Gold and Silver Stil Under Selling Pressure
Wednesday, May 14, 2008
by Ira Epstein of Ira Epstein & Company
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5-13-2008 The link to my "Mid-Day Videos" and all our other new videos is below. http://www.iepstein.com/videos_start.aspx Many new daily recorded videos are now located on our website. These videos cover: - Daily Opening Calls
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Gold, Silver and the US Dollar In last week's report I spent considerable time pointing out that outside market influences were having no positive impact on either Gold or Silver prices. Yesterday, Crude Oil hit nearly $127 a barrel and both Gold and Silver prices fell. What I suspect is taking place is that the marketplace is now pricing in the likelihood that the Dollar has made a bottom, maybe a major bottom. Many commodities such as metals, cocoa, coffee, sugar and grains respond strongly to value of the Dollar as the strength of the Dollar effects demand. A rising or strong Dollar often curtails demand. We don't have a "strong" Dollar yet, but we do have one that looks as though it has bottomed out. Students of the market may counter this by saying that the Dollar is but 250-points off of its all time low. I agree with that. What I don't agree with is this. The Futures Market's function is to perceive what future trends are or are going to be. That perception has changed in favor of the Dollar. The reasons for this are numerous. Given the subprime mess, the continuing write downs in loans at US and foreign institutions that "handled" those loans along with soaring inflation in food commodities along with the dragging on of the Presidential election, one would think the Dollar would stay under pressure. It isn't and probably won't make an attempt at doing so in the near future unless some unknown even takes place. I say this since at some point in time all markets reach a point where the flow of "bad news" from the same "items" eventually become fully discounted. That is part of what the world of finance and financial projecting is about. It is more of an art than a science in my opinion, but nonetheless a force that must be dealt with if you want to be a nimble trader in the Futures Markets. No, I don't see the Dollar roaring back up anytime soon. Rather, I see it as having bottomed out and trading sideways to higher over time. In summary, until another "event" takes place that shocks the Dollar, I think for the time being a bottom has been made in the Dollar, maybe a major one. Only time will tell. Should the Dollar get back under 71.05 that will cause me to rethink my bullish Dollar bias. However, until that takes place, I am taking the position that the Dollar has bottomed. As such, I have to adjust my thinking as to how that impacts metal prices. The Impact of a Strong Dollar The impact of a bottom in the Dollar is moving markets. The move comes in the form of waves. The initial wave is clearly one of bearishness in metals. You might ask "why"? The reason has to do with fear. Fear of "something" is often the driving force, driving both to higher prices. A collapsing Dollar, war, inflation and so on motivate investors to abandon things they think will lose value and covet things they believe will gain in value. That time has temporarily come and gone for Gold. Gold has temporarily lost its "coveted" position. The key word here is "temporarily" as I believe that once the US economy rebound sets in, even with a stronger Dollar, metal prices will rebound due to increased inflation along with increased real physical demand for Gold and Silver. However, the market is not yet near that point. Rather, I see the metal markets as being in a liquidation mode. As such, rallies my expectation is that rallies will not hold and that price breaks will come easier and at times be larger than most expect. Not all is lost for the longer term Bulls. This phase in my opinion is but a correction in a market that will once again turn bullish from lower but not dramatically lower price levels. The key for now is to play both sides of the market, looking for profit opportunities, while keeping tight control of Dollar risk. Seasonal Chart of June Gold Let's look at a Seasonal Chart of Gold provided to you by the Moore Research Center...http://www.mrci.com/ The Seasonal Chart shows what Gold has done over both a 15 and 34-year time span in term of price momentum. I use the comparison to view and compare longer-term historical data versus shorter-term, more recent data.  As you can see, the downside momentum doesn't bottom out until July. There are bounces of course, but nothing in terms of historical importance until the summer low sets in. June Gold Let's look at a Daily Chart of June Gold. 
Gold is in a Downtrend. The "yellow" lines I have placed over the daily bars have a pattern of lower-lows and lower-highs. That is what technicians like me use to define a Downtrend. Gold is not oversold as the graph at the bottom of the chart, the Stochastic Study, is going sideways with readings of both the "K" and "D" lines staying in the 30"s. That means that downside momentum has locked in. The "white" lines are Bollinger Bands. Bollinger Bands are an algorithm in which I use 2-standard deviations from a mathematical mean to derive a 95% probability. In plain English, this means that 95% of the time market prices will stay within these "white" bands. When prices hit them, the hitting of them to me becomes a profit objective given that there is only a 5% chance prices will stay above or below them. Therefore, my initial downside target is $844.3, the current value of the Bollinger Band Bottom. That number will change daily as prices change, but the $840 level seems a reasonable downside target. You can easily plot this value out in our OST-IraChart Software. 
I see no reason in the short-term to become bullish gold prices. As a market technician, I am temporarily in the Bear Camp and will most likely stay there until prices close back up and over the 18-Day Moving Average of Closes, the "red" line on the above chart. Unless the market gets itself oversold, rallies are short sales opportunities. At this time, I prefer being short with a stop on that short position at 890.9 looking for the 845 price level as my downside profit objective.
I receive a lot of questions on how I use Stochastics in my price analysis. I teach how I use them in my trading course called The Futures Academy. I've created a short video that explains my teaching style. In the video I speak about The Futures Academy and the indicators I use in my trade analysis. You can click on the image below if you are online or simply type the link address below the video image into your web browser. 
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Like Gold, the influence of a rising Dollar is taking its toll on silver prices. 
Silver is locked into a broad trading range, with a current range top of 17.37 and a trading range bottom of 16.05. That represents a lot of ground, meaning there is no ‘breakout" point that makes a lot of sense. Rather, what I see is a market that has downside bias. I say this since the 100, 45 and 18-Day Moving Average of Closes are all above current price levels. When this occurs, downside bias takes over and rallies often falter as price action will need some event to get prices back over these three key moving averages. Stochastics are neutral, with reading in the mid forties. With prices under the key moving average, I take this to mean that the price break down to the last low of 16.05 has not left the market in an oversold condition. This leaves this market ripe for further downside testing. The downside target if prices break through 16.51 is 16.155.
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Disclaimer: This publication is strictly the opinion of its writer and is intended solely for informative purposes and is not to be construed, under any circumstances, by implication or otherwise, as an offer to sell or a solicitation to buy or trade in any commodities or securities herein named. Information is taken from sources believed to be reliable, but is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted. Futures and Options on Futures trading involve risk. In no event should the content of this market letter be construed as an express or implied promise, guarantee or implication by or from Ira Epstein & Company or Shatkin Arbor, Inc. that you will profit or that losses can or will be limited in any manner whatsoever. No such promises, guarantees or implications are given. Past results are no indication of future
Recent articles from this author
- Energy....the New Currency? - Thursday, July 03, 2008
- Time to Buy Gold Call Option Spreads - Thursday, June 26, 2008
- Short Covering or More in Gold and Silver - Thursday, June 05, 2008
- Gold and Silver...short sales? - Friday, May 30, 2008
- Gold and Silver Stil Under Selling Pressure - Wednesday, May 14, 2008
About the author
In 1984 Ira Epstein & Company was founded by Ira Epstein. Ira was a highly successful retail futures broker, having mastered TV to showcase his talents, which in turned helped Ira develop and create a very large customer following. Many of you may remember his TV show "Stocks, Options and Futures", which was one of the most popular Finance Television shows on what was then called The Financial News Network, which is now known as CNBC. Ira showcased his talents in many other TV markets as well, including Los Angeles where he was a regular guest on KWHY-TV as well as WCIU-TV in Chicago, where he was on the air for nearly 20 years. Ira Epstein...the man behind Ira Epstein & Company Ira's background...written by Ira I was born in Chicago in the mid-forties. A War Baby. Graduated High School in Park Ridge, Ill and went on to college. I obtained my Bachelor of Science Degree from Arizona State University, majoring in Marketing and Economics. I completed courses toward a Masters Degree and attended John Marshall Law School in Chicago. When in Law School, I needed a part-time job. While my family helped with my schooling costs, they simply could not carry the continuing financial burden of Law School. I needed a job. Ira discovers the Futures Market One day I found myself looking for a job on the Law School's Bulletin Board. I noticed a job offer for a "Runner". I had no idea what that meant, but I was thin and in good shape. Ready to run. Few people outside of Chicago knew at that time, 1969, knew much about the Futures Markets, including me. I applied for the job and was hired at G.H. Miller & Company. They were a clearing firm at the Chicago Mercantile Exchange(CME), specializing in the trading of Eggs and Broilers...chickens. Turns out they were pretty good at what they did. So I began running. Orders were phoned in by brokers to Miller's trade desk on the exchange floor. My first job was to "run" the order into the appropriate filling broker. I had a knack for it, but have to tell you that running wasn't really allowed. Just fast walking. Very fast walking. I also became the designated employee to take Polaroid Pictures of the chalk boards. No computer boards on the exchange back then. Rather, the exchange had employees who used chalk to write on blackboards the price a trade took place at in the order they were called up to the chalkboard writer. It looked very very chaotic, but it worked. As the blackboard filled with prices, those boards were handed down to ground staff who took Polaroid photo's of them to both track official pricing and provide member firms with trade records. The boards were than washed and put back up. My job was to take pictures of the boards or photo's of the pictures themselves. Fun times. All the while I was still in Law School. School began late in the afternoon and the markets back than ended at 1:00 P.M. I was burning the candle from both ends, studying hard, writing legal brief and whatever. Who cared. I was young and eager. I found myself liking the market. Really liking it. I was fortunate to find that making contacts with "important people' in the business was easy on the exchange floor. In fact, many of the owners of trading companies you know of quickly became influential in my life. Keep in mind that basically I had "nothing", and here I was talking and soon socializing daily with multimillionaires. I remember making $35 a week gross, owning 6 shirts and 3 pair of pants. all specific to work. My boss, Gil Miller continually told me I was being overpaid given the education I was getting. It was mind boggling, but true. Promotion and more... In a very short time promotions began. First to Order Taker and than to running part of the trade desk. I became very good at it and was assigned to one of Gil Miller's largest clients. His name was Ray E.Friedman. I worked as his personal trade deskman. Ray later sent his son to Chicago to learn the business. I shared a small office with his son, Tom Dittmer for quite a while. Today you know that company as Refco. I found Law School less and less appealing. I'd made a lot of friends and acquaintances early on at the exchange. I was never bashful and constantly asked about the markets. I needed to learn and who better from than the pro's. I was surprised at how helpful some were. Leo Melamed, the founder of the IMM division of the Chicago Mercantile Exchange and Barry Lind of Lind-Waldock offered solid advice early in my career. They were always there, answering all my questions. I watched these men, what they did, how they did it and followed my closest mentor, Gil Miller into the unknown. My parents at that time were convinced Futures Brokers were professional gamblers. The big event... O.K. Here I am watching everyone getting rich but me. It looked so simple. I had to try it. After all, I was on the trading floor, in the thick of things and couldn't miss. I had a few months of learning under my belt and "knew" how to do it. I won't bore you with all the details. You already know how it turned out. My family gave me some funds they really couldn't afford to lose. Market went against me, I had no stop, the market was of course "wrong", but I had lost more than I had in the trading account. All in but a few hours. Quite a feat. Had no way to pay it back. In panic I even resorted to calling my college roommate, pleading for help. His dad said he'd come to my aid...partially, but couldn't cover the whole loss. After exhausting all my resources, which didn't take very long, I came to the dreaded realization that by the morning my goose was cooked. I could not cover the debit and was in deep trouble. I couldn't let that happen. Late in the day, that tragic day, I walked into Mr. Miller's office and asked to speak with him. We sat down and he began talking about my progress. I didn't know if he knew about my debit or not. I then, practically choking to death, broke the news to him about the debit, hoping for some mercy. His reaction surprised me. He got up and asked me to follow him. I did. He showed me his personal shower, his sofa, stereo equipment and asked how I liked his office. I of course told him I "loved it" and was so thankful for the opportunity he had given me. He smiled, went to either his drawer or a closet, I forget which, brought out an old hotplate and handed it to me. I must've thought he was giving it all to me. Well, he said something like, "I'm glad you love it. You now live here. You can use the shower and sleep on the sofa. Be out when I get to work. Now go to work and pay me back". I ended up living in that office for a bit of time. I do mean living...not just working. One of the best times of my life. By the way, looking back on it, I know he knew before I ever walked into his office, about the debit. Did I say I also got a raise? Maybe he liked how I handled myself in terms of being honest and addressing the situation head on... or maybe he knew I couldn't afford food after my trading fiasco. I quit Law School. Had to. Didn't have the funds to continue, owed too many people money and frankly found something I had really had a passion for. I turned my attention full time to the markets. I registered and became a licensed broker. Back then there were no exams to become a broker. No studying. You simply signed up at the front desk of the exchange, listing your name, social security number and an address on a white legal pad. You were a broker. How things have changed. The rest of the story... I worked for several years both on the trading floor and up in the office as a registered broker. I discovered I had a knack for marketing, but wasn't the best trader. I knew enough to go looking for help. I learned a lot from the "old-timers" in the building, and there were plenty of them. They never seemed to go home. I remember spending literally hundreds of hours in Barry Lind's offices. I found traders everywhere. They saw I was interested and many took the time out to teach me trading disciplines. I wish there were space to name them all. In any case, I think of them often. Eventually my turn came. I had a membership at the Chicago Mercantile Exchange. My dream had come true. Or had it? The rest of the story... I vividly recollect my early dreams. I, probably like many others before me envisioned my life in the trading pits as something very different than it turned out to be. Being a runner, phone clerk and customer's broker was one thing. Trading in the pits another. It didn't take long for me to discover I liked trading outside of the pit way better than in it. The screaming and intimidation when I was trying to buy or sell a few contracts, while watching the multimillionaire trader next to me offering hundreds of contracts on the other side of the trade can shake the strongest of wills. Needless to say, I didn't stay long in the pits. As it turned out, that was a smart move for me. Skipping forward.... For 15-years I honed my talents at G.H. Miller & Company. I developed strong marketing and trading talents, which enabled me to develop and build a large retail client base. My business eventually grew too large for G.H. Miller & Company to handle. When that happened it was Gil Miller who setup my move to Shatkin Trading, with partners Hank Shatkin and Pat Arbor. Pat was recently past Chairman of the Chicago Board of Trade and Hank is one of the most well known and liked traders at the CBOT, running a large floor trader operation. The rest is simply history and my other accomplishments...well there's been a lot. Ira Epstein & Company continues to flourish and grow. What makes us unique is how quickly we adapt to change and embrace technology in the market place. I can't emphasize enough the word "we". The staff at Ira Epstein & Company is dedicated to our clients. Our staff realized that to survive, one has to evolve. We do just that. However, along this ever changing trip, we stay fixed on who we are and who we service. The Futures Academy Life has changed a lot since I began in this business. One of the things I notice is that because of technology, specifically the Internet, personal contact is lost. When I was trying to learn trading, I could knock on doors and speak with seasoned traders. That can't be done today. Most traders now have computers at home, making long hours at the office a thing of the past. There's a void that needs to be filled. Win or lose, you the client pay commissions to trade. I'd rather take the commission out of winning trades than add them to losing trades. I have no "Holy Grail". No get rich quick system. What I do have is a trading discipline that I believe in and that can be easily taught. Years ago I learned that most good traders are disciplined. They work off a checklist. That list can be written or innate. A few years back I co-authored a book called, "The Psychology of Smart Money". The premise was a comparison of professional traders versus amatures. We looked for differences in each group. What we found was profound... and obvious. The pro's had discipline. They worked at maintaining their discipline. The average trading client, the amature, had little or no discipline. Rather, they often just took "shots" in marketplace, to often because "someone told them something". Not the best laid plan. Many amatures just wanted some market "action". The list goes on and on. I hope this doesn't hit home. If it does, it's simple to change and yes, you can still have the "action". The Futures Academy teaches a simple 5 step approach to trading. You must have a computer and Internet connection. We teach over the Internet, using a "live virtual classroom" where you and your mentor work privately together. No need to worry if you miss a classroom. We work around your schedule. No matter what your profession in life is, the odds are someone was looking over your shoulder when you first began. It's rare that one becomes a plumber, hair stylist or whatever without first becoming a "Journey Man". As a Journey Man you had a supervisor. That supervisor looked over what you were doing, to be sure you were doing it properly. That's how you learned in school. Your teacher did not pass out books at the beginning of a semester and say I'll see you at "final exams". Rather, they went through the books with you. The books had chapters. An order to each chapter. That's how The Futures Academy teaches trading. Each step builds on the next. You should take a look into it if you want to learn a disciplined trading skill. In any case, you now know something about Ira Epstein & Company. You'll find that some things don't change. We'll work hard for your business. Good luck and good trading to you. Ira Epstein
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