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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory -- Ignore unavailable to you. Want to Upgrade?

To: orkrious who wrote (87050)	9/28/2007 6:05:31 PM
From: orkrious	Read Replies (2) \| Respond to of 110194

trotsky [ PM ] September 28, 2007 04:13PM [hide msgs from this user] Registered: 7 months ago Posts: 239 this week's report: cftc.gov shows yet another 30,000 (approx.) increase in the net speculative long position. this datum has evolved from 'mild concern' to 'major concern'. it seems highly likely that this in combination with a 6 weeks in a row rise in the gold price will soon result in a sell-off. so extra caution is now warranted. note also, should gold continue to rise early next week, it would not mean that one should become less cautious - rather it would mean that one should get even more so. i realize gold has broken out to a new high on a continuous contract basis - this is per se a bullish event. however, these new positioning data are an important heads-up - the probability of a correction has increased markedly now. trotsky [ PM ] September 27, 2007 02:27PM [hide msgs from this user] Registered: 7 months ago Posts: 239 please note: gold is the major money commodity inter alia because it is not consumed. silver also still has some remote monetary characteristics in the market mind, but it primarily is an industrial metal, and thus should be analyzed by means of 'normal' commodity supply/demand analysis. this type of analysis is not applicable to gold. for more details see: globaleconomicanalysis.blogspot.com for practical trading/ investment purposes this means that silver will outperform gold when economic confidence waxes, and gold will outperform silver when it wanes. trotsky [ PM ] September 27, 2007 11:20AM [hide msgs from this user] Registered: 7 months ago Posts: 239 to my astonishment, bearish sentiment on the gold sector per positioning data continues to increase. this may actually be quite rational, given the fact that the HUI tested the old high at 400 in the meantime, and failed to break through. still, such a lack of enthusiasm in what has been the by far strongest sector of the market since the August lows is rather unusual, to say the least. the current data are: XAU put/call OI ratio (3 front months combined): 1.84 - higher than 96% of all readings over the past year (and the past year included a number of record highs in this ratio) GDX put/call OI ratio : 1.71 - higher than 76% of all readings over the past year. this ratio has recently soared from much lower levels, and it was the one indicator that gave a warning in early August about the imminent sell-off, as it was very low back then. since open interest in the GDX contracts has become quite large, we must assume that it has become an important indicator. individual issues combined p/c OI ratio: 0.60 - higher than 97.6% of all readings over the past year Rydex pm fund, cumulative cash flow ratio: now stands at 107.94 points, which is the lowest reading since the spring of 2003 (!). Rydex traders have now withdrawn a full 67% of the monies that were invested in the fund at the cash inflow peak. this is a remarkable show of caution and disbelief, although one must remember that this ratio is in a long term downtrend due to the introduction of various gold related ETFs. a final comment: two days ago, the volume put/call ratio in XAU options shot to a one day reading of just under 10 , which is actually a new record high for the one day volume p/c ratio. i keep hearing that people are too bullish on gold here. however, the only data that show excessive bullishness all relate to the gold futures market, where big speculators hold a very large net long position , and the respective surveys like Market Vane and Consensus Inc. consequently report high bullishness percentages. however, in terms of the gold stocks, it appears that traders are in fact abjectly bearish. we see positioning data that one would normally associate with a major low, not a sector that has just produced a major rally. so what does this tell us? skepticism in the face of rising prices is generally a very bullish omen. this is also underscored by the fact that the gold timers tracked by Mark Hulbert's service recently (about one week ago) only recommended a net long exposure of about 35%, a far cry from the much more enthusiastic recommendations at the last interim high. conclusion: the same as last time - one should be long, with relatively close stops to account for the possibility of a general market sell-off as well as the possibility of a deeper correction from recent overbought readings in the HUI. however, note that overbought readings per se are not necessarily meaningful. strong markets can remain overbought for a long time. the sentiment data tell us that the probability of a bullish outcome is higher than that of a bearish one. they do not convey certainty, thus the action of prices themselves should still be the major determinant of how one treats the position. clearly though the sentiment backdrop continues to favor the bulls.