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Silver And Gold - Context Matters. It Leads To Harmonious Trading

Monday Evening 3 September 2012

Context, context, leads to identifying where and how smart money is operating, and it tells a more compelling story. We always start out with the higher time frame chart in order to identify the trend and where price is in relation to that trend. We have covered the clustering of closes and location of price within a larger uptrend on most every occasion when showing the monthly chart the last several articles. We also advise to let the market lead and THEN follow its lead, as opposed to leading the market and "hoping" it sees the "wisdom" of your choice[s].

It takes patience when price trades in a protracted range, but eventually it does break out, and we have now seen confirmed evidence across the board in silver and more so in gold. At the beginning of last week, it looked like price would close out August in a small range, but just above the supply trendline. As it turned out, the last few trading days saw a surge to the upside, demonstrating that buyers had the advantage over sellers. Exactly how the market will develop from here is anyone's guess, but looking for
opportunities on the long side appears the easier strategy, for now.

In almost every article on silver and gold, we have asserted to keep buying the physical, regardless of price. Anyone heeding the advice can better understand why a consistent buying approach, at any and all levels, will pay off.

(click to enlarge)SIU M 3 Sep 12Click to enlarge

Sometimes, when markets "appear" to be undergoing a breakout, it is not always so easy to see what is always obvious in hindsight. The decision to enter the futures was made based upon a trading rule that says to follow price when it breaks above/[below for the short side] an obvious trading range, for it is a signal of higher prices to come, using probabilities. That was the basis for the entry signal at 30.60, two weeks ago.

Looking at the weekly, there was room for correcting back lower and making a position at 30.60 look expensive, but the market was leading, and one has to follow strength, knowing momentum will carry the day, even with a correction.

(click to enlarge)SIU W 3 Sep 12Click to enlarge

Why not buy when price rallied above 28.50? We did give it consideration, but because price was still in the middle of a trading range where the level of knowledge is least, it makes more sense to buy on a pull- back than to pay up in a non-trending market. [See Silver And Gold - Breakout UnderWay, click on, 3rd and 2nd paragraphs]. Our only loss in July was attempting to do something similar in gold, so discipline had us wait and not repeat a losing strategy.

(click to enlarge)SIU D 3 Sep 12Click to enlarge

One of the best examples of keeping a market in context has been gold. The bullish spacing has been huge, an indication of an overall healthy bull market. [See Silver And Gold - Postured To Go Higher. click on, first paragraph after third chart, discussing monthly gold]. This gives a brilliant illustration of knowing the market's context that will eventually lead to a sound trading decision based upon the richest and most reliable source of information...the market itself.

We did not point out the series of higher lows until the weekly chart below, but you can see each month made consecutively higher lows since May. Repeating what we said about the weekly silver chart, as a move is developing, it is not so easy, except in hindsight. [See Silver And Gold - Will They Be Contained Until Elections? , click on, 4th chart]. Higher lows usually are significant, but within the context of a trading range, anything can happen, including another retest near the lower end of the range.

(click to enlarge)GCV M 3 Sep 12Click to enlarge

The comment on the chart will suffice. The small upslanting line shows the series of higher lows.

(click to enlarge)GCV W 3 Sep 12Click to enlarge

There was a slight hesitation to buy the breakout, mainly from taking a loss in mid-July buying what seemed an intra-range breakout that led to a relatively large loss for a mini contract in one of the stronger markets. For as often as often as we say not to trade in the middle of a trading range, which we did, we can only think of what Forrest Gump would say, "Stupid is as stupid does."

Once we say the clarity of the breakout over all time frames, we waited for a pull-back, [as we did when silver had its intra-range breakout, but a pull-back did not develop], and immediately stepped in weak correction at 1659. Weak corrections foretell of higher prices to come.

It has been some time since we said it makes since to buy the futures, but the market was providing all the necessary input from which to make an informed decision, as we have been advocating to wait for confirmation before entering. One thing we know for certain, the market is NEVER wrong.

(click to enlarge)GCZ D 3 Sep 12Click to enlarge