Saturday 17 August 2013
Finally, a classic example on the importance of reading developing
market information, as shown in a chart!
For the past several months, everyone interested in Precious Metals,
PMs, has been deluged with never-ending fundamental information
about the unprecedented demand for physical gold and silver. Much of the information was compelling, yet, if anyone tried to buy into [paper] futures, it was a financial disaster, despite such strong demand for the underlying physical. It was the lying manipulators of the COMEX and
LMBA exchanges that made the differences.
Our constant advice was to buy, accumulate, and personally hold
physical gold and silver at any price, all throughout the decline from
2011 highs. The fundamentals dictated that strategy for so many
reasons, well beyond the demand situation, but just not in the
Fundamentals give the reasons for taking a particular action, but they
do not provide the critical element of timing. That has changed, at
least temporarily, and reading developing market activity, our constant theme, has finally entered the limelight. We use price, volume, and
time as the components for reading and timing the markets.
Just as a reminder, technical aspects like moving averages, RSI, MACD
Bollinger Bands, etc, are not a consideration in reading market
activity. They are artificial measures using past tense data imposed
upon present tense price as a means to "predict" the future tense.
We do not have any use for them. The market, itself, provides the
best factual information available in order to read its intent.
The most important piece of market information always starts with the
trend. Gold is now beginning to show signs of a potential bottom. It is
too soon to know for certain, at least on the monthly, [not shown],
and weekly charts. Absent a surprise "V-Bottom," when price rallies
like a sling-shot from the lows, it takes time for a bottom to develop,
so one is not being declared, as such. Instead, the weekly chart is
used for context, while the daily and intra day charts are more for
The 1500 area is important resistance, as noted. The circled small
Trading Range, TR, led to a wide-range decline bar, and the high of
that bar, along with the highs of the bars in the TR, forms a near-term potential resistance which is close to being tested. How price reacts
to that area will provide important market information. For example, if
ranges narrow on a decline in volume, that information alerts us to
likely resistance. If the ranges are wide and volume strong, the
resistance should give way. Now, a daily chart with greater detail.
This is the first time since price entered the 18 month TR, after the 2011 highs, that we can say the daily trend is up. It may be short-
lived, it may continue higher, we do not know how the next several
days/weeks will develop, but we can say for certain, at least for now,
there are reasons to trade from the long side.
After the mid-July absorption, discussed in other articles, there was a
strong breakout that stalled at obvious resistance. The market gave
some important information in how price reacted. It was a labored
decline in a market where prior declines were faster. The 11th day
bottom was small with a close on the high and above the previous
day close. That was the market telling us buyers had stopped
sellers during what has been a very negative price environment.
Note how price rallied with ease over the next 3 TDs, then a two-day
"correction," and it led to last Thursday's breakout rally, slicing right
through the resistance area. We use a 90 minute chart to show how
the market left numerous clues for taking action.
The steps are outlined, 1 - 5. 1 was a small TR that came from a
very strong rally bar on equally strong volume. The fact that price
consolidated, as opposed to correcting much lower, spoke to
underlying strength coming off the lows.
At 2, there is another strong, wide-range rally bar. Volume does not
show because it was during overnight hours, but the rally continued
right up to resistance. Price backed away and retraced to the highs
at 1, and formed a failed probe, at 3. [We took a small loss there,
stopped out on that failed probe, unfortunately, which happens.]
Price rallied back to resistance. It is not good practice to buy just
below resistance, where price stopped there again, on the 14th. What happened at 4 developed very quickly, and one had to be prepared to recognize events as they were occurring and react to them just as
The spike down to the low at 4 was followed by an immediate rally
back up on increased volume. That alerted us to a potential
shakeout, where price drops to "shakeout" weak longs and stops, just
before resuming higher. That this development was happening so
near a resistance area was a message that gold was ready to move
higher, according to information provided by the market itself. It was time to buy and buy now, if the read were accurate. The volume that
day was important confirmation that demand had just overwhelmed
supply. From lock-and-load at 1 - 4, it was time to "fire" at 5.
The knowledge of market manipulation and huge demand for physical
gold provided background that this market was due for a rally, but
almost all thought the rally should have happened weeks or months
ago. Finally, the charts, in reading the market activity, gave the when to act, with a low-risk entry. The timing for that window of
opportunity was about 10 minutes.
This is why we love charts and tout them as the best and most reliable source for market information and the most important element, timing.
The timing factor began a few weeks ago when the prospects of
absorption were covered. We stated back on 27 July:
"We choose now for buying and holding physical gold and silver. We
are on the long side in gold futures, but that can change on any givenday."
See Newton's Third Law Is About Ready To [Over]React. Be
Prepared. The last sentence of the article, click on
That last bar on the weekly chart speaks volumes, a gap higher from
apparent weakness. The odds of silver retesting 26 have increased
We often mention putting developing market activity into a context as it is the vital step in preparation for when a market moves. The
support-turned-into-resistance line is drawn as the market activity
dictates, which most often in not simply a straight line, used for
convenience and not necessarily accuracy.
The lower support/resistance line meant very little as price sailed right
through 21. It shows the importance of how price reacts to an
anticipated resistance. Obviously, when it goes right through, the
market is telling us to expect higher levels. Silver is already testing
the higher resistance line, just above 23.
The "D/S" designates Demand overcoming Supply, evidenced by the wide range up bar and on sharply higher volume. It could not be any
clearer that demand, [buyers], took charge. 23+ may act as
resistance, but that volume and rally getting there suggests it could
You can see the day of the gap that was shown on the weekly chart.
That was one of the market's stronger messages, emphasized even
more by the next two days, a consolidation in the form of a rally and
not just sideways, as normally occurs.
The first time we recommended the long side in silver is indicated,
based on a short-term read of developing market activity, back then.
It is included as background to inform that the buy signal from last
Thursday was not the first, but it was a much better one.
Timing for buying silver that day, just as with gold, was very short,
and one had to respond on instinct and not sit back to assess the
developing information. That "instinct" actually comes from the
necessary preparation work and not simply "shooting from the hip."
As the steps were shown in gold, they existed for silver, but silver
had been stronger from the "signs" indicated.
As a rule, a trading unit is a minimum of two contracts to enable "half-
position" action. Silver reached a potential resistance area on Friday,
and taking partial profits on a half-position was warranted. If price
moves higher, the other half still gains. If price corrects lower, the
"locked-in" half-position takes advantage of a higher prior to a
potential correction. This is a form of money management, on our
It is not always this clear, but when the market "talks," we listen, for a reason.