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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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  • Silver - Appears To Be Undergoing Accumulation. Needs To Be Confirmed. 0 comments
    Feb 14, 2012 1:32 AM

    Monday Evening 13 February 2012

    Put away all the news, opinions, biases, etc, and let the market do the talking, for it is the most reliable indicator of what is going on. The market is the arbiter of all the active participants entering buy and sell orders. Each bar range shows how active a market is, and each bar close tells us who won the battle between buyers and sellers. Forget about listening to talking heads on financial news networks, for they have no original thinking beyond the teleprompter that force-feeds what they report.

    The "story" on silver starts with a read of the monthly chart. We have talked about spacing before. It occurs when a recent swing low stays above the previous swing high, leaving a space between the two. You can see the high of March 2008 with a horizontal line extending to the left. The most recent swing low was in December 2011, well above the 2008 swing high. Spacing relates to the character of a market, and its implications are bullish.

    The concept of spacing reveals how buyers are entering the market at the recent swing low, not waiting for a retest of the 2008 swing high, leaving the space between the two. In other words, buyers are now eager to buy at the current lows. We should see surrounding activity supportive of that assessment, and we address that next.

    We have drawn in a down-slanting channel from the 2011 high, connecting with the September high, the upper channel line. The lower channel line is drawn parallel to the upper one, using the September low as the anchor, and extending into the future.

    The first observation we can make about the channel is to note how price did not go to the channel line at the December low, and moved away from it, instead. This is an indication of some underlying relative strength within the channel, as it still points down.

    The next important observation is the low of December. It barely penetrated the previous September low. This tells us that there were NO sell stops of any consequence under the market, and sellers were unwilling to keep selling at lower prices, especially when sellers had been so dramatically in control as price had cascaded down from $50 like a waterfall. Where were the sellers?!

    Now, compare the December range size with the previous down ranges in May and September, both with weak closes, as well. December's range was less than half of the previous two selling bars. Why? As we can infer, using the analysis, so far, it seems that buyers have been entering the market, and the inability of the range to extend lower in December confirms that FACT. Since, January 2012 made a higher high over December, negating the whatever selling activity existing, at that point.

    Another observation that can be added is the overlapping of the trading ranges since the September low. Overlapping bars is an indication of a struggle balance between the forces of supply and demand, sellers v buyers. Where one would expect sellers to continue to be in control, since the $50 high, the market activity is telling us that sellers have lost that control, and buyers are steadily overcoming those forces.

    There is still work to be done for demand [buyers], to fully regain control, or else sellers will step up once again and try to drive price lower. So far, that has not been the case, for reasons just explained, and a look at the daily, next, to see how that lower time frame looks.

    SIA M 13 Feb 12

    As a simple starting point, we drew in a trendline from the April and August swing highs. A horizontal line is also drawn and extending to the right of the recent October high. Both lines converge into the
    future around the $36 area, so we can keep that in mind as potential resistance, should price continue to work sideways.

    A circle was drawn to encompass the October/November 2011 trading range, just around and above the $34 area, and that was when sellers last overcame buyers, stopping the rally and driving price to the late December low, also forming a double low, worth noting. The ellipse to the right captures the current trading range, just under $34, and it appears that buyers are absorbing the previous selling activity, necessary before price can move higher. Once that selling effort is fully absorbed, there is no further impediment for price to move higher.

    As with the monthly chart, the daily also has its own developing story. Of importance is HOW price has responded since the important September low. Instead of continuing lower, price has developed into a trading range. This tells us that the selling effort has been arrested, buyers have been seeking to exert control, and sellers appear to be giving way. The sideways trading range is a form of stopping action, letting us know the downtrend has stopped, and a trading range has developed.

    The significance of the developing trading range is that it provides the dynamic for a turn in trend, first from down to sideways, and that makes it easier to turn the trend up. In a trading range, not only are buyers absorbing all the offerings of the sellers, but new buying is developing at the same time, and it is the combination of the two that can propel this market higher.

    Next, we drew a channel from the December low, connecting the lower channel line with the low of that wide range bar just above $30 in the second half of January. A channel line parallel to it was
    drawn from the 3 January high. We can say that the current daily trend is now up, even though the monthly trend remains down in its channel, at least for now.

    What is difficult to see on this daily is the fact that there is spacing between some of the smaller swings within the channel. Horizontal lines are drawn off the recent trading range high and low. A few days ago, the lower support channel line was broken. Some may construe that as a sign of weakness, but it would be missing some more cogent information developing on this chart.

    After a rally, it is normal for price to correct by retracing a portion of the recent gain. What we see here is consolidation, and not a correction lower, and that is an indication of underlying strength. Sellers are simply unable to get buyers to give up any ground. In fact, and most everything we have been showing is based upon market FACTS, two of the strongest volume bars were on days with a lower close, BUT there was NO further downside follow-through. Those seemingly sellers days are actually buyers trying to cover their tracks while accumulating long positions, anticipating the next phase to be markup, or higher prices.

    Remember, all of this activity is occurring ABOVE the previous swing high that left bullish SPACING behind on the monthly chart. What we need to see now is confirming action in the form of increased
    volume on a wide range rally with a strong close that breaks out to the upside. No one knows WHEN that may occur, but we sure know how to look for the signs as it occurs.

    A 60 minute chart is not all that germane to the overall stage setting, for intra day time frames are really more for timing trades than for basing a decision to buy or sell, but we include one anyway.

    SIA D 13 Feb 12

    We just mention that confirmation in the form of a strong rally bar, high-end close and increased volume is needed. Turns out, there is a perfect example of such a bar on the 60 minute chart, on the far left side. Note the size of the range and the fact that the accompanying volume was the highest 60 minute volume for that time frame, actually any time frame, in at least several weeks. When you see a bar like that, it is an indication of demand, buyers entering the market in a strong way.

    The market developed a trading range, after that bar, and look where the lows of the trading range have stopped...at the highs of that particular bar telling us how important the buying was for sellers have not been able to make any inroads to the downside.

    You can see within the intra day trading range, any selling attempts have been met and overcome by willing buyers, keeping the market at a consistently steady level, and that, too, is a show of relative
    strength, even on the smaller time frame.

    From what we glean, silver is getting ready for another advance, and one that is likely to be sustained. We now wait and prepare for confirmation.

    SIA 60m 13 Feb 12

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