Avi brings up some great points here regarding manipulation that I completely agree with. Far too often investors use the excuse of manipulation as the reason why a certain asset moved in a given. I feel this is a way of justifying an incorrect assumption or unexpected move. We will be having Avi on later this week to further discuss this article.
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As human beings, our egos make us believe we are in control of the world around us. We like to believe that we can use reason to make wise and correct investment decisions. We like to make sense of everything we do. But, unfortunately, that is not the case when it comes to trading and investing in financial markets, especially precious metals.
I know it is hard to believe, but human decision making is often emotional, has a distinct general pattern, and is not as “reasonable” or as “logical” as many of you believe. And turns within these patterns are seen at various Fibonacci ratios. In fact, studies have been performed throughout the last 20 years which substantiate this perspective.
The problem shared by most investors and traders is that our human egos will not allow us to believe that there is a greater power that is engrained within the human brain that controls our decision making, as well as market movements. But, it is a scientific fact that humans are hard wired for herding in their basal ganglia and limbic system within their brain, which is a biological response they share with all animals. Yet, most investors are unable to accept that scientific truth – that is, most unsuccessful investors.
Rather, we believe we are in control of our surroundings. We have a need to feel that much of that with which we interact can come under our control. We also have a need to feel as though we control most aspects of our lives, and many even attempt to control many aspects of the lives with which we interact as well. Yes, we, as a race, are truly control freaks, with very little actually being within our control.
But, why do we have that need to feel as though we are in control? Some have suggested that that sense of control leads to the certainty that we all feel we need in life. But, for those that have lived long enough to be mature about this perspective, you have already come to the realization that one cannot control life. In fact, one of the most disturbing things about having a terminal illness, as those who unfortunately suffer from such afflictions will tell you, is the feeling of powerlessness, of being unable to do anything about it. Being unable to control the illness and knowing that others cannot help can be even more painful than impending death.
Yet, there is an innate desire to impute a certain amount of control to “surprise” events so that one can have a better understanding of that which was not in their control. And, yes, imputing an understanding of an event is another manner in which we attempt to control our surroundings. Rationalization is another form of control.
So, what the heck does this have to do with metals? Well, what if market movement, on the larger scale, was something that was not within the conscious control of human beings? What if there was something imbedded deep within the human psyche, which, when enacted upon en masse, directs all societal movements in a relatively uniform (herding) manner beyond the control of any individuals?
In a paper entitled “Large Financial Crashes,” published in 1997 in Physica A., a publication of the European Physical Society, the authors, within their conclusions, present a nice summation for the overall herding phenomena within financial markets:
“Stock markets are fascinating structures with analogies to what is arguably the most complex dynamical system found in natural sciences, i.e., the human mind. Instead of the usual interpretation of the Efficient Market Hypothesis in which traders extract and incorporate consciously (by their action) all information contained in market prices, we propose that the market as a whole can exhibit an “emergent” behavior not shared by any of its constituents. In other words, we have in mind the process of the emergence of intelligent behavior at a macroscopic scale that individuals at the microscopic scales have no idea of. This process has been discussed in biology for instance in the animal populations such as ant colonies or in connection with the emergence of consciousness.”
Now let me ask you a question. If one sees a “surprise” sell off in a market, how do they deal with it? Well, traditionally, many have looked for a “reason” or “rationalization.” When no clear rationalization is at hand, most move to the theory that the price was manipulated. But, the problem with much of the manipulation theory today is that there could be much more reasonable perspectives as to why selloffs have occurred, yet they are now ignored, as manipulation “must” rule the day by a certain segment of our metals market. They will never hear any other rationalization, since they are now locked into the manipulation theory as the main reason they were unable to foresee this 4 year selloff. I discussed this perspective last week.
So, let’s look at the last sell off in gold. It occurred right at the open of the Chinese markets and there was a large sale of gold right at the open. So, as expected, the obvious response was that “the manipulators were at it again.”
But, what most seem to have forgotten was that there was a rather large decline in the Chinese stock market right before we saw this sale of gold early one morning. In truth, in this case, the timing of the sale more likely occurred as a result of a forced gold liquidation to satisfy margin calls caused by the significant declines seen in the Chinese market.
Yet, how many have taken the opportunity to blame this further decline in gold on manipulation? Unfortunately, too many. Most did not foresee this decline coming since they were looking in the wrong place. Yet, we were setting up our short trades a month before this decline took hold, as you can see by the blue box regions (in the attached chart) where we set up two tranches of short trades. And, yes, we were short for the heart of that decline. Did we know the market was going to be manipulated again?
The answer is quite simple for those that are willing to accept the truth. The big market moves are not caused by manipulation, no matter how many have tried to force feed this perspective to you. This market is driven by sentiment. And, sentiment patterns suggested the market was setting up for a strong decline, and that is why we were short from much higher levels back in May and June.
Yet. again, fundamentals failed to predict this recent gold decline. But, fundamentalists that could not foresee this recent decline continue to “sell” you on their contrived manipulation theories when they have no other reason to explain it. But, don’t let their shortcomings “manipulate” you into their misdirected perspectives. This decline was not caused by manipulation, and it was quite foreseeable for those who knew where to look.
In conclusion, one must come to the recognition that much of life is beyond our control. And, that includes our financial markets. They are not under anyone’s control. Rather, they are directed by the sentiment of the larger public, and large market moves are not controlled by any specific group. If such market moves were controlled, then there is no way we would have been able to consistently identify the larger moves before they occurred unless we part of the controlling group, which we clearly are not. And, in truth, almost anyone can identify these market turns, if they know where to look and are able to move beyond the common perception of what moves markets.
If you want to learn where to look, feel free to join the thousands of traders and professional money managers in our Trading Room at Elliottwavetrader.net with a 2 week free trial.
See Avi’s chart illustrating the wave counts on the GLD at https://www.elliottwavetrader.net/scharts/Chart-on-GLD-daily-20150830805.html
By Avi Gilburt
ElliottWaveTrader.net