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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 - Call For Explosive Upside In PMs Misplaced 1 comment
    Feb 1, 2014 2:45 PM

    Saturday 1 February 2014

    So far, January 2014 has become a part of the failed rally for gold and
    silver that was so widely expected in 2013. That has not stopped the
    renewed enthusiasm for 2014 being THE year for the long awaited
    rally-to-the-sky. Anyone who reads our commentaries on a regular
    basis knows that the most reliable source for what the market will do
    comes from the market itself.

    The contention here is that almost everyone's focus is misplaced, and
    the reasons why gold and silver remain at low levels are not being
    given their proper due. It has to do more with the battle for world
    supremacy than anything else, a topic for another time.

    The fundamental news has not changed. In fact, the shortages for
    gold and silver increase with each passing month, and with each
    passing month, the MARKET has been telling a different story, as in
    the trend remains down. Before gold and silver can rally, they first
    have to stop going down.

    It is not that the fundamentals are flawed; facts are facts. The biggest issue has been one of timing, and unless and until you see a huge rally over 1400 in gold and 26 in silver, you are likely to see February and
    March pass along like January just finished.

    Not everyone is interested in charts, we accept that and can
    understand why, given the way many charts are presented, more for
    sensationalism to back up a catchy headline for an article than for
    realistic content. People who make predictions are blowing smoke in
    the readers face. All the "predictions" for 2013 should be sufficient
    proof, yet the pattern has already started to be repeated for 2014.

    Not everyone can properly read a chart. It takes years of concerted
    effort, and most people want easy answers in a few brief sentences.
    What almost everyone has is common sense, and the markets are
    replete with logic that makes sense. It can often take an art form for
    analysis, but if you are willing to put aside any predisposition about
    looking at charts as a waste or too foreign to understand, then try to
    follow the logic of what is presented, and you will have a more realistic understanding of what to expect, moving forward.

    We have 8 charts, 4 for gold and 4 for silver. At no time will there be
    any discussion of any fundamentals, severe shortages, calls for much
    higher prices, etc. The charts do not show any of that, at the
    moment. In fact, they tell a story that makes sense. The story may
    not appease the need for hearing how gold and silver are going to be
    X amount higher, sometime soon.

    History is on the side of failed paper fiat currency, while gold and
    silver being among, if not the best assets to succeed in a big way in
    the wake of paper asset demise.

    The two down sloping TLs, [trend lines] show market direction, or
    trend, and we know logically that trends perpetuate and only change
    gradually, for the most part. There is a 50% line shown on the chart. Generally, when a market cannot regain above the half way mark
    within a trend, it tells you that the trend will continue, directionally.

    Wide range bars and stand out volume bars are important market
    tools. Very often, a wide range bar will contain future price
    development for some period of time. Last June was a wide range
    bar, shown on the chart. All of the past six months have been trading
    within the high and low of June's range. The point is, when you see a
    wide range bar on a chart, the probability is for price to be range-
    bound by it for several periods into the future.

    Another way charts inform is by observing how many bars in a rally,
    and how may bars it takes to correct the rally. From the June low,
    there was a 2 bar, [2 months] rally. The correction, or retracement of the rally took 4 bars, or twice as long. This tells us that it was easier
    for buyers to rally the market than it was for sellers to force it down,
    taking twice as long. This piece of logic tells us buyers are stronger
    than sellers, at that point in time.

    The opposite of a wide range, which shows ease of movement, is a
    small range bar, one that makes very little directional progress. The
    last bar in the decline had the smallest range. What that tells us is
    that buyers were more than meeting the effort of sellers, and that
    effort on the part of buyers prevented the range from going lower.
    From that, we know demand is in greater control. If demand is in
    control, the market should rally.

    Essentially, what we are doing is putting little pieces of a puzzle
    together that should tell some kind of story.

    No matter what you hear or read about gold and the prospects for
    substantially higher price levels, the trend is down, exactly opposite of what you know. When you compare what you know, an opinion, with
    what the market is telling you, the market is a more accurate
    measure, however counter-intuitive it may be to your opinion[s].

    GC M 1 Feb 14

    We can see from the weekly charts that gold remains in a relatively
    weak status. It is both under the TLs and the 50% mark. However,
    there was an interesting development in the weekly range just ended. We said sharp increases in volume can be important. Last week was
    the highest volume since the June 2013 low. There is not a
    substantial difference in the two volume levels, yet compare the range for last June with the range for last week.

    Last week was about 1/3 the size of the June bar. Here is where logic
    come in. If there was almost as much volume last week as last June,
    but the size of the bar was so much smaller, then we can gain an
    insight into the character of the market. The same volume effort
    produced less downside results, and not a wide range lower as
    occurred in June.

    This is a red flag. Why was the range smaller?

    Because buyers were much stronger than sellers and this prevented
    the range from extending lower. We are getting information from the
    market that says sellers were unable to push price lower, as they did
    last June. If buyers can sustain that caliber of effort, it will lead to a
    rally, and eventually, a change in trend.

    GC W 1 Feb 14

    Changes in trend appear on the smaller time frames first. Price is
    under the TLs on the monthly and weekly charts. On the daily chart,
    below, price has broken the TL down and is now moving sideways.
    The lead month for gold futures is now April, so the previous volume
    activity was stronger in the February contract, and the volume prior
    to last week is not reliable, as viewed on the April chart.

    There was a wide range bar to the upside, [arrow 1], and that
    indicates ease of movement to the upside. It started a 3 bar rally,
    followed by a 5 bar decline. In other words, it takes more time and
    effort for sellers to correct the last rally. Look at the high volume for
    the bar [at arrow 2], and it is a relatively wide range bar lower. What
    would be expected is for the downside momentum to continue, but
    that did not happen, as we see in bar 3. This is also a red flag,
    alerting us to a market imbalance.

    In fact, we took a small long position near the close on Friday, for
    reasons just cited, and also from looking at an intra day chart, not
    shown here, but we do have one for silver.

    GC D 1 Feb 14

    NUGT is a 3X bullish gold ETF. We took a look to see what the market
    sentiment was in that more leveraged arena. When we last looked at
    it, several months ago, it had flat-lined. There appears to be some
    change in sentiment over the recent few months.

    What stood out in price was how the market hugged the lows, and
    January turned into the opposite, as price was now hugging the
    resistance area. The long price holds, without backing away lower, the odds favor an upside breakout as buyers are absorbing the sellers.

    The volume backs up the price activity. During span "A," while price
    was in decline, volume was relatively lower than when price
    subsequently rallied during span "C." This tells us that demand has
    been greater as price rallied, a bullish development. During span
    "B," volume was at the relative highest, and this tells us smart money
    was accumulating long positions, in preparation for a mark-up phase.

    The stage is being prepared for some kind of rally in gold. We do not
    know how much of a rally, in advance. Instead, we look for signs of
    buying activity, like the absorption in NUGT. Once price breaks out to
    the upside, that would be the trigger to be long ETFs and futures.

    Anyone buying paper futures, based on the very bullish fundamentals
    for the physical, has been taking a beating, as it were. By simply
    paying attention to the trend and other pieces of market information,
    there has been no reason to be buying futures. A read of what the
    charts have been saying has kept one from taking unnecessary risk
    exposure and losses in trading.

    NUGT D 1 Feb 14

    The same market logic prevails in silver as we just saw in gold. The
    very small range for December was a red flag bar, a warning to sellers that buyers were stronger, evidenced by an inability for sellers to
    extend price lower in a down trend. This is a clear market message.

    January, last bar, failed to continue lower as it formed a higher high
    and a higher low. We take that information to see how it translates on
    the next lower time frame.

    SI M 1 Feb 14

    By itself, last week's performance suggests price should go lower. A
    look at the next lower time frame, a daily chart, should be more
    informative.

    SI W 1 Feb 14

    Clearly, silver has been locked on a TR since mid-November. A
    question that arises is, why have not sellers been able to push price
    lower? Activity for the last half of January shows a labored effort by
    sellers. It is taking twice as long to decline as it took to rally, and
    that suggests buyers are in greater control down here than sellers.

    We do not often show intra day charts, even though we watch them
    closely every day. A long position was recommended at the end of the day. The intra day chart better shows why.

    SI D 1 Feb 14

    You already now know that wide range bars and high volume bars are
    important to watch. At number 1, there is both, combined. The
    reason high volume bars are so important is because the volume is
    generated by smart money usually seeking to establish a position.
    Smart money buys low and sells high, and it is the public that is
    always on the other side of the trade.

    The analysis is labeled and explained on the chart. We leaned on the
    high volume and wide range bar as a reason to take a long position.
    With price so near the bottom, we are able to keep risk low, in the
    process. A rally above 19.20 - 19.30 will confirm the analysis, which
    is nothing more than a process of applying logic to developing market
    activity.

    SI 20m 1 Feb 14

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Comments (1)
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  • Robert Edwards
    , contributor
    Comments (557) | Send Message
     
    Well thought out analysis. I concur that there are many signs of accumulation by bulls and prices should be moving up shortly.
    1 Feb 2014, 03:05 PM Reply Like
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