Overnight at about 1:00 a.m. a single large order came in well over 1000 contracts and killed the gold market. Gold immediately dropped over $10 to $1226.40 and trading was halted for 10 seconds. When trading resumed, we were back above $1230 and stayed above there until a later morning retest in the 1227s but again bounced. I believe the reason there is no follow thru to the downside, is because this single order does not reflect the true sentiment out there of traders. Even with the sentiment as bearish as it is, gold is stubbornly being crammed lower by single large orders usually hit overnight during the Globex session when trading is as thin as possible and large sell orders can have the most impact.
Money Goes From Weak Hands To Strong Hands
They say that if you are in a poker game and you look around and you can't spot the "patsy" then you are it! In trading, money goes from weak hands to strong hands. Strong hands are the ones who wait thru adversity to sell. They never dump at the bottom. They wait for a better price, even if they are ultimately forced to take a loss. Are you strong hands or weak? It is your choice.
If you look at every single major low in GDX and the various individual mining companies, when a bottom is reached, there is a rally of $4 or $5 that quickly follows. On the opening today, it looks like the nearly 5 year bottom in GDX that was scored on 6/26/13, will finally give way to lower prices. But how low? I just wrote an article, click here, showing how I feel that a new low of no more than 75 cents to $1.50 is in the cards. Suppose I am wrong and we fall all the way down to $20, and from the $66.11 high where we started, GDX falls over 70%, 2nd worst bear market of all times and worst than in 2008 during the financial crisis. Even at $20, a bounce of $4 to $5 will allow one to sell substantially higher than the sub $22 prices where we will likely open today. Everyone has to choose what they want to do, but I want to see GDX make a low that is worse than the 2008 low. I want to see GDX prove that it really is that weak. I am willing to call its bluff. I plan to ride thru the low so that I can sell after the $4 to $5 bounce which should be much higher than here.
I could be totally wrong of course. This time could be different. This could be the one black swan event where the past must be totally thrown out. However, the odds favor this not being that one black swan event. And if a person plays for that one black swan event, they are going to be wrong over 95% of the time. I choose to stay in because I feel I have over a 95% chance of being right to stick it out. When playing poker, there are times that the pot is so big, the stakes are so high, that it pays to play a weak hand that has a very low probability of hitting. We are in that situation now. Even if there was a very low probability of winning, it would pay to call to see the cards and know if we do have a winning hand or not. If it pays to keep playing with even poor odds, how much more when the odds strongly favor the bulls at these extreme low prices, extreme low sentiment, extreme oversold price action, etc. The only thing that assures a losing hand, that is 100% guaranteed a loser, is folding. I choose not to fold and to play out my cards. If I am wrong, then I lose. That is fine. Losing is part of the game. I will get them next time. But I will not throw away a winning hand and I will not beat myself by giving up too soon.
Disclosure: I am long GDX.
Additional disclosure: Also long NEM & NUGT