Anatomy of an EE Attack

This morning saw another, typical EE attack. As mentioned yesterday, the Evil Empire likes to stage their raids when no one is around to stop them. Typically, the raids come between 6:00 and 8:00 am New York time. Why then? Simple. Asian and European traders are done for the day. New York traders are not yet at their desks. As you begin to watch for these raids, you'll notice that the EE stages them as often as three times per week. Here is a chart of today's:

Again, how do they do it? The EE compiles a bunch of new, paper short orders and then they wait. They watch the order flow. They see an opportunity when there is a momentary lapse of bids to buy. They seize this moment to overwhelm those bids and the market is quickly driven lower as it seeks buyers to fill all the sells. Very simple and very fast.

Now, check this out. Do you recall the price action back on QE2 Day, November 3? There was much angst and wringing of hands by gold holders as the gold market was crushed pre-announcement. At one point, gold was down nearly $30 intraday. What was happening? Did "insiders" know the Fed would disappoint and were selling early? "NO" I cautioned. The Evil Empire knew that QE2 was massive and they knew that gold would rally post-announcement so they had to bash back its starting point. Here is  a copy of a ZH post I made that morning:

by Turd Ferguson
on Wed, 11/03/2010 - 10:43
#695968

Obviously, Blythe decided to act early. The question is, what does this mean?

To me, the only reason for smashing gold now is this: The EE either knows or suspects that the QE2 announcement is going to be larger than anticipated and, therefore, PMs are going to rally sharply. So, crush the PMs now in order to cover shorts at lower prices before the blastoff.

Again, if anyone doubt the existence of the EE and their influence on today's action, simply look at a one-minute chart of todays' action. Violent one-minute downdrafts galore. Only the EE has the power to overwhelm the bid like that. They are clearly trying and succeeding in dropping price before the announcement. Again, why before? They are clearly afraid of getting their collective nuts and ovaries in a vise this afternoon.

I am very confident of a big price move UP later today.

Here's an exchange I had with the one and only "harry wanger" later that morning:

by HarryWanger
on Wed, 11/03/2010 - 11:24
#696117

You think gold is getting hit now, just wait until 2:30. I hold lots of precious metals long term but am expecting a big sell off.

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by Turd Ferguson
on Wed, 11/03/2010 - 11:28
#696125

Yes, Harry, but you may have already seen the majority of it. Don't look for gold to drop much below 1325 before the usual buyer(s) of size step in.

If Blythe had allowed gold to rally this morning up to 1385-90, I would be extremely nervous about what lies in store for us this afternoon. The fact that she chose to crush it before the announcement clearly means that the QE will be more significant than expected and that the PMs are going much higher.

So, Harry and many others were wrong and I was right. How did I know? Was Turd's Crystal Ball particularly clear that day? Not really. All I needed to see was this:

Violent, one-minute drops are the specialty of Blythe and her monkeys. Only she has the size and scale to be able to simply overwhelm the gold market in this fashion. Notice, too, that each one-minute move takes the exact same $7 out of the price. Methodical selloffs are one thing, taking $21 out of the international price of gold in three, one-minute increments is something entirely different.

Save this chart. If you, or anyone you know, ever come to question the existence of The Evil Empire, pull it back out. It is truly all the proof you need.

Finally, regarding today's price action...pretty much as expected yesterday. This morning's EE beatdown was a little more extensive than expected so we'll probably close a little lower than forecast yesterday. Lets look for 1345-50 in gold and 26.25-50 in silver. Next week, even including expiry, promises to be a week of range-bound consolidation before the big POMO week of 11/30. Have a great day! TF