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Michael Noonan Edge Trader Plus Michael Noonan is the driving force behind Edge Trader Plus. He has been in the futures business for 30 years, functioning primarily in an individual capacity. He was the research analyst for the largest investment banker in the South, at one time, and he... More
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  • Silver And Gold - Keeping A Perspective At All Times A Little Update 0 comments
    Oct 22, 2012 5:58 PM

    Monday 22 October 2012

    One of the reasons so many fail to be profitable on a consistent basis is due to "opinion-itus." When one learns to appreciate how the market advertises itself, its intent, the need for pervasive, mostly ego-driven opinions disappears. We often say, "Let themarket lead, and then simply follow." Admittedly, at times that isnot very easy, but when not easy, it is also a market message to exercise caution, maybe even just stand aside.

    Opinions lead to a bias as to market expectations. Once a bias develops, one then watches market activity from the perspective of the market "agreeing" with one's bias. When market behavior develops in a contrary fashion, the bias tells one's mind it is just a matter of time before the market "recognizes" what it is "supposed to do!" The tail is now trying to wag the dog. Egos can be very expensive.

    We outlined how the market remains bullish in the larger time
    frame[s], but has diverged in daily and intra day time frames. [See yesterday's Commentary, "Interestinger And Interestinger.
    Sentiment, in the Short Run, Can Be Costly," click on
    http://bit.ly/PKHTw0]. What is sentiment, after all, but a form of bias?

    This is a small update to that Commentary. It is okay to have a bias, but only after one has a fixed set of rules from which to engage the markets. Always remember: Rules trump ego. In the last comments, we showed the HOW price bottomed on the 10 minute charts, use the above link to access them, and we also stated that the intra day time frames are not very reliable, but ultimately, a change of trend will start on the smaller time frames, best considered in retrospect as a confirming tool.

    We look at the daily, a day later, and the support channel line is holding, at least for now, but that is no reason to buy. When to buy was partially addressed in the introduction, above. One, often many, has the "opinion" that price has bottomed, and the time to buy is NOW! NO! It is not!! Let the market PROVE a trend change is occurring...it always does. This means one may not buy nearer the bottom, but once confirmation is in place, the odds of getting long and losing are reduced considerably, and buying and selling are all about the odds...the higher probability of success following the market v the higher probability of a loss by following one's "opinion" of what the market "should " do.

    The numbers on the chart count the correction bars down. In a bull market, corrections usually last 2 - 3 days, sometimes up to five. We are seeing only 2 -3 day corrections in a daily downtrend, and that tells us that we are seeing corrective action, not the start of a new trend lower.

    The upper channel line needs to be broken to declare that there is a trend change. Here, the interplay between various time frames can be used to advantage for timing one's entry. Right now, there is no
    advantage.

    (click to enlarge)SIZ D 22 Oct 12

    When you keep the market in a context, you begin to see the pervasive logic throughout the varying time frames and market moves. Anyone with an "opinion" from the daily chart that silver can be bought, after all one does not want to "miss the move," is operating from a false premise.

    A look at the intra day activity shows the smaller time frames have not yet turned up, and taking action contrary to market trends always increases the tuition costs of trading in futures. This is not to suggest the use of lower time frames to trades the markets, but merely to show why buying higher time frames against even smaller trends is unwise.

    Another point to remember is, more money is lost trying to pick tops and bottoms than anywhere else. Pick your company wisely. The herd is most always wrong.

    (click to enlarge)SIZ 60m 22 Oct 12

    You see the same number of corrective days on the relatively stronger gold chart, as well. We particularly like the price activity of the past two trading days. They are attempts to go lower that are failing, and are failing at potential support, closing above support. Combined with yesterday's observation on the 10m bottoming as a culmination of a steep price drop, the lack of downside follow-through becomes more significant as an area to watch for additional confirmation that a change is possible.

    Keep in mind, what we are doing here is examining the factual market activity and applying logic to understand the developing pattern[s]. These are the clues one needs in order to formulate a game plan for implementing one's rules of engagement.

    (click to enlarge)GCZ D 22 Oct 12

    As with silver, the intra day chart has not yet confirmed a turnaround. Our analysis suggests one may be forming, but that is merely an opinion. Trading rules require more specific and positive activity before any trading from the long side can occur.

    Rules, logic, and patience...a potent mix that too many mix up, or simply ignore, at great financial peril.

    (click to enlarge)GCZ 60m 22 Oct 12

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