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Gold And Silver - Follow What The Market Says And Not What Others Say About The Market.

Sunday 13 January 2013

The article title is a wise message from a voice in the past. The best
way to follow what the market says is to read its net effect as derived from the collective of all market participants that have made a buy or
sell commitment. If it does not show up in the chart, then what is
being expressed is an opinion about the market.

When one takes this approach, letting the market lead, there is no
need to wonder what to do next. Present tense developing market
activity, combined with a fixed set of trading rules is all that is needed. It is then a relatively simple matter of viewing a market from different
time frames to see what is being "said." We like to start with a
monthly to know what the prevailing forces are doing because higher
time frames tell what "smart money" is doing.

Whenever you see an unusually wide range bar, pay attention for it
can be making an important statement. Very often, a wide range bar
will lead to a trading range, bound by the high and low of the bar. We
see that has been the case in gold for the past 16 months. The
unanswered question is, are we seeing distribution that will lead to
lower prices, or is this re-accumulation in preparation to go higher?

The answer to that question will come from reading clues left behind
by market activity. If an answer is not apparent, and many times it is
not, then more information is needed, and it will come. This is where
patience is required, not trying to anticipate what may happen, but
wait for clearer direction. The market never disappoints.

One observation is how the past four months are more of a labored
decline, no wide range bars down like we saw back in September and
December of 2011. We have commented about this before: four
months down, correcting the previous two rally bars. The market is
taking twice as long to retrace past gains, without fully retracing
the entire gain.

Markets are replete with logic. In a horse race, if one horse covers
ground from point A to point B, and another horse runs the same
course but takes twice as long to get from point B not quite to point
A, which horse is showing the most promise?

GCG M 13 Jan 13

Once you see a "story" develop in the higher time frame, it is easier to
then look at it from a more detailed perspective. The weekly provides
the same information but with more focus. We learn that the market is
most recently in a down trending channel within a trading range that is also within a much larger trading range, a bit like Russian nesting dolls.

The message is clear, and it is simple: There is no sign of a trend
change that would take price higher. Before gold can go to $2,000,
$3,000 or wherever, would you not agree it must first prove it can get
above $1,800? This is not a chicken/egg dilemma. Price right now is
stuck on Marvin Gardens, not even close to "Go."

GCG W 13 Jan 13

From Monopoly we will switch to Aesop's Fable, The Ant and The
Grasshopper. In a trading range, the grasshopper is busy chasing up
and down swings, while the ant is busy preparing for what is to follow.
How to best prepare? Read the activity and see what the market is
saying.

Most traders only look at daily charts and intra day time frames, a little like a blind man trying to describe an elephant by touching a few parts
of its body. [Ugh! Will these analogies never end?! They do serve a
purpose.] If you looked only at this daily chart, you would not have as
strong a sense as to how much overhead resistance there is before
a move of substance can get underway. Still, we can see early clues
before they show up on the weekly and monthly charts.

The most important information we can see is how the downside
thrusts are making less progress by comparing the distance each swinglow has made from the last swing high. Here again, logic tells
us if the effort expended to go lower is making less and less
progress, it is possible that sellers are running out of the ability to
keep price down. We see that at the last low, 3 on the chart.

The sharp increase in volume, and the location of the close tells us
that buyers were more in control than sellers, and price did rally from
that low. The "buyers" are most likely shorts covering, and maybe
some bottom-pickers, but it is not fresh new positions that are being
established.

A point to make about the down channel: The upper line is solid, while the lower line is partially broken. We did that so you can see how past
action can often lead you to where future action becomes important.
The top line is drawn across the swing highs of October and November.
The lower channel line is created parallel to the upper channel line,
using the swing low between the October/November highs as the
anchor, and extending the line parallel, into the future.

If you were to cover up the market activity to the right of the
November high, and see how the line from the November swing low is
extended into the future into January, and then uncover the price
action since the November high, the broken line was established before
price activity lows of December and January. The bottom channel line
represents an oversold market condition. What is key is to observe
how price responds to it.

The reaction at 3 was relatively strong. Now, we get to watch how
future market activity develops within these chart contexts. The HOW
of developing activity will tell us what to expect, moving forward. For
right now, the market is not sending any clear signal that the current
trading range is over. None.

As always, for buyers of physical gold, the timing is now, at any price.

GCG D 13 Jan 13

We see a similar situation in silver, but from a slightly weaker
condition. The one plus to offer is the fact that over the last 16
months, sellers have not been able to establish any important lower
swing low.

SIH M 13 Jan 13

We already know silver and gold are locked in a trading range. Still,
gathering information will help make a determination of what to do and, as importantly, when. Trading ranges tell us the "when" is not now.
[TR = Trading Range].

What to do is answered from the trading range clues, and the start is
that the TR began in a declining market. The failed retest rally high,
August 2011, led to a strong move lower in September, the wide range bar down. At some point in the future, that high will be retested by
buyers and defended by sellers. How price responds in the retest will
say a lot about the then market strength or weakness. A horizontal
line is drawn to show that price level at a future time.

There was a retest of that decline at the end of October 2011, and a
failed probe at the end of February 2012. Markets are continually
testing and retesting important areas, and it is critical to observe how
price responds, for that is the market telling us whether a market is
strong or weak. There are three failed probes in the trading range, but there are also three successful holds at the bottom of the trading
range. We get know who will win the battle as price moves farther
along the Right Hand Side, [RHS] of the TR.

We do not yet know if the current retest of the August 2012 rally bar
is significant, so we watch it to see if price gains upside momentum,
leading to a RHS breakout of the range, or if price will retreat back and remain in the TR, or even breakout to the downside.

Here is where it is important to watch what the market says and not
what others say about the market. All the clamor for higher silver
prices is ignoring what is going on in the present tense, and it says:
silver ain't going anywhere higher, yet. Put sentiment aside and deal
with what is.

SIH W 13 Jan 13

The daily picture echoes the higher time frames. The first possible
glimmer of a change in market behavior will come when price can rally
above 31.50, on wide ranges, strong closes, and increased volume,
followed by a weak retest that leads to another swing high.

There you have it in a nut shell.

Last month, we commented on our website that a low-end close on a
wide range bar can sometimes lead to a change. That was pointed out in a December Commentary, [click on http://bit.ly/U285PF]. It was a
follow-up to the first reference to that kind of situation, a few days
earlier, [click on http://bit.ly/YmRoVb] for some market insight. The
failed probe lower, on volume second only to the December low-end
close, is a red flag for bears. We need to see more positive developing market activity, like what was said in the above paragraph, to
determine if some kind of change may be starting.

Buy the physical, without concern. Wait on the futures. The market
says so.

SIH D 13 Jan 13