Saturday 25 January 2014
Is there a difference between fundamental analysis v technical analysis?
A qualified yes. How so qualified? We do not speak for others, not even from the "technical" camp for there is a distinct difference between strict technical analysis and "reading" a chart based solely on price and
We are not fundamentalists, at all, with emphasis on at all. Nor are we
technicians, as most technical analysts, [TA], are. TA rely upon a few or several technical tools as a means of interpreting the markets, such as
moving averages, [even used by fundamentalists, to a degree], RSI,
Bollinger Bands, MACD, trend lines, overbought/oversold indicators, etc,
What we use exclusively is a combination of price and volume and read
within the context of the prevailing trend, for whatever time frame,
monthly down to intra day. The range of a bar tells the ease, or lack of
market movement. The location of the close says who won the battle
between buyers and sellers. When volume is added into the mix, the
market begins to take on life, of sorts, that fleshes out the actual ebb
and flow of the tug-o-war between the opposing forces of supply and
Fundamentals are an attempt to discover and measure the factors of
supply and demand. The biggest problem with any such analysis is one
of timing. There is none. The other issue is the degree of awareness of
which fundamentals are the biggest drivers; some may not be known or
even recognized, leaving any such analysis incomplete.
Admittedly, we know nothing about fundamentals, by choice. What we
know of them is that they are fully incorporated into the charts by those
who know what they know and ultimately make a decision to act upon
that knowledge. That action gets translated into price and volume. It
matters not if it is widely known information, insider information,
market manipulation, what have you. It has to show up in executed
price and be a part of total volume. Once information enters the market in price and volume, it is a "got ya" moment.
As to the more commonly recognized technical analysis, every tool is a
derivative of price and volume. We simply choose to focus on the purity of the information in its original format. Derived technical tools are all
attempts to impose past tense market information onto the present
tense in an effort to "predict" the future tense.
It is absurd for anyone to "predict" any future market action, especially
the ones that say when price is going to rally or decline, and those that
show a chart depicting the future course the market will take. Please
stop, or at least review your own results.
The future has not yet happened. There are aspects about the market
of which we are certain: Anything can happen, at any time. Every trade potential is a unique event. Markets may appear similar, but the players
in the current market are very different than the ones from a similar
past situation. How price will develop into the future is unknown and
cannot be known in advance.
The market is based on probabilities, outcomes that are likely to occur,
and however likely they are to occur, no one can know how they will
unfold. You have a history from the past two years of endless
predictions on where the prices of gold and silver would be. We have not kept a scorecard on the silliness of how wrong so much respected talent, and lesser, varying degrees of not so much talent that have totally
missed the mark.
Where do we stand in the overall picture? We thought gold and silver
would be higher, and we have advocated the purchase of the physical
metals, for reasons explained, but we have not advocated trading gold
and/or silver from the long side, [save a few short-term trades that
were qualified as to why]. The only reason why the futures markets
were shunned from the long side was for the simple reading of the
charts: the trend has been down.
The primary reason for owning the physical has been as a form of asset protection, and that has not worked well for the past few years as the
value of silver and gold have been on the decline. Go beyond just the
past few years, however, and the value of the PMs have done very well.
Have other asset classes performed better? Absolutely! It then
becomes a matter of personal choice if one wants to own PMs, stocks,
real estate, Bitcoin, even fiat currency. Some assets will always
outperform other assets. Gold and silver happen to be in a class of their own, with a proven history, not always as the best protection, at times,
but proven consistently, over time. They have no third-party counter-
risk, and they are perhaps the most recognized and widely accepted
assets around the world, bar none.
As to the current charts, we are starting to see some subtle changes in
market behavior. The trend remains down, and we are not making a
prediction that the trend will change next week, next month, or
whenever. It does not matter. [Now we are referring to the paper
The sole purpose for trading futures is to increase one's capital of fiat-
based assets. There is always risk of loss, as many know. For us, and
for those who want to grow their capital, the best time to make a
market commitment is with the trend. There is no reason to be long in
a declining market, and the number of profitable longs in either gold or
silver has been very small over the past few years, a handful of bottom-
As an aside, re bottom-pickers, there is almost nothing worse than being right for the wrong reason. It leads to bad habits of trying to replicate
the lucky event. Luck always runs out.
When the trend turns up, there will be ample opportunity to be
positioned from the long side with a lower risk and a higher probability
of a profitable outcome, but never guaranteed. There is no need to
guess. There is no need to predict. Let the market take its course, and
then follow its confirmed direction
Will you catch the bottom? No. [Care to guess how may have tried
and succeeded in the past few years?] If you can consistently catch
profitable trades, with the trend as it develops for at least many months
and more, does that not make plain common sense?
Price is knocking on the down trend door in gold, but that does not
mean it is knocking that door down. It takes time to turn a trend. We
show gold testing a small 50% range. There are two higher half-way
points that price has yet to approach, so despite a decent rally, last
week, the trend has not turned. How gold corrects lower over the next
week or two may well provide some important trend information.
Given how no one knows how the market will correct, it is best to wait
and see what the market reveals, first.
The daily shows in detail why gold was expected, [not predicted], to run
into resistance at the 1260 - 1270 area. Always think of support or
resistance as a price area and not just an absolute number. Thursday's
wide range, high volume bar was likely a combination of short covering
and maybe some new buying. What will be key to watch is how price
retraces this last rally effort.
If the market intends to go higher, the next correction will have smaller
ranges and lighter volume, indicating less selling pressure. If price
corrects on increased volume and wider ranges with weak closes lower,
then the down trend will remain intact.
Let the market declare itself.
A Tale of Two Metals. Silver acts differently than gold. It is clear that
the trend remains lower with no sign of buyers taking control. A picture
of 1,000 words to which we need not add.
As an aside, how does one reconcile this chart with the fundamentals?
Everyone claims the fundamentals for silver are ultra-bullish. Does the
Silver has work to do to turn the trend around. Looking at the daily
chart, in some ways it would not take much effort to end the down
There are no guarantees that physical silver and gold will continue to be
available at current prices, maybe not even at any price until it adjusts
to a higher level. That is the risk everyone who want to buy coins and
bars takes, while waiting or trying to get a better price or simply trying
to outguess the market.
Everyone knows the vaults for physical-by-the-tonne are like Old Mother Hubbard's cupboards, and the premium for higher amounts of gold, to
the extent any is available, continues to grow. No one knows when the
available supply for physical- by-the-ounce will also tighten. Anything