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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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  • Gold And Silver - Follow What The Market Says And Not What Others Say About The Market. 0 comments
    Jan 13, 2013 6:24 PM

    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

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