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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 - Chart Reading More Accurately Depicts Fundamentals/Technicals 0 comments
    Jan 25, 2014 2:51 AM

    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
    volume.

    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,
    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
    demand.

    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
    futures market].

    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-
    pickers.

    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.

    GC W 25 Jan 14

    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.

    GC D 25 Jan 14

    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
    chart match?

    SI W 25 Jan 14

    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
    trend.

    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
    can happen.

    SI D 25 Jan 14

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