Washout Does Not Provide Gold or Silver Safe Haven Status
Monday, September 15, 2008
by Ira Epstein of Ira Epstein & Company
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9-15-2008 As many of you know, we publish our Mid-Day Videos both on our website and on YouTube. The videos on our website have a better look to them and typically play faster than those on YouTube. http://www.iepstein.com/videos_start.aspx
The Other Shoes are Dropping For the longest period of time, what seems now an eternity to me, the world markets have been in a credit crisis. Today Lehman Brother filed for Bankruptcy Protection and Merrill Lynch has been sold. I was thinking back to the first of the year. Had anyone told me that Bear Stearns, Fannie Mae, Freddie Mac, Lehman and Merrill Lynch would either cease to exist or have happen to them or try to tell me that in but 30-days 4 of the above would see ownership change or bankruptcy, I would have thought them nuts. The other shoes are dropping. The "cleansing process" as I like to call it is taking place, reeling financial markets, but not causing them to fail. As such, as this process takes place, the mess gets cleaned up. I now am wondering other than AIG and WaMu, if the market is starting to run out of shoes to drop as eventually all the shoes are out of the closet. Rest assured, the financial markets will survive. Not all firms will, but the market will. Yes, stock indices are getting hit hard and yes, investors are getting beaten up as valuations on everything from housing to metals have dropped. However, at some point, probably much sooner than most think, the panic ends, values surface and things stabilize. The Dollar Investors have to be stunned today. As such, all day long I walked around my office asking myself one question, what is the rationale for the Dollar holding up? I can find none that makes sense over the long term. Read the headlines. These are not foreign institutions being liquidated, taken over or being spoken about as the next firms to fail. These are large, brand name US institutions. Yet the Dollar is holding up relatively well. My guess is that investors believe that Europe or Asian Investment Bankers are next in line for problems. I question this thinking; while at the same time do agree that banks outside of the US have some exposure. How much exposure, well that is the question. Seeing interest rates collapse as investors seek "safe haven" is probably reason for the Dollar holding on. Low interest rates this time around the crisis avenue means to me that the Fed, because of its ability to "guarantee" is not having trouble attracting funds for investment in US debt. Times are so uncertain that investors are simply going to the world's largest economy and saying it's the safest place to park funds. Regardless of the rate of return! Questions abound about where to park funds. If you had funds at Lehman, you have reason to worry. Not a lot seems rationale in emotionally charged times. As such investors are temporarily doing whatever they need to do in order to feel protected. It doesn't have to make sense in the short-term. So T-Bonds and T-Notes are in favor. The problem with both is that I don't see this working as a long term investment. The markets act like the Fed is going to do something. They meet tomorrow, so maybe they will lower interest rates, open borrowing windows or whatever. The Fed has many tools at its disposal. Don't count them out. I have to believe that the Fed knew the markets would "puke" once they made their decision to let Lehman go bankrupt. As such, I believe that today's break was most likely factored in by Mr.'s Bernanke and Paulson. Therefore, they are watching and can be expected to something, as needed, to calm the markets down. Inflation Market conditions, not the US Government has tamed inflation. Demand destruction via a slowing down of world-wide economic activity has taken place. Very quickly. As such, hurricane threats no longer mean much to energy markets. The market now puts a Bear spin on supply disruptions by saying lack of demand for Crude Oil from shut in refineries is bearish. As crude oil arrives at port, without refineries running, any supply is too much supply. Cities that were in the hurricane's path are now closed down, temporarily reducing energy demand. Two months ago you'd have not thought hurricane damage could do this. Today it is the case. How low will energy markets go, well that's everyone's guess. There will be a bottom. When, where or how it shows up is anyone's guess. Gold's Seasonal Story A pull back in prices into mid September has occurred. This pullback skewed this chart. Look at the Seasonal Chart below provided to us by the good folks at Moore Research Center, Inc. 
If a low was made, it was made in September. Any new low simply doesn't fit in if the Seasonal trend is to kick in. December Gold Lets start out by looking at a Daily Chart of December Gold Futures 
Yes, December Gold is up today, however it is not trending higher. Rather, it rallied in a market that as of this writing is still in a Downtrend. Resistance is up at the 18-Day Moving Average of Closes at 806.7. A move over 824.2 is needed to begin a pattern of "higher highs". That number is nearly $50 away. Will investors begin to look at Gold as a refuge? I think so, but what's even clearer to me is that Gold does better with economic growth coupled with inflation than it does as a "safe haven" refuge. I do not see myself recommending blind buying. Possibly others will be doing it tomorrow, once today's losses are registered. As the stock market plummets waves of buying may come into Gold. There is simply no way to know until it occurs. 
Those who follow my Twice Daily Trade Recommendations continue to own the December Bull Call $1000-$1025 Spread at 6.30. Hold it as it has until November before it runs out. If the seasonals in Gold and Silver take hold, expect me to issue another Buy Signal in Calls or another Call Spread.
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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Let's start off by looking at a Seasonal Chart of Silver as provide to us by The Moore Research Center...http://www.mrci.com/. 
Like Gold, the Silver Seasonals Chart ended up with a lower September low than that of August, which has pressured prices December Silver Let's look at a chart of December Silver. 
Stochastics remain embedded. Until they lose their embedded status, it is my opinion that rallies should have difficulty holding. Once or when Stochastics lose their embedded status, I think a challenge of the 18-Day Moving Average of Closes will take place. The current rate of decent in the 18-Day Moving Average of Closes in December Silver is approximately 10-cents a day. Stochastics would have to lose their embedded status fairly quickly if I were to get a Buy Signal that had a large profit objective. Time is the enemy right now, as I see it. Silver has historically rallied from mid through late September. Today's "Outside Day Up" probably means more of a rally is in store, but without Stochastics losing their embedded status, the longer-term momentum remains with the Bears. 
Those that follow my Twice Daily Recommendation know that you remain holding some Silver Call Spreads. If you followed my recent recommendations you should have successfully bought and sold some Calls, at profit, reducing your exposure on this spread. Should Silver throw out another buy signal, I intend on once again issuing a Buy Signal for a fast in and out trade. Right now there is no new signal. In fact, so far the rally looks suspicious as it doesn't seem to have any "zip" to it.
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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
- Gold can go either way - Thursday, December 04, 2008
- Gold ...could the current price break be setting tGold up for a year end rally? - Thursday, November 06, 2008
- Gold and Silver Break Down - Thursday, October 16, 2008
- Metdown in Stocks offer Bid to Gold and Silver - Thursday, October 09, 2008
- Washout Does Not Provide Gold or Silver Safe Haven Status - Monday, September 15, 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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