A New Year – New Trading Opportunities

Posted January 10, 2015 By Phil Elrod

I haven’t posted anything in a while beaseu I usually do not trade much during the holiday season – from Thanksgiving until after the new year. The reason is volume drops off on so many of the markets that I love to trade. Low volume makes the markets harder to trade because the spreads can get larger and the volatility can be greater.

I have been unusually slow to get started this year. Could be I am just getting old and tired, but the real reason is that I am an anomaly. I am a macro thinker but a short term trader. Sometimes that presents problems because the macro picture is so out of whack in many markets. I have been trying to reconcile in my mind what the hell is going to happen next. The stock market has been going up, in my opinion, on dreams of prosperity, while prosperity itself seems to be always just beyond reach.

Statistics are so massaged and manipulated these days that I don’t trust them very much. My general feeling is that things are not really all that great. Not especially bad, just not all that great. The FED is printing money at an alarming rate. They say, whoever they are, that it will not cause a problem in the future. But common sense suggests otherwise. The mountain of debt being piled up all over the world will surely have consequences – serious consequences.

However, none of it makes a damn to a trader like me if they (make that me) simply follows the rules of short term trading. So I am going to get in front of the mirror and lecture the hell out of myself. Then get my lazy ass to work.

It is just always in the back of my mind that my kids and grandkids are going to be the ones to truly pay the price for the financial irresponsibility of our generation. All debt comes due sooner or later – and there will be consequences.

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Posted November 22, 2014 By Phil Elrod

Hypoxia is a danger to airmen. The condition is known to all pilots, even the private pilots, such as me, and others who fly small airplanes. Hypoxia is a condition caused by oxygen depletion. Flying a small airplane to extreme levels can cause the level of oxygen in the air to get to a dangerously low level.

It has been said that Hypoxia can happen so slowly that one does not even notice it; until it is too late. Studies have shown that one of the symptoms of hypoxia is a feeling of light headedness, actually to the point of euphoria. If that is true, I have always wondered why those people who decide to take their own life didn’t try to arrange to do it by inducing hypoxia. There are, in my opinion, no good ways to die. But there are certainly some ways that are better than others. Surely a feeling of euphoria at the end has to be one of those better ways.

So what the hell does hypoxia have to do with trading securities? As a short term trader I don’t think too much about the long term trends in the market when actually making a trade. But I do watch the markets long term trends in general. When markets get \to extreme values, even the short term trader can take advantage of that because the moves in the opposite direction when the market reverses can be quite large and profitable.

Hypoxia for a pilot is a result of flying too high without adequate supplemental oxygen. The current stock market is beginning to look like a pilot that is flying a little too high with a questionable oxygen supply. The oxygen supply for this market, in my opinion has been primarily provided by the FED and their money printing policies. The underlying economics of our markets are not very encouraging. There is a limit to what the FED can do; and a limit to how long they can keep it up.

There is a limit to how high a pilot can fly a non-jet aircraft without turbo charging the engine. This market, to me is like a piston engine aircraft and the FED is the turbo-charger. Even with turbo-charging, a piston engine aircraft can only fly so high. And should the turbo-charger fail it will start coming down and coming down very fast.

So I look at this market and see the early signs of Hypoxia. The euphoria appears to be setting in; although it can last for quite awhile the end result is far from pleasant.

That’s just my thoughts on the subject.

Trade with caution and I wish you the best of luck in your results.

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No More Blood in the Turnip

Posted October 8, 2014 By Phil Elrod

I seldom trade the futures market for gold and silver anymore, but I watch those markets regularly. What I look for is what is happening right now. The manipulators have been sucking blood from the turnip and I am thinking there is not much blood left – that we are getting real close to a bottom. I am writing this at about noon, October 8, 2014.

The situation is silver is particularly interesting. The connection between the paper market (COMEX) and the market for the metal itself is seriously out of whack. The cost of producing silver is more than the current paper futures price (just over $17 per ounce) – and the supply of silver is tight. That combination is indicative of a likely adjustment in the very near future.

Take all of the above and toss in the fact that there have been unusual movements of physical silver of late (the silver ETF has had massive inputs of the metal) and I can make a pretty good case that the manipulators are positioning themselves for a big move upward. The recent depression of silver has been a case of commercials buying as the price falls and the tech funds selling and shorting. Currently the tech funds are massively short silver. It would appear that the shepherd has gathered just about all the sheep he can expect for the coming slaughter.

I do not know what the future holds, but the probability of silver being driven down further seems small. On the other hand the possibility of a very large move to the upside is within reason. The futures market is so volatile when these moves take place that I just had to swear off trading them. But physical metal is still a viable means of playing these moves. And buying at – or very near – the bottom for a commodity usually results in a good trade. In my opinion, silver at the current price, is a screaming buy.

The next week or so should be really interesting in the market for silver. If I am right we will see a pretty significant correction in the price of the shiny metal.

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The news these days is filled with articles about market manipulation – is it really happening or not? There appears to be no general consensus on the subject. But everyone has an opinion – and I, dear reader, am no exception. For many years I have been convinced that the precious metals markets were manipulated. The evidence, to me at least, is self evident. Allowing a single entity to hold as much as 40% of the net short positions in any market is proof positive of manipulation.

So as far as I am concerned, the statement that markets are manipulated, as applied to precious metals, is a fact. That the government looks the other way, passively approving, is likely only the tip of the iceberg. It is in the government’s interest that gold – and silver – be subjected to price suppression. That paper money has to be protected to the extent possible.

Not we are hearing of FOREX and stock market manipulation as well. It seems that there are no free markets anywhere.

So what difference does it make to a short term trader? Some, but not nearly as much as might be expected. Long term, it makes a great deal of difference that markets are manipulated. Who knows what the real price of gold and silver might be without the manipulators.

But the effect on short term trading isn’t all that dramatic. Let me explain. When we enter a short term trade we always have a stop loss in place – if not a hard stop (an actual order to sell if a certain price is hit), at least a soft stop (a certain price at which we enter our exit order).

In the precious metals markets the manipulation is generally to the down side. Knowing that and also knowing the time of day that such manipulations usually occur can go a long way to keeping the damage to a short term trader to a minimum.

And getting long after the manipulation ends can quickly compensate for a small loss as the manipulators took the market down.

The manipulation in FOREX and stocks is probably a bit different. I do not short term trade stocks, but I dabble in FOREX from time to time. My feelings about manipulation of FOREX is not as strong as that of the precious metals markets, but the signs of manipulation can be seen if one really watches the markets – particularly in the bid/ask values. I once placed great value in the values of bid and ask – particularly quantity. No I only look at the spread I price and watch the tick value to determine the strength of the market move at the time.

I detest the fact that the manipulators, particularly the precious metals, are allowed to do their activity (it is actually criminal) with immunity. It is a disgraceful display of total disregard for legality and fairness. But it will not end until the government decides to do something about it – OR the manipulators lose control of the market (a paper market is ultimately susceptible to the physical market).

There is a bit of government activity in examining market manipulation in FOREX and stocks. Who knows, honesty day one day return to the markets.

In the meantime, I continue to trade – hoping to be on the side of the manipulators, or with a tight stop if I am not. But it makes me sad to know that I am associating with criminals. It is sad commentary on what our society has evolved into.

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