1. Look at the monthly charts of the grains. There are head and shoulders top patterns there with targets of near-zero. Corn's target, based on a penetration below the 300 mark, is actually below zero! Here's the corn chart:
2. Are these charts predicting a possible new wave of massive deflation? Maybe. But price has also declined to major support levels. If you are buying agricultural commodities, make sure your financial pockets have the money to handle any and all price declines.
3. Head and shoulders patterns on monthly charts, in my opinion, have a spotty record. They are almost "too big." The rises and falls within the pattern are huge, and major surprise weather changes can easily cause failure of the patterns in the grain markets.
4. Gambling involves a much higher risk of loss than of gain. When you see the term "attention gamblers", like I used yesterday for the financial group bear ETF (FAZ-n), I mean exactly that: Your risk of loss is very high. Some investors don't like the double and triple leverage ETFs because they often don't move with price. Even if price moves sideways, the ETF can decline in value. All those risks are clearly outlined in the prospectus. Buying leveraged ETFs is like buying a penny stock. In my view, buying financial futures without the money to handle a MAJOR gap thru your "stoploss" (takeloss) point is complete insanity.
5. If you buy FAZ with a limited amount of gambling money allocated in a pyramid formation, and it goes to zero, will you be lying on the floor crying in hysterical tears while your wife/husband stands over you screaming "you lost all our money!" ? Answer: No. In contrast, the S&P futures market has TENS OF THOUSANDS of such horror stories.
6. The business owner's prime risk management mechanism is your ability to limit the TOTAL amount of risk capital to a deal in a near-perfect way. When you apply the pyramid mindset to that piece of capital, you become a professional trader.
7. When you increase the amount of capital you have at risk, replacing your near-perfect understanding of risk with a stoploss, you are playing with fire. Markets can blow thru stoplosses in ways you may barely be able to imagine. Ask those who were massively long silver futures in 1980 when the bankers turned the market to liquidation only... ask them how their stoplosses worked out.
8. Think about your target reward when trading futures with massive leverage. Then think about the size of the underlying contract. THAT is your total risk. NOT your stoploss. Stoplosses are risk managers. Not risk eliminators. Those who believe your stoplosses are risk eliminators... well, here's my view: You may be the only thing that is financially eliminated, in time. Here's the FAZ-n chart. See any problems here with a 30% upmove in a week? I don't.
9. The gold market was setting up a possible double bottom with the August contract 913 area low. The ideal double bottom formation occurs when the 2nd bottom is a bit higher than the first, showing strength in the market. That appeared to be developing but those who bet large money on that possibility are now nervous as 913 has been taken out. I bought at 920 and 910, regardless of the failure of the 913 low. If we hit 900 I'm a buyer there. Price rules all technical patterns and indicators.
10. When markets grind, you must grind with them. If a market is barely moving in price, your buying and selling should reflect that reality. If a market is soaring, you should be an aggressive seller. If a market is in freefall, you are aggressively buying.
11. I worked hard to build my cbone (Canadian dollar currency) position into the current USD strength. I'm not about to book some micro profit because the cbone is strong one morning. Trading positions must be sold at a minimum of 3 times the buy increment. I don't know where the top of the USD rally is. Professional investors aren't interested in calling tops. You are interested in selling strength. And buying weakness. Here's the Cbone chart, via the FXC ETF. I see weakness. So I'm a buyer into that weakness.
12. You don't buy gold every $10 down and sell it every $5 up. Outer core positions are sold around 10 times the buy increment. Don't mess around with what works. Reduce the amount of risk capital per trade if you are AFRAID. You shouldn't feel outright fear when you are buying weakness. There should be a feeling of discomfort. Not terror. If you feel terror, you are trying to make monster money, trying to become the next Paul Tudor. Odds say you will fail. The odds are you could become the next person lying on the floor crying hysterically. Keep that in mind when deciding the size of capital to deploy to your trades. You can always move forwards to bigger trades. Once Trader Humpty falls off the wall, especially as you get older, it's more and more difficult to get back up the wall. As we age, we want to feel safer, not play superman.
13. Gold WILL have a big rally UP. Don't fall into the trap of buying gold on weakness, and then booking a micro profit, because you "know" it will go lower. Gold either goes UP from here, or it goes DOWN. If it goes down, you buy more. If it goes up, you sell some at your pre-set sell points. You don't care where gold rallies FROM. As long as it is from YOUR largest buy point.
14. There's only one way to guarantee you are a buyer at that low point: Place your orders down in price. In advance of all price predictions.
15. The latest gold COT report is out. The bankers added about 5000 gold shorts. Keep in mind that is thru last Tuesday, so it appears they sold into strength up to 945. I would guess that's already been unwound on the weakness into the 920 area last week and this week. The COT report fits the "grinding" theme. I don't see anything there of new significance.
16. I like to focus on the positive things the bankers do. Which is buying weakness and selling strength professionally. If a heroin dealer walked into your factory and told you that your workers would be more productive on heroin, would you buy it for them? The BUYERS of the derivatives heroin caused the financial meltdown. The sellers are financial drug dealers. Not pushers. The bankers wouldn't have made one sale if there were no buyers.
17. I look at price chasing like buying heroin. My message to the bank heroin dealers: I'm not interested in your heroin bud, but thanks for the sales presentation. Now, hit the road. Here's the gold chart, via GLD. This is a clear picture of weakness. Weakness must be bought. Immediately:
18. Under communism, the financial drugs are PUSHED, not dealt. After tens of millions of Chinese and Russian citizens were murdered by their Gmen slavemasters, we now have a huge portion of the gold community on their kness in front of the relatives of many of those murderers. Virtually praying to them. Slobbering over the great Chinese and Russian GMAN because he price chased a lousy thousand tons of gold with money he stole from his citizens. Both those countries have a LONG road to real democracy. Wake up America: The $2 trillion in forex holdings held by the Chinese Gman is money he ripped off from his citizens and business owners. Do you think the Chinese citizen is incapable of handling his own money? I don't. And even if he is, that's not the point.
19. The point is this: It's HIS money and the Gman stole it!
20. One more thing on the Chinese Govt issue: Nobody ordered the Chinese Gman to buy US bonds. He's the buyer so HE is responsible for any losses. If he bought US govt bonds at the END of a 30 year bond bull market in bonds, AND at the end of the bull market in the US dollar, whose problem is that? The seller? Is Goldman Sachs to blame for the Chinese Gman's complete and total investment stupidity? Where was the Chinese Gman in the commodity markets when prices were low? Like all Gmen worldwide, he's a Price Chaser. He's not a "savvy investor" like the gold community fantasizes. He's a thug and a scumbag who muscles his way into markets and demands compensation for his failed decisions.
21. Here's the financial report card on the Chinese Gman: With money he ripped from his citizens, he bought a tiny amount of gold after it tripled in price. He bought some commodities after they doubled, tripled, quadrupled. He bought bonds after they tripled. The low for the bond was 45 when gold peaked around 1980. It hit 142 recently! If the Chinese Gman missed all that, who fault is that? Answer: 100% his fault. While the bond soared, what was he doing? Answer: He was busy ordering his citizens to ride bikes. I couldn't care about his whining because his price-chased T-bonds and US bucks might fall down. Maybe he'll learn something about real investing after he busts out. I doubt it. He'll more likely just steal more money from his citizens for his next failed deal. The Chinese Gman isn't a master investor. Not at all. Ask the Chinese citizens who are crawling back to the fields with no job what they think of the "master investing" of their Gman. They'll say, "I'm hungry, gimme my piece of the $2 trillion in forex you ripped off from me, I'll decide how to invest it. It's mine." Big govt is heroin. The bankers offered it for sale, and the world's voters bought it with little money down decade after decade. In China and Russia, they bought it with no money down. Now there's a margin call. A big one. Who's fault is that?
22. The greatest investors on the planet are the bankers. Not the Gman. And certainly not the communist Gman. The Gman will sell his soul, and yours, for a quarter. The idea that the Chinese Gman is a master investor qualifies for the joke of the century. The communist Gman uses force because he's the world's worst investor, not the best!
23. If you want to become a professional investor, which means making money consistently, just start grinding your buys into the current price weakness. Keep the buys smaller than you think is rational, but do it. And do it TODAY.
24. Buy weakness and sell strength. As the bankers do. When the bankers offer you price chasing heroin, just say no to drugs!
Graceland Updates Subscription Service: Note we are privacy oriented. We accept cheques. And credit cards thru PayPal only on our website. For your protection we don't see your credit card information. Only PayPal does.
Stewart Thomson is a retired Merrill Lynch broker. Stewart writes the Graceland Updates daily between 4am-7am. They are sent out around 8am. The newsletter is attractively priced and the format is a unique numbered point form; giving clarity to each point and saving valuable reading time.
Are You Prepared?