Gold Call Opportunity Friday, May 09, 2008 by Ira Epstein of Ira Epstein & Company

5-8-2008

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Gold's Refuses to Rise

Gold has not, I repeat, has NOT been influenced by all time high, energy prices.

Rather, Gold is being influenced by what appears to be a bottom in the US Dollar.

Until and unless 71.05 is taken out in the June Dollar Index, I think it fair to say that a short-term, if not a much more important longer-term low is in place for the Dollar Index. I see the Dollar's next upside objective as being 74.50, the high it made on April 18^th. 

The news media is ripe with inflation stories.

Rice sales for example are being rationed, not in some third world country as you might expect, but here in the US by some food chains.

Getting food into the hands of those who need it in Africa and other needy countries is not only difficult, but now due to transportation costs, very expensive.

India has stopped futures market trading in a number of food products.

Iran continues to do what Iran wants to do concerning nuclear development.

Turkey continues incursions into Iraq.

Copper just a few days ago hit a new all time high of $4.26 a pound.

There is a move underfoot in Congress to curtail futures trading in energy markets.

The Stock Indices just completed there best upside month in a very long time.

Oil prices are almost daily setting new all time highs, being just shy of $125 a gallon as I write this report.

CNBC now has new graphics of an "Oil Alert" section playing. Come on.........

And Gold, well Gold is down nearly $170 from its high made on March 17 at $1038.60.   

Why the Change in Market Perception?  

The answer is simple. The sky is no longer falling. Yes, believe it or not, things actually seem to be getting better. Let me explain what I mean by "better".

A turnaround in the US economy and the housing sectors has not yet occurred. Rather the slowing down of negative issues affecting both is what is taking place. And, most importantly, the markets are no longer discounting the same bad news over and over. In other words, bad housing data and the subprime mess on their own are yesterday's news.

We're just now beginning to hear the first whispers of a housing bottom in some select markets. A bottom does not necessarily mean a turn around. It means that house prices may no longer be declining as fast or for that matter even declining as they were just a month ago. In some areas sales are actually picking up. This should not come as a surprise to anyone, as eventually this event will occur. Maybe not in Vegas or Miami, but in other markets this is starting to occur.

You and I become accustomed to hearing nothing but bad news. However, as I've been writing about, there is a "sliver of light at the end of the tunnel". The market seems to sense it.

In the first quarter of this year, there was a rotation concerning Gold going on. Gold either tied itself to the value of the Dollar, the value of the Stock Market or to energy prices.

Now gold seems tied to nothing as all have rallied in the past two weeks while at the same time Gold and Silver prices have fallen. Even Copper surged ahead to a new all time high, having absolutely no impact Silver or Gold.

The first signs of a possible Bear Market Rally are now taking place. Not a turn around just yet, rather a bounce.

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 chart below shows what Gold has done over both a 15 and 34-year time span. The reason for the comparison is simply to view and compare longer historical data versus shorter more recent data. The shorter the data frame the more the data evenly weighs current events.  However, too short a time span doesn't tell a very good story, so we strive for balance by comparing 15 versus 34-year data.

  

The overall pattern of Gold doesn't bottom out in terms of downside momentum until July. Yes July. There are bounces of course, but nothing in terms of historical importance until the summer low sets in.

June Gold

Let's study the June Gold Chart to see if any shorter term opportunities are presenting themselves.

The first thing to notice is that Stochastics, the study on the bottom of the chart have turned up. Stochastics measure market momentum. Unless the red line, called the "K" Line turns down under the yellow one, the "D" Line, momentum is up.

The 18-day Moving Average of Closes, the red line currently shown to have a value of 895.7, is the immediate upside target.

Is this market ready to soar again? I don't think so. It needs to build a base first to work off of. Certainly there is plenty of inflation around for it to do so. Doing so however is what needs to be done.

So, how do you play Gold? I think by trading Option on Futures for a while, slowing the game down a bit while letting the market setup an uptrend.

Regular readers of this report know that I issue new trade signals in my Twice Daily Updates, which you can find out more about by reading below.

A new buy signal was issued just yesterday, when I recommended buying the June $900 Call Option for $6. Those that placed their orders to do so shortly after I issued the recommendation should have been filled at $6. 

Last night, Wednesday Night, I wrote to take 50% profit at $9.80 on that Call. The $9.00 Gold moved up and through the $9.80 level today, trading at $10.00 and closing the day today at $9.70.

Those who followed my recommendation and were filled took a nice profit today. I now recommend moving your stop order on your remaining long position(s) up to breakeven including commission. This means you keep an eye on your Gold Option. How it does at $895, assuming $895 is hit will be very important to me. If prices simply run up and keep going, you hold. If prices stall out, I will write in my Twice Daily Update what you are to do.

The idea is to give the market room to move, but not risk beyond what you paid on your open position.

I see nothing to do in Silver, so I will not write on it this week.

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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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Volatility is here. That's what traders thrive on.

Take advantage of trading conditions by using our super low commissions and great trading software which make it feasible to enter trades where commissions aren't much of a decision factor, placing the burden where it belongs. On being right the market! It's really that elementary.

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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.

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