Home—Online trading—Spread betting explained—Spread betting blog—Markets are in free fall - big profits for traders
May 16, 2012, 12:23
Posted byJohn C Burford
Comments (18)
These are thrilling times to be a trader – especially if you're in the bearish camp! For the bulls it's a different kind of excitement…
But as I often say, it's important not to get married to a view. Let the charts show you how to trade. Right now, it's a bearish view from where I'm sitting!
Developments are coming at us thick and fast. It just feels to me that the excitement can only snowball from here.
But to make serious money from the markets, a trader must join the winning camp, and sometimes put beliefs to one side. Or better yet, change beliefs!
We're in an historic period in the markets, make no mistake. I firmly believe what we're experiencing now will go down in the annals of market history as a landmark period.
And the waterfall declines I predicted in my last post appear to be gathering pace. The signs are very ominous.
That spells trouble for a lot of traders caught on the wrong side. Remember, markets exist to punish the majority!
Again, I'm spoilt for choice on which of my main markets to cover. Many of my observations could apply equally to all three – the EUR/USD, Dow, or gold. Major support zones have been breached in all three in the last few days.
As I've been saying for some time, markets are moving in synch. And that's because they are rallying with increases in liquidity in the banking system, and falling when liquidity dries up.
Much of this increased liquidity has been created out of thin air by central banks. And as easily as it was created, it can be destroyed. That's what we are seeing – big falls in money supply around the world.
And as night follows day, this will lead to massive falls in economic activity – and the markets are getting a sniff of this. They don't like what they see…
Today, I've decided to continue with gold, as it represents a very emotional market – and is one of the biggest beneficiaries of the money-printing operations. And emotions have been running high in gold for some time. Here's the hourly gold chart showing the decline off the 1 May minor high:
(Click on the chart for a larger version)
The arrows represent the slope of the declines. Note how they're getting steeper. This is making tramline detection that much more difficult – in fact, impossible for the short term.
In Monday's post, I had a chart showing the major support line – my 'line in the sand' – around the $1,500 area.
Claim your FREE report: The six-step game-plan for spread betting profits
But I believe I can do better – and here it is:
Instead of the down-sloping line, I can draw a superb new up-sloping line of support/resistance. Note the perfect touch-points prior to last July (red arrows) – and the January point. The September touch-point (black arrow) is a near-miss. But overall, I like it very much.
For over a year, this line has acted as support.
And with this week's declines, we have a clean break down through this support. This is very bearish for gold, of course.
So already, my long-standing target around $1,500 is being challenged.
There are many who say that the $1,500 level is critical. For one thing, it is a very large round number, and many traders believe this is significant. For another, it is around 20% off the $1,920 high, and some believe a 20% decline is enough to label it a bear market.
I have news – it has been in a bear market since last summer when it made the double top blow-off highs. But no doubt, the pundits will be out there calling the bear market as if they have just discovered a new planet.
Many are buying into these declines, of course. Their motivation is largely their view of fiat currencies, and how they are doomed to fail. This has been the story behind the gold bull market for some years, of course.
So which view will prevail: Currency debasement, or credit deflation?
The market is telling me that the deflation story is winning.
On Monday, I wrote that I would like to see capitulation by the bulls in a large down day. It could come at any time, of course, but if history is a guide (it usually is), the odds favour it occurring sooner rather than later.
I'd be interested to know what you think about gold. You can share your views below.
• If you’re a new reader, or need a reminder about some of the methods I refer to in my trades, then do have a look at my introductory videos:
• The essentials of tramline trading • Advanced tramline trading • An introduction to Elliott wave theory • Advanced trading with Elliott waves • Trading with Fibonacci levels • Trading with 'momentum' • Putting it all together
• Don't miss my next trading insight. To receive all my spread betting blog posts by email, as soon as I've written them, just sign up here .
Published in Spread betting blog More articles by John C Burford
By John C Burford, May 24, 2013
By John C Burford, May 22, 2013
By John C Burford, May 20, 2013
By John C Burford, May 15, 2013
Leave a comment
(16 May 2012, 12:40PM) Complain about this comment
I've lost my nerve and sold my gold...
(16 May 2012, 01:02PM) Complain about this comment
Another historic buying opportunity is fast approaching for the precious metals and PM stocks. Gold can continue the decline all the way to the $1400's and still remain in a powerful bull market. Owning gold is insurance, so like insurance, it is not wise to invest all your capital into it. But if you have not got a 10% portion invested in physical gold/silver, keep this little paragraph and read it again in 12 months... when gold is around the $2000..!!
(16 May 2012, 01:03PM) Complain about this comment
John, If you are so keen on your charts then you would note that dipping below 1500 is hardly an exit from golds bull market. Remember you are a trader but others are investors with time on their side. Just take a look at a 10 year chart and you will see a very small wiggle on the overall uptrend. Nothing to get excited or upset about. I suspect it is you who is the emotional one about gold prices not us long term, patient, gold investors. !! One last point , I have not seen gold challenging 1500 at all in any reports !!!
(16 May 2012, 01:04PM) Complain about this comment
Gold is in a powerful bull market. Now may be a historic opportunity to buy some physical gold & silver on fire sale.
(16 May 2012, 01:36PM) Complain about this comment
I've sold my Gold. The reason. I think technical analysis is self fulfilling starting an avalanche. I've made a good profit. I'm happy.
(16 May 2012, 02:50PM) Complain about this comment
I am interested in the ETFs and how much physical bullion is actually available. I've read that it is the region of 100/1. Is it possible that paper gold prices may be falling but physical gold prices are actually still rising? In other words, once the ETFs are required to actually produce the bullion things could become interesting. I'm continuing to hold bullion, but outside the US and UK. A repeat of the 1930s Federal gold grab on the cards?
(16 May 2012, 03:12PM) Complain about this comment
WDave40: Today I spoke with a big bullion dealer. They had a total of 6 Krigerands and 3 Maple leafs and they are on a waiting list for the next delivery of gold coins that may take upwards of 8 weeks. He said the demand is unoprecedented.
(16 May 2012, 04:19PM) Complain about this comment
John, I agree. The technicals look dreadful for Gold. With markets in sync, if the FTSE, Dow & S&P were to get anywhere near the lows gold could go as low as $1200. Which is fine trading paper and spreads cos theres and endless supply. You try getting any coins or small bars down there. It's very difficult to get any now unless your happy to pay 15% over fix. Bear this in mind. There are no examples of any nation that had a fiat currency and subsequently destroyed itself through deflation!
(16 May 2012, 04:53PM) Complain about this comment
nice one!
(16 May 2012, 05:04PM) Complain about this comment
The investment thesis between spread betting gold and buying gold coins is about as subjective as the potential for alien life forms in the milky way!
(16 May 2012, 05:18PM) Complain about this comment
Whoah Skippy, "Markets exist to punish the majority" think about what you're saying here John! When a market goes down it is because the MAJORITY sell, when a market goes up it's because a majority BUY, whatever the market is doing is what the majority are doing, it's the minority who fail to sell before a bear or buy before a bull that get punished, markets exist to punish the minority who act too late, and as a previous poster pointed out if you bought gold 20 years ago, the events of the last week wouldn't wake you from your slumbers, let alone get you excited.
(17 May 2012, 11:55AM) Complain about this comment
I am a long-term bull on gold, however I agree with John that we may well be going through a bear phase. Gold has gone up 11 years in a row, which is very unsual in any bull market. Gold could fall to even 1200 from here but the bull market will still intact and in the long-run it would be a healthy occurance for it. I think in the 70's gold bull market gold fell something like 40% in one year only to rally 8x higher in the following years.Incidentally, I've just started reading John and following his work and although i'm not a huge technical guy I think what you are doing is excellent. Many thanks!Paul
(17 May 2012, 02:49PM) Complain about this comment
To 11.Graeme, in a way your right, but some of those majority have more buying power which can affect the price more than us ordinary investors. I'm thinking Investment banks, Hedge funds, or even fund managers who need to get there percentage worth.
(18 May 2012, 06:31PM) Complain about this comment
I agree with John on this. Time to dump gold and get into some solid assets like Facebook shares. Price chart going to the moon.At the end of the day you can't eat gold.
(18 May 2012, 07:36PM) Complain about this comment
Jim, you are of course correct, I should have said a majority of funds/money. As you point out, one London Whale can have a major impact on a market whereas nobody even knows I trade - apart hopefully from my broker. The other factor is the flight from risk with gold being a safe asset forcing the price up - which is exactly what has happened. All advice can be contradicted by something equally sage - after the event e.g. 'Look before you leap', so when you're really careful and miss a trade, the same person will usually shout 'fortune favours the brave' and 'time waits for no one' followed by 'faint heart never - well, we all missed out on a fair maiden cos of faint hearts, but you get the idea, being wise after the event is easy, this is, as John frequently points out about managing risk - something even the London Whale's of this world get wrong - the irony of it is that he was JP's risk manager, laugh, I nearly died, I bet he didn't follow John's 3% rule!
(18 May 2012, 08:51PM) Complain about this comment
John,When you draw your "superb new up-sloping line of support/resistance" are you saying that the bull run has in fact been intact since $1900? If so, it seems a pretty big revision to your recent narrative. If gold pops back up above this new line, will we still be in the bull market or will the line suddenly become a bit less superb?Cheers and keep up the good work,Tom
(19 May 2012, 11:21AM) Complain about this comment
Physical gold in huge demand and hard to get.... ETF's and other paper versions falling...and bringing down the price of gold....bit confusing then or is it that the market is not longer quite real? As so much of it is in essentially uncertain and leveraged paper form. Are the market makers in control at all? or gaming the system?see http://tradewithdave.com/?p=10106 Worrying for those who like charts I'd say...but as all logic states... the results depend on the premises used. ( in computer speak GIGO... garbage in garbage out)on EDF's see herehttp://www.golemxiv.co.uk/2012/05/etfs-a-brief-update/ and his earlier cited posts
(19 May 2012, 07:59PM) Complain about this comment
14. dr rayYou can't eat Facebook shares either. Even if shares existed in paper form (which they do no longer)they would provide little nourishment. Ten, twenty or a hundred years from now you,or in the latter case your descendants, will be able to buy nourishing meals and all the other necessities of life with gold. I wish you good luck with your investment in Facebook. Gold is long term insurance against the collapse of paper promises, whether shares or pound notes.
Name This will be the name displayed with your comment.
Email This helps us verify comments are genuine. It will not be displayed anywhere on the site and is stored confidentially.
Comment Please keep your comment within 1,000 characters and relevant to the main topic. We encourage healthy debate, but we don't allow insults or bad language. Anything off topic or unpleasant, we'll remove. Enjoy the conversation! Thank you.
To prevent spam-related comments please enter the characters shown in the 'Captcha' box to the left.
Enter the text from the box above
Remember my details
By leaving a comment you accept our terms and conditions.
The trades on this blog are all 'closed', past trades. These aren't trades for you to copy, they are there to teach you some useful trading tactics for your own spread betting. And always remember: spread betting carries a high risk to your capital as you can lose more than your original stake.
Cut through the trading jargon with MoneyWeek's easy to understand guide to spread betting terms
In his easy-to-understand video tutorials, John C Burford outlines some of the essential concepts you need to know to become a successful spread better
24 May 13
22 May 13
20 May 13
Compare the leading providers' online trading accounts for spread betting, forex trading, share dealing and CFDs, and open an account online. Plus, get MoneyWeek's tips and advice on trading online.