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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 And Gold - Forget Fundamentals And Opinions. What Is The Market [Collective] Saying? 0 comments
    Jul 15, 2012 3:45 PM

    Sunday 15 July 2012

    We are at the half-way point of July with little new information as a guide, other than saying weakness is still apparent but weakening, yet demand is even weaker. Most people have some idea of the underlying fundamentals, of the over-lying from governments and [non]regulatory agencies, and there is never any shortage of opinions. From the limited perspective and understanding of these external market influences, our adament belief remains that the BEST source of information comes directly from the market itself.

    The problem with fundamentals is that they are subjective and
    subject to change. Think back to how stocks were viewed fundamentally, i.e. from a price/earnings perspective, among many others. After the market free-fall in 2008, the "fundamentals" had no relavence immediately post-fall. The "Game" had changed, as did the mostly useless and even more subjective "opinions" espoused by anyone with a platform.

    Our sole medium, charts, did send warning signals, and the relatively few able to read them were saved from the equity vacuum. Our service was not online around that time, so no comments will be offered, lest they be viewed strictly as hindsight. We were not then a messenger but was aware of the message.

    The market is a collective of all PERTINENT information that has made a distinct VOTE, in the form of buys or sells. The distillation of this collective shows up in each bar, in every time frame. Why are these "votes" the only ones that are "pertinent?" They have converted whatever "opinion[s]" they had into reality by choosing to buy or sell, and every buy/sell is permanently registered on a chart. There are no "clawbacks" in these DECISIONS, [for they are no longer mere opinions, which CAN be changed]. Our job is to assess the collective market decisions because they ARE the market. They are the result of the best minds with the most information garnered to reach an informed decision. Of course, there are always the rash, the uninformed, and the ill-guided thrown into the mix, but they do not MOVE a market directionally or maintain a trend. So, to the COLLECTIVE we go!

    Where most people go wrong in trading futures is in the fruitless endeavor of predicting that which has not yet happened. The point we make in reading charts is to FOLLOW the direction of the information they provide. The best time to follow their lead is when you get confirmation, which usually happens in one form or another, and we provide some examples in a few of the charts below.

    What charts do is put price behavior into a context, and there are numerous RULES to apply to specific pattern behavior[s] evidenced in a chart. This eliminates guesswork, and it reduces risk exposure. There has been little reason to take a position from the long side in gold or silver for quite some time. This does NOT apply to consistent accumualtion of the PHYSICAL metals, silver and gold, for that is entirely different, and timing is much less relevant.

    The monthly silver chart shows price in decline since the April 2011 $50 high. The decline weakened, once it approached the $26 level. [We speak of levels and NOT absolute prices when using a number.] There has not been a new low of any consequence since September 2011, so the net downside progress has come to a halt, and this is what the charts show.

    The $27.50 area, +/-, has been significant for closes since November 2010. From that period of time, there has been a blatant assault on long silver positions, primarily by one major firm that enjoys freedom of scrutiny from government and regulatory agencies, and in fact is actually abbetted by both government and agencies in their dealings. Obama has said, generally, of Wall St, "What they do may be immoral, but it is not illegal." [This is the same Obama who said, if elected, Wall St should fear him.]. As far as regulatory coverage, it has been confined to watching porn, on the record. Fraud is rewarded via large bonuses. Oh, again we digress. So easy to do in the days of "Get Out Of Jail Free" cards issued to all Wall Street bankers.

    July is now half over, and we do not know where the month will close, so the clustering of the previous two months around the $27.50 area may differ by then. Rather than guess, it is best to wait for some kind of confirmation, either higher or lower, before making any decision[s]. Of course, monthly charts are not used for timing, anyway, but they are followed more closely by smart money than by the public.

    What the chart tells us is that selling has weakened, but demand remains weaker. Plus one, for sellers.

    (click to enlarge)SIU M 15 Jul 12

    We always say to watch HOW price responds to support/resistance areas. You can see that the last swing low in 2011 turned out to be the primary support for silver, moving forward. The rally from that low was immediate and steady. On retests 1 and 2, price reacted off support with more decent rallies. From retest 3, we see a different story. The HOW has changed. Always pay attention when that happens.

    Since the first retest low at 3, there have been eight more weeks of non-directional trading. While the support level has held, there has been an inability of demand to overcome the lack of sellers. This level may yet hold, no one knows, but odds favor at least a new lower low to see what lies underneath. A probe lower would uncover either new selling and continuation lower, or find a lack of selling, [beyond cleaning out weak sell-stops], and perhaps find renewed demand.

    This goes to our earlier premise of waiting for confirmation of an event, rather than trying to "predict" what may happen. For the past two months, most "predictors" have been wrong, on either side, and sideways activity is anathema for fool-hardy traders and bottom-pickers.

    Last week's small bar tells us there was little to no selling, judging by the close at the upper end of the trading range, but it also says that demand was weak because buyers could not extend the range any higher.

    (click to enlarge)SIU W 15 Jul 12

    The daily shows a clearer picture of the weekly. Note the small range on Friday as a follow-up to the fairly good rally on Thursday. Buyers were in control Thursday, but next day, the rally fizzled in both demand and volume. The most one can take away from the last several trading sessions is that since the rally on the last trading day of June, the correction down has been labored, taking twice as long to go down.

    It is still a coin toss as price reaches farther along the right hand side of the triangle formation where it is now almost at the apex.

    (click to enlarge)SIU D 15 Jul 12

    The case for gold, the undisputed king of THE true measure of value over time, [disputed only by the same governments caught in blatant lies and deceits, and by Keynesian economists whose very living depends on putting those lies and deceits into a presentable context. We except Austrian economics for "Best In Show." [Not that our opinion matters.]

    The very FACT that all governments have removed specie-backing from currencies, driven by central bankers, we must add, converting same into fiat, shamelessly presented as the best and only solution,
    should hit home with even the dullest of minds as a blatant confiscation of private wealth and an entrapment for the unfortunate masses. However, said known FACT has escaped most all capable minds, from the sharpest on down, evidenced by the continued use of not just fiat, but "digitalized" fiat. For as long as people use the fraudulent banking system and credit cards, the fraud will go on. It is axiomatic. Cognitive dissonance lives on!

    It was not enough that MF Global occurred, warning EVERYONE with money held by such firms, now we have PFG. There is NOBODY minding the store, and those in the store are stealing whatever they can. In fact, there is no one in charge anywhere. There are only accomodations made to central bankers and Wall Street henchmen. We are all experiencing first-hand what it is like when an empire declines.

    [These "editorial asides" all relate to the integral stage-setting for gold and silver to dramatically increase in value.]

    It would be fair to say that the chart of gold, ostensibly showing a sharp rise over the past decade, is really trumpeting the FACT that ALL fiats have DECLINED in their artificial "values." And for the bought-and-paid-for talking heads and print reporters that continue to absurdly assert that gold is not a valid value indicator, and that one cannot eat it, we say to them, paraphrasing Marie Antoinette: "Let THEM eat fiat!"** [See below]

    "But, but, with fiat, you can purchase goods and services!"
    [Not as much as last year, or the year before, or the year before that, etc, etc, etc.] [The fiat "dollar" has declined over 90% in purchasing power, relative to oil.]

    "Yes, yes, but with gold, one can purchase MORE goods and services!" End of story

    For the mainstream intelligence-impaired, [obviously excluding the gold and silver community], take a look at the monthly chart. The space between the last important swing high and the current swing low is enormous! The sideways correction, since the September 2011 high, has been relatively weak. Here is how reading the charts, and using them as the BEST source of information is helpful. We know from past experience that weak reactions lead to higher prices. Let us repeat, the reaction since the 2011 high has been weak.

    This is why we say to forget the fundamentals and/or opinions. The market is advertising the fact that HIGHER prices are in the making.

    Lying Ben can deny the value of gold as the most reliable safety haven, and the fact is that ALL central banks, the enemy of free markets, have been and continue to accumulate gold. What is Germany demanding in return for the loans being made to indebted countries? ONLY GOLD. They do not want any of the digital fiat crap they are lending. "Only gold, please." By the way, if these countries did not have any gold, do not think for a New York second that there would be any "bailouts." Ownership of gold is the end-game of these forced bailouts.

    Gold is wealth. Take away gold and an individual or a country has no wealth and then becomes dependent upon handouts. This is why almost 50% of federal citizens of the bankrupt corporate UNITED
    STATES are dependent upon some form of government assistance for living. To paraphrase Chuck Colson, Nixon's general counsel, "When you have them by the financial testicles, their hearts and minds will follow." This has been carried out by design, starting when Roosevelt, acting at the behest of the Moneychangers, forced citizens to turn in their gold, leaving them with no form of wealth.

    There will be another such decree. Count on it. Buy as much physical gold and silver as you can, and personally keep it safe, not in any bank where it will be subject to confiscation. Accept no paper form of it. Remember our quote from Jefferson in the last two articles: "Paper is poverty...it is only the ghost of money and not money itself."

    What this monthly gold chart is saying the loudest is, "Have faith."

    (click to enlarge)GCA M 15 Jul 12

    Nothing can be added to the comment on the chart.

    (click to enlarge)GCA W 15 Jul 12

    The daily chart is interesting for the story it tells, and it relates the story accurately. The overall picture for gold is bright, no pun intended, as the larger time frames demonstrate. It is but a matter of time, and for most, timing is key. For that, we look to the lower time frame, the daily.

    On the first trading day of June, there was a strong rally, evidenced by a wide range up, a sharp increase in volume, and a close near the top, all equating to buying entering the market and overwhelming the sellers. That, in and of itself is significant, but look what else that bar accomplished. It erased 16 days of selling effort in one fell swoop, The rally stopped just short of where the leg of the last decline began, from the previous trading range "no rally" failure attempt at 1640, the 6th trading day in May.

    What we already know about the metals is that they have been under enormous selling pressure, and the near-term trend has been down. It takes time to turn a trend around, and it is usually a mistake to buy the first rally off any low. What we need to see is HOW the market reacts to this strong rally on the first trading day of June, and the reaction appears promising, 5th bar after the strong rally bar under discussion. It probed lower, did not find any more sellers, retested the low of June and closed on the high. Encouraging.

    An aggressive trader could take a position on that close. A conservative trader would wait for a successful retest of that bar before going long. A retest never happened. As the rally unfolded, it started out well, but on successive days, the ranges were getting smaller and the net progress was less and less. The rally ended on the 5th day, just under the important recent resistance 1640 level, and it became a failed retest of the initial rally to the 1640 area, two weeks earlier.

    We talk about confirmation. Here are some examples that demonstrate their importance to market knowledge. The trend is down, so rallies are more prone to fail. The first rally from June failed where the most recent decline began, as mentioned above. The next rally, which we just discussed, failed under the last high, and the bar was the smallest of the five day rally, with a close mid-range. That gave us important information, [from the market itself!].

    The smallest range of the rally stopped under resistance with a mid-range close. The trend is down, so we know buyers have to prove themselves. They are unable to extend the range higher, and the
    close tells us that sellers were present at the high of the rally. We now have strong clues that the rally may be in trouble, as buyers prove to be "unable."

    This is CONFIRMED by the next two day's activity. [For clarity, we are looking at the bars that failed to reach 1640, and they are under the words "Lower high.." of the last sentence above the horizontal
    resistance line at 1640]. The day after the first failed high, we see a wider range bar with a close at the high of the range. One would think this is bullish, but look at the results. For all the effort and "strong" close, it was under the opening and just under the previous day's close. This was the market sending another warning of a flagging buying effort within a downtrend.

    The final confirmation comes next day, another failed attempt to reach 1640, but note the location of the close...under the open, under mid-range the bar, and lower than the previous day. This tells us that sellers were back in control, to a degree, and we could expect another retest of that early June rally effort.

    The activity and reaction away from the 1640 resistance, [the HOW], told us that the market is not yet ready to sustain a rally, and that led to retest 2, on the chart. The rally off retest 2 led to a lower high and then to retest 3, and this is where we stand.

    The reason why these rallies are failing and continually retesting is because the trend is down, and this is what happens on the long side in a down environment, depicted in the described market action.

    The more support is retested, the more likely it will fail. If anyone wants to be long gold in anticipation of a rally, the trend and recent activity show it likely to fail. The market activity is telling us, on both the higher time frames and the current daily chart, price has not yet been able to prove itself to the upside. There has been no "confirmation," to which we so often refer.

    Buy the physical, but avoid the futures, for now.

    **We like to deal with facts, so it must be acknowleded that the quote attributed to Marie Antionette is anecdotal and has been more accurately attributed to Jean-jacques Rousseau: "Qu'ils mangent de la brioche," made when Miss Antoinette was still a child.

    (click to enlarge)GCQ D 15 Jul 12

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