The Good, The Bad, & The Bullion: Navigating Metals Volatility | With Dale Pinkert

Episode Overview

• This episode features veteran trader Dale Pinkert discussing the mechanics of "parabolic" market moves and how to identify when vertical rallies are about to reverse.
• The discussion spans multiple asset classes—including Silver, the S&P 500, the US Dollar, and agricultural commodities—to illustrate how technical divergence and distribution patterns signal market tops.
• A major focus is placed on the psychology of trading versus forecasting, offering specific strategies for risk management like the "free position" technique to handle emotional stress.
• Pinkert outlines his "Joseph Strategy" for agricultural commodities, advocating for a contrarian approach to buying essential resources when fundamentals look weak but prices are historically low.
• This content is highly relevant for traders looking to protect gains in frothy markets and investors seeking to understand how to hold cash as an active strategic position.

Key Concepts

• The Anatomy of a Parabolic Reversal: Extreme momentum (vertical price moves) is unsustainable. When these "face-ripping" rallies end, the correction is often violent. Traders must watch for exhaustion signals rather than chasing price, understanding that narratives are often strongest right at the top.

• Technical Divergence: A reliable early warning system for trend changes.

  • RSI Divergence: Price makes a higher high while the Relative Strength Index (RSI) makes a lower high, indicating waning internal momentum.
  • Inter-market Divergence: Related assets (e.g., Gold vs. Silver, or Small Caps vs. Large Caps) stop moving in sync. If one fails to make a new high while the other does, it signals weakness in the broader complex.

• Distribution vs. Accumulation: Markets that move sideways with high volatility after a long run-up are often in "distribution." This is when smart money sells to retail investors. Pinkert points to the S&P 500 gaining very little net value over months despite high sentiment as evidence of this churning process.

• Cash as a Strategic Position: Holding cash ("dry powder") is an active investment choice, not a passive one. It provides optionality. Without cash reserves, you cannot "buy the break" when markets correct; you are merely forced to ride out the volatility.

• The "Free Position" Strategy: To manage greed and fear, Pinkert advises selling one-third of a winning position once it has appreciated significantly. This covers the initial cost basis, meaning the remaining two-thirds are "free." This eliminates the psychological pressure of losing principal, allowing a trader to hold through normal volatility.

• The "Joseph Strategy": Based on the biblical story of storing grain, this is a long-term value thesis for agricultural commodities (wheat, corn, soybeans). The strategy involves accumulating these assets when news is bad (abundant supply) and prices are low, anticipating inevitable future disruptions (weather, geopolitics) that will spike prices.

Quotes

• At 0:28 - "What we're witnessing... is what happens when a parabolic move ends." - Identifying the violent nature of market corrections following unsustainable vertical rallies.
• At 4:10 - "The money is made trading. You don't make money forecasting." - A crucial lesson that having an opinion on market direction is useless without proper trade execution and risk management.
• At 5:34 - "It's not a profit till you ring the register. You take a third, basically what you have is the rest of your silver... is free." - Describing a specific tactic to eliminate emotional trading by removing principal risk.
• At 16:15 - "I believe that... [you should] raise cash because I'm not looking for a crash, maybe 10% in the S&Ps... but when you have cash, you can buy the break." - Explaining the opportunity cost of being fully invested; cash converts market fear into future profit.
• At 30:53 - "We're net 17 handles in the S&Ps in three months. To me, that smacks of distribution, not a market setting up for a melt-up." - Using price data to challenge the "bull market" narrative, showing that the market is churning rather than advancing.
• At 41:05 - "I'm telling people this is your Joseph strategy 2.0 and fill your storehouses... The fundamentals are terrible... It couldn't get any better [for supply], but there are so many things that could go wrong." - highlighting the value of buying when news is bad but the price is cheap.

Takeaways

• Execute the "One-Third" Rule: When a trade moves significantly in your favor, sell one-third of the position to cover your initial cost. This renders the remaining position "free," allowing you to stay in the trade for the long term without emotional stress.
• Raise Cash During High Sentiment: If the market is frothy and price action is stalling (distribution), actively take profits to build a cash position. Treat this cash as "ammunition" reserved strictly for buying the inevitable 10% correction or pullback.
• Look for the "Laggard" Signal: Do not rely on a single asset chart. Compare related assets (e.g., Silver vs. Gold, Platinum vs. Copper) to see if one is failing to make new highs. Use this divergence as a leading indicator to exit or short the stronger asset before it turns.