 1 of Gold Trading,"
what is it that we do when an obvious technical support or resistance level
is taken out? Why, we go the other way of course! You SELL
"breakouts" and you BUY "breakdowns" because of one
resounding theme: THE GOLD MARKET IS RIGGED. 31,656 contracts were purged
from the Large Spec portfolios representing 3,165,600 ounces of gold with a
notional value (assuming average liquidation price of $1,315) of
$4,162,764,000. Forget about the cretins on the other side of those comedic
capitulations; we KNOW all about the machinations of the Commercials. What
slays me, though, is just how much money is lost and how it happens literally
four or five times a year but what is unmistakeable is that every bottom in
gold is characterized by massive long liquidation by the Large Specs.
Last week I was feeling pretty much vindicated as the UVXY (ProShares
Trust Ultra VIX Short-Term Futures EFT) got hammered back down into the
mid-teens from my exit points at $23-25 after a brief stint above $30, as the
panic of early February was replaced by the solace and certainty of plunge
protection. Massaged back under $10 by the serial interventionalists and
master manipulators manning the trading desks of the government-sponsored
agencies around the planet, you want to avoid this vehicle for another few
weeks as you can pretty much assume that the big boys will resume their
volatility-suppressing antics if for no other reason than to teach the
latecomers a painful lesson or how "past performance is no guarantee of
future profit." Delving into Barron's "Market Lab" this
weekend, I noticed that the American Association of Individual Investors
sentiment index went from 44.8% bulls the week before the meltdown to 37%
bulls during the meltdown and right back to 48.5% bulls this past week,
rendering sentiment to where nothing about the 10% one-week plunge mattered.
Rising yields, hot CPI, heightened volatility—mattered not as we head into
the final stretch of winter, which is exactly what I wrote last week about
the market heading right back up to test or exceed the highs by the end of May.
You can see how quickly market
sentiment exited the "Euphoria" levels from late January, but it is
still way above the levels seen last summer when the reading was a hair above
"Panic."
I was also feeling pretty cocky that the JNUG (Direxion Daily Junior Gold
Miners Bull 3X ETF), which I grabbed at $13.35 two Fridays ago, was powering
above $16 after a two-day dip to $11.34 but once again, late-Friday goofiness
took gold down below $1,350 again and the Gold Miners threw a tantrum with
the HUI (NYSE Arca Gold BUGS Index) off 2.33% on the day alone. Nevertheless,
I continue to be a buyer of any and all dips in the physical metals and
always have to remind myself just how much of a move would be required to get
to "all-time highs," a phrase we have had to listen to for most of
the past 15 months for every asset class EXCEPT gold.
People
tend to forget just how far down the Gold Miners have fallen since the highs
of 2011 but when you look at how pathetic they have been managed over the
years, you have to wonder why anyone would buy them. Look at Barrick's Pascua
Lama project where they have written down U.S.$429 million because they broke
every rule in the book muscling their way into water rights, environmental
breaches, and incompetent execution. There are times when I wish they would
exclude ABX from the Gold Miner Indices altogether and let the well-run
smaller companies like Eldorado and AngloGold carry the water.
It might also be nicely refreshing to see one of the major mining
companies actually join into the lawsuits of bullion banks such as
Scotiabank, HSBC, Deutsche Bank, UBS and Barclay's but since they just never
know when they might need one of them to either lend them some money or head
up a financing, they just stick their heads in the sand while the product
they search for, produce and sell gets suppressed, injuring all of their
shareholders on a daily basis.
We head into what is ostensibly the final week of February with the
arrival of Spring a mere thirty-one days away. With this weekend's "Up
and Down Wall Street" entitled "The Ghost of Inflation
Reappears," Barron's Randall Forsyth does a pretty good job in
accidentally removing inflation fears as a potential stock market land mine
because, as you all know, when something becomes a headline in Barron's, it
is, by the time of arrival, obsolete. Mind you, it wasn't the cover story so
perhaps it will resurface later in the Spring when the CPI detonator really
gets flipped.
I am not going to make any dire predictions as to the vibrancy of the
current stock market rebound but based upon the behavior of the market last
Monday and Tuesday, I am convinced that the-powers-that-be were hell-bent to
avoid a full-on technical breakdown. The orchestrated rebound after the
S&P knifed down through the 200-dma at 2,540 was classic PPT so anyone
wondering whether or not the central planners had cut the umbilical cord
found out on the last trading day of the week that the serial
interventionalists had not yet left the equity market building. However, they
are sticking a microscopic pin into the bubble so as to allow a slow leak as
opposed to a "POP" and that, I contend, will be the continuing
mantra for the balance of 2018.
I had a call from a buddy who is getting killed on his "Short Euro,
Short Yen" strategy, which he executed on the assumption that like all
other financial crises, the USD would rally in response to either higher
rates (which we have) and/or safe haven buying. The problem with that is when
you are the largest debtor nation on the globe, rising interest rates
challenge the viability of your currency because of DEBT. The U.S. dollar is
no longer the safe haven; it is now the Achilles Heel of the global economic
reflation—and I didn't write "recovery" or "expansion" or
"boom"—further cementing my belief that what worked from 2009 until
2017 will not work in 2018 and beyond. The game has changed, the tide has
turned, and formerly successful investment tactics will need to be replaced.
The sooner, the better.
Charts and images 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.
