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Gold Technicals: Avoid the Jitterbug Dance
[for gold Nervous Nellies]

Stewart Thomson
Sep 21, 2009

1. Gold market participants are starting to dance the jitterbug. According to Wikipedia the term jitterbug comes from an early 20th-century slang term used to describe alcoholics who suffered from the "jitters." The term became associated with swing dancers who danced without any control or knowledge of the dance.

2. The gold community has just contracted a bad case of the nerves. I see this as a repeat of the bond market in the early 1980s, as US T-bonds broke out of one of the most spectacular head and shouldering situations of all time. Head and shouldering is a term I use to describe a technical situation where one head and shoulders pattern becomes the head of another larger pattern, which in turn does the same thing several more times, "growing" into a massive head and shoulders formation.

3. The measured move of the H&S pattern in the bonds was to about 104. Bonds had bottomed at 44. The move featured most players either booking micro profits or actually going short because the market was "overbought".

4. Most of the technical indicators on the daily gold chart are now overbought. But the weekly indicators are in a state similar to September of 2007. I would actually say the situation is nearly identical to that time frame. What happened in Sept 2007? The gold price was about $725. It fell to about 715 and then shot to 825, while the technical condition became even more overbought.

5. From 775 the market made its way to 1030, with no more than approx. $50 sell offs along the way. The bottom line is this: I'm a profit-booker into this strength, with an eye to the largest profits in the 1200-1300 area, should we arrive there on this move.

6. If we do not arrive there? Then I'm a buyer into any and all price weakness.

7. If you think you may be dancing the gold jitterbug dance, you may be correct, and it is a dance that can cost you money. Large money. You may feel gold is due for a fall, so you have sold a lot of gold. The bankers don't care about you. You are small potatoes. They want to create a major jitterbug situation, one that features across the board bailing in the gold community. 980 is the gold line in the sand. If 980 fails, technicians will believe the technical condition of the gold market has been damaged, and they will begin selling. Here's daily and weekly gold charts.

click to enlarge ::: click to enlarge

8. On the other side of the dance floor, the gold bull jitterbugs are also dancing up a storm. Perhaps you believe gold is in liftoff mode, so you have either rebought more than you sold into 905, or simply just added to your already huge gold positions, perhaps using leverage.

9. The correct approach to the market, I believe, is to remain as calm as possible and stay away from the jitterbug dancefloor. Respond to price as opposed to anticipating it. I think those selling and shorting gold that claim they will be selling up to 1200 are pulling a bit of a Pinocchio.

10. The same thing occurred in Natural Gas on the buy side, as many investors thought they had ahold of the Holy Grail. What they had ahold of is perhaps the most volatile commodity in the world, Natural Gas. As investors averaged down into price weakness that was far below their plans, eventually the pain became overwhelming and mass liquidation began. NG then soared about 50% in a week as the guard was changed from weak hands to strong.

11. So, if you are shorting gold here as a means to book profit on your physical gold, which is a strategy I use and one employed on a massive scale by the banksters, make sure you look in the mirror, look hard and ensure you are not telling yourself the fantasy that you know gold can't go any higher.

12. Gold can go higher, a lot higher. If you told people you sold 10% of your gold position, but really you shorted 200% of it, "to get in cheaper at 950", you could be in big trouble.

13. The same type of trouble occurred in the 905-930 area. Investors were sure gold was going lower, shorted it, and were obliterated.

14. This is a time to hold the bulk of your positions intact. When I sell I'm generally offloading approx. 2-5% of my positions into each $50 of strength. The sells get incrementally bigger every $10 higher. If you are offloading in chunks like 25% or 50%, you are not using correct market tactics and risk being obliterated by the new era of gold price volatility.

15. The banksters want to see the gold community dance the jitterbug. That is the dance music they selected for the ride to $1200 gold.

16. When you build wealth, you are building holdings in assets. Rather than shorting gold, my suggestion for most investors is that you buy US dollars as gold soars, but in a very modest way.

17. My goal for this current week is to see investors start this week in a rational and calm mental and emotional state, and maintain it right thru Friday.

18. A dollar rally gives you profits on your dollar positions. If you are booking profits your focus moves away from the declining numbers on your gold positions. Such actions build a positive mental condition, making you far less likely to engage in panic selling into price weakness.

19. If you look at Friday's volume on the UUP-n, the bull US dollar ETF, you can see the absolutely monstrous volume on the daily chart. If you get a rally in the US dollar and you own it, as I do, you are going to feel good as the dollar rallies and book profit. I own the dollar and I feel good this morning as I ring the USD cash register. Profits exist to be booked, not blabbed about on the golf course. Gold isn't on my mind as I book USD profits, even though my gold positions are vastly larger than my USD profits. Here is the chart for the etf UUP-n:

click to enlarge

20. I often speak of the absolute importance of monthly charts, but I don't show them that often, because they give very few signals. Gold is giving BUY signals on the monthly chart. Here is the monthly chart. Note in particular the 3 series of MACD I have drawn in:

click to enlarge

21. The current situation in the gold market is totally different from the Spring 2008 peak. First, the fall is the strong season for gold, the exact opposite of the spring of 2008. Not the weak season. Second, at the 2008 peak, the monthly technical indicators like MACDE were giving massive sell signals. Now they are giving buy signals!

22. The bottom line is that those "warning" you about gold's technical condition are: Gold Jitterbug Dancers. They are dead wrong. They are terrified bailers of gold. Plain and simple, they are afraid. Booking profit into strength and selling because you think gold will fall are two entirely different sets of tactics, totally unrelated. I'm not booking profit because I think gold will fall. Maybe it does, maybe it doesn't.

23. The COT report [Sep 11th] shows record shorts being put by the bankers, and record longs being put on by the funds. Last fall gold tanked into 680 in a record-size wipeout. The funds busted out. Now they are back, or at least new versions of them are back. If gold goes to 1200 rather than falling lower, the bankers will carry an even bigger position and so will the funds. The current record size COT positions call for booking profits into strength, not for top calling or all-out buying. Those giving you "warnings" that "gold could decline in price, so bail now!" are mostly market bustouts who couldn't trade their way out of a wet paper bag if their life depended on it.

24. When gold was rising from 680, did investors care if gold rallied or fell $50? No. On a percentage basis, a $50 or $100 move in gold now is smaller than it was then. It's no big deal. What's the hoopla all about? Sell a little more as gold trucks on up to 1050 to 1100, if it does. Buy a little more as it eases to 950/900, as it does. The ability to sell gold professionally is a subtle concept. The key is to DO WHAT IT TAKES to maintain that separation of your mental state where the market might go, from booking profit into strength and buying into weakness. 95% of your focus, at all times, should be on selling strength systematically and buying weakness systematically. Most are doing the opposite, focusing 95% of your energy on market direction.


Sep 21, 2009
Stewart Thomson
Graceland Updates
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