The Fox is in Charge of the Hen House
The following is commentary that originally appeared at Treasure Chests for the benefit of subscribers on Wednesday, July 20, 2014.
A subscriber asked yesterday about the anticipated low we envision, with the possibility of one more washout before the secular bull market resumes. My answer was with the open interest put / call ratio on SLV falling (big) to .31 (a new low) as of Monday's trade, post the August expiry, chances have of a significant decline have increased considerably, with a vexing of long-term support at approximately $17 quite possible now, if not probable in a liquidity event. Unfortunately, it looks like silver needs to get whacked again before paper market speculators will become exhausted. What's more, put / call ratios on the stock ETF's have begun falling again too as speculators are listening to the wrong people once more. It's amazing how fast these types can forget what happened the last time stocks took a tumble, however this is what makes a market - stupidity, greed, and stubbornness - which runs rampant amongst paper market precious metals speculators.
And unfortunately for both stock and bond market investors as well (because most will not sell close to a top), we have exactly the same sentiment conditions in Treasury Bond speculators right now too, allowing abnormally low interest rates to continue fuelling ever-increasing bubbles in these markets to the point of lunacy. Therein, Treasury Bond speculators have been just as irrational and stubborn about covering their short positions as precious metal ETF speculators have been about parting with their calls, which is a large part of the reason this 'clusterf**k' in the markets continues. And it doesn't appear to be over just yet either, but when it is, all the games being played right now will exact a price, and that price will likely impoverish another raft of people, knocking them out of what we call the middle class.
This week will tell a great deal about what may lay in store for stocks if the S&P 500 (SPX) / CBOE Volatility Index (VIX) Ratio can close back in the sinusoidal fan denoted below, which would point to a possible monthly close at 192. Such a close would set up the possibility of higher highs next month with the Alibaba IPO, not to mention the 'seasonal inversion' discussed in our last commentary. With stocks continuing to rise in the face of generally declining ratios it appears anything is possible given the low rate environment at present, that will undoubtedly be confirmed by the Fed on Friday. One does need wonder if this is a 'buy the rumor and sell the news' event given seasonal strength has characteristically topped this week in mid-term election years throughout the last 30-years.
Turning back to precious metals, it never ceases to amaze me just how dumb and misinformed financial commentators are, often looking in all the wrong places for script. Gold is especially vulnerable to this because it's complicated, heavily gamed, and cloaked in official secrecy. (i.e. which is code for suppression.) Case in point, the recent sell-off with WWIII on our doorstep. The thing is however, speculators did in fact buy what they thought was gold, but because they are only semiconscious, insanely greedy, and idiots (because they repeat this behavior over and over again), they loaded up on GLD calls, which has the put / call ratio plunging as well. This is why prices are falling right now, because these idiots are forced to sell their leveraged speculations (GLD calls, futures contracts, etc.) once the heat comes off.
So get it straight - that's what is happening right now, as the machines (algos) work against these knuckleheads. And until this idiotic loop is closed, meaning either put / call ratios go way up, implying these idiots stop repeating this negative behavior, prices can continue lower. The wars, the economy, any other reason you care to talk about does not matter on a lasting basis as long as we have these idiots in this market, the New York COMEX price continues to be the world's primary pricing mechanism, and Western bankers / bureaucrats are still allowed to manage prices in this subversive manner. (i.e. using sentiment, algos, and force [dumping of futures contracts] to manage prices instead of real commodity supply / demand conditions.)
That's why this famous saying applies here - the fox is in charge of the hen house.
As an aside, if (when) stocks do eventually crash, gold and silver (and especially precious metal shares) could fall due to liquidity related conditions assuming they are not already washed out, which is definitely not the case right now. Just to be clear - this is a completely different reason.
Good investing will be possible one again once speculator stupidity is burned off.
In case you are wondering why I talk this way, try to keep in mind I'm a pirate.
For the rest of the story, please visit our site and subscribe.
We have been providing this service for over ten years now, and our subscribers have been able to stay ahead of the curve in trading the various markets we cover, with a focus on US equities and precious metals. Coverage includes cutting edge fundamental, technical, and sentiment-based studies that have proven pivotal for our subscribers throughout the years.
So, give us a try. One will not regret it if looking for insightful big picture thinking that keeps you on the right side of the trade.
Good investing all.