With
gold oscillating around a short term support line at $1,275 and the HUI
testing its June low, we are paying close attention to the action. On
Tuesday, another attempt to break the support line was undertaken at an
unusual time, i.e., during GLOBEX trading overnight, when volumes are
small. An analysis of this unusual trading activity (actually, we're not
sure if it can really be called 'unusual' anymore) by NANEX can be
reviewed in this Zerohedge article. Apparently, 'this time not the entire bid stack was obliterated', so that a 'stop logic' trading halt was avoided.
Given
that many commodity funds are suffering large outflows (after all,
everybody is '100% sure' the sector is doomed), there could be a certain
amount of forced selling by funds in the sector. However, one is still
left wondering, why would such sales take place at times when there is
very little trading volume and bids are relatively small? Wouldn't a
seller be interested in selling at the highest possible price?
This
is actually a rhetorical question – it seems rather obvious that the
sales are specifically timed so as to ensure that attacks on widely
watched trend lines are crowned with success. Such a tactic can make
sense for someone shorting the market; put options can be bought
beforehand, gold stocks can be sold short beforehand or puts on gold
shares can be bought. In that case, selling the futures contract at a
slightly lower price can still prove a very profitable tactic overall,
especially if the break of support results in follow-through selling by
other market participants. Since the market is already weak and has
embarked on another short term bear trend, the odds of success are
presumably considered high. However, it didn't quite work out that way
on Tuesday.
No comments:
Post a Comment