http://news.goldseek.com/FallStreet/1114112040.php

Beware The Commercial Pounce

By: Brady Willett, FallStreet.com

Since the beginning of COT (March 1995), the commercials have only held a net short position as a percentage of open interest of more than 44% three times. In two of these instances – April 6 and April 12, 2004 – the extremely large commercial short position presaged a massive decline in the price of gold. As for the only other time that the net commercial short position as percentage of open interest has been above 44%, it was last week…

Since 2003 changes in the NCSPOI have coincided with the expected change in the price of gold 68.91% of the time. In other words, when the commercials are adding to their shorts the price of gold is usually rising, and when the commercials are reducing their short position (or profiting) the price of gold is usually declining. That the NCSPOI has nowhere to go but down strongly suggests that the price of gold is about to correct. That is, of course, unless the motherload gold rally is near, in which case the commercials will default as they chase the price of gold north of $1650 (Sinclair’s target).

As if continually trying to cheat death, many gold gurus argue that things will be different this time. For example, Ted Butler – who has vast experience analyzing the silver/gold markets – suggested in his latest commentary that ‘there has been a profound change in the gold COTs’. After providing no proof of this conclusion, Butler goes on to suggest - for some unknown/unexplained reason – that since a new noncommercial entity is in the market this ‘could be profoundly bullish’.

I think there has been a profound change in the gold COTs. While the non-commercial large trader long category is at a level suggesting the tech funds are on the long side of gold in a big way, I don’t think it is the tech funds that are long gold. Yet. I think some other, very large, non-tech fund buyers entered the market and bought what the tech funds were selling on the break from previous highs above $445 in March. Just like what occurred in silver a few months ago. You must remember that while changes in the non-commercial category are almost always the result of tech fund activity, the tech funds are not the only traders in that category. So while most think the tech funds are already on the long side in gold (and silver), I don’t see it that way.

I don’t want to dwell too deeply (for personal reasons) on why I say it’s not the tech funds that are heavily long, other than to say they never got buy signals (until today) and the concentration ratios in the COT for the long side say it isn’t them. The good news, of course, is that until the tech funds do accumulate a large long position, the chance of a major sell-off is slim.

Two important, related questions Butler neglects to ask are:

1) Is this new noncommercial gold bull as well funded as the commercials?
2) Will this new noncommercial gold bull be able to handle the pressure if the commercials throw sell orders for 60,000+ contracts at the gold market tomorrow?

Regardless of how you care to answer these questions, Butler is correct in that when tthe ech funds accumulate a large long position gold usually corrects. However, whether today’s tech fund long position is ‘large’ or not is open for debate. If you disregard speculation of a new mysterious noncommercial force, the position looks pretty large to me.

“At face value, the dealers’ and tech fund positions are reflective of a top and not a bottom.” Butler

A Manipulated Market is a Dangerous Market

The COT dynamics that have been controlling price swings in gold since 2002 may change in the future; the commercials may be forced to cover and the tech funds may end up laughing all the way to the bank. However, the important point to remember is that the commercials are, quite literally, the bank.

“The bottom line is that the COTs in silver and gold must be read with a filter that incorporates a new entry of a speculative trader on the long side.” Butler

Contrary to Butler’s opinion, the bottom line – much like the ling being touted in this space right before last years gold/silver price collapse – is that the COT suggests that price of gold and silver are headed for a correction unless some major market moving event transpires (ie. the US dollar crashes). To be sure, that the POG is being manipulated by the evil commercials isn’t a reason to go long in the near term, it is reason to be very afraid.

“My main purpose has been to end the silver manipulation and encourage all to investigate and then buy real silver.” Butler

-- Posted Thursday, 21 April 2005

D
common sense

long hours

rewards can be massive

no recognition

traders have made substantial amounts position trading

to do this they must have an understanding of the markets

they must have a plan,

and be able to follow and execute the plan

daytraders don’t make money.

most in the market do not succeed

those that make a profit, generally pay a very high price, to learn from their losses, early in their career

the market knows, how to take your money.

you know what you are doing

position tradeing

you MUST understand it

http://www.financialsense.com/Experts/ewave/2005/0421.html

Applying Elliott Wave Analysis
to Everyday Trading
Q & A with Bob Prechter
by Elliott Wave International's
Robert Prechter
April 21, 2005

Elliott wave analysis appeals to the instincts and to the intellect, but sometimes it's difficult to see how to trade using Elliott waves. The beauty is that the practical application is within anyone's reach. In today's Market Perspective, we'll see how Bob Prechter explains the Wave Principle and its application. (This excerpt is taken from the latest edition of Prechter's Perspective, published 2004.)

Editor's note: If you would like some help from market forecasting based on wave analysis when you trade, please see the information about our Specialty Services at the end of this Q&A.

*****

You've said that the Wave Principle is relatively easy to understand. How about application?

Bob Prechter: The basic idea is easy to understand. The intricacies can take a fair amount of time to learn. Once you've learned them, it becomes an easy step to recognize forms in the market. When you can recognize five wave moves, A-B-C corrections and Elliott triangles, a glance through your commodity charts will show definite buys and sells with no additional work whatsoever. It offers the best reward-for-the-effort-expended ratio I know.

On the other hand, you've also said that it is mastered by a relative few. Out of all investors, how many do you think the Elliott wave method is geared for?

Bob Prechter: Only people who want to put in the extra effort. That's frankly a very small group. I think everybody will find the idea of the Wave Principle fascinating. People who aren't even in the market find it an interesting concept. But the people who should actually apply it are only the people who want to make the market a very large part of their lives. You can't make money at something without working at it. The Wave Principle demands that much, because the market demands that much. They are one and the same.

It's deceptive – a construct that is simple and easy to understand, but because of the inherent uncertainty, it demands rigorous and disciplined application.

Bob Prechter: Well, the rules of chess are simple, but winning the game is not so easy.

So the essence of the task is to order the probabilities correctly. How is this accomplished on an ongoing basis?

Bob Prechter: The first thing you have to do is eliminate the impossible by applying the rules of wave analysis. At any market juncture, there are certain events that are impossible. Remaining may be a formidable list of possible interpretations. However, each possible interpretation must then be judged according to its adherence to the guidelines of the Wave Principle, including alternation, channeling, Fibonacci relationships, relative sizes of waves, typical targeting methods based on wave form, and volume and breadth, if appropriate.

The interpretation that (1) satisfies the most guidelines and (2) does so the most satisfactorily is the one that must be considered to be indicating the most likely path of the market. The next most satisfactory interpretation indicates the next most probable path, and so on. These are sometimes referred to as preferred and alternate interpretations.

The analyst must then monitor the market closely to determine if and when any one of the less probable interpretations becomes the most probable due to the elimination or decline in probability of other interpretations.

This sounds complicated.

Bob Prechter: Not really. Often, the best interpretation is so clearly superior that an investment decision is easy. Similarly, sometimes, the top two or three interpretations have the same implications regarding market behavior, also making an investment decision easy. At other times, interpretations with different implications carry nearly equal weight, dictating a "stand aside" posture. In the latter case, sooner or later the scales always tip in favor of one particular conclusion.

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© 2005 Elliott Wave International, Inc.
Archived Editorials

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D
On the face of things

We just had, a key reversal

Measured wise; it should have, hit 9950

But it didn’t

Least; not yet

Anyhow

g
a true postion trader

would buy here

D
Purple dot, is ooor day

Since, its been bilging

Swishing around, at a bot turn

D
Red zone is missing

Um

http://www.elliottwave.com/features/default.aspx?cat=mw&aid=1644&time=pm

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Markets Close Change
DJI 10187.00 175.30
S&P 500 1157.05 19.55
NSDQ 100 1441.45 34.60
JUN Bonds 113^15 -0^26
JUN Gold 434.40 -2.30
Dollar IDX 83.75 0.23
MAY Silver 721.7 -12.0
Closing prices for 4/21/2005

Can 60 Million Chinese Be Wrong?

4/21/2005 5:53:05 PM

Thursday saw a strong stock market rally (April 21).

*****

If it's true that "the stock market follows the economy," then China should have been everyone's investment locale of choice in recent years.

China's economy grew by 53% from 2000-2004, to become the sixth largest in the world (nominal GDP). If this growth rate holds for a few more years China's economy will surpass the economies of France and the United Kingdom. By one generous measure of GDP (purchasing power parity), China's economy is already second only to the United States.

An immense number of foreign-invested enterprises have moved to China in the past five years, and in turn they produce some 45% of the country's exports. China's foreign exchange reserves have more than doubled in the past two years ($659 billion from $316 billion).

Some estimates put China's middle class at 100 million people; perhaps more impressive still is how many Chinese are now "retail investors" -- 60 million, according to the Wall Street Journal.

All that said, let's turn to China's stock indexes. Have they followed the economy's blistering growth rates? As usual, a chart offers the best answer to a question like this.

Oops. That's even uglier than a chart of the NASDAQ over the same period; trust me, I looked.

Now, I need to note that equities in China remain subject to a heavy degree of state ownership and control, which in turn has led to rampant cronyism and corruption among state regulators. (Yes, there is something worse than the SEC.) But even widespread corruption shouldn't keep a good stock market down THAT far -- certainly not if it's supposed to "follow" an economy that's growing at a double-digit clip each year.

In truth, of course, the conventional wisdom is mistaken. If anything, this chart of China's stock markets should give deep pause to anyone with a stake in China's economy.

That's no less true for anyone with a stake in the U.S. stock market & economy, which very likely includes you.