edgetraderplus'  Instablog

Saturday 15 June 2013

Charts are not predictive in nature, rather they are instructive on how
to best prepare and get an edge when deciding to enter into a
position, [or exit one]. It is of the utmost importance to have a game
plan in place, beforehand, otherwise, one is relying upon factors more
emotionally driven than fact driven.

The function of reading a chart is to gain insight from the most reliable source available, the market itself. What a market does is generate
information that reflects the outcome of all source decision-makers,
from the most highly informed and experienced to the least informed
and weakest, with varying degrees of skills in between.

We know that "smart money," [a term to describe dominating forces
that move a market], is always active at high areas, distributing, and
low areas, accumulating, with occasional participation in between. They are deft at hiding their "hand," as it were. However, there are
clues they cannot always hide as they leave behind "foot prints," or
a trail to follow, if one chooses to do so. The biggest clue comes in
the form of volume.

High volume bars, especially at highs, lows, and important market
turning points are created by them as they take positions. The other
side of their trades are the public and less skilled participants. When
you see such high volumes at these turning points, it is usually a
transfer of risk from weak hands into strong hands. Rather than guess, predict, or rely upon gut feel, [emotion], it is better to follow
their lead because they ultimately are the trend setters, literally.

Clues can always be found in the charts. Last month, May went into
new high territory, but the close was mid-range the bar on a strong
volume increase. Markets have much more logic than people realize.
The increased volume is created by smart money. It is the public that reacts to it, almost always to their eventual detriment.

Applying logic, we see the market is at new highs. It is axiomatic to
state that smart money, [SM], sells highs and buys lows, so it is no
stretch to infer SM is actively selling at this current high level. The
fact that price closed mid-range tells us that sellers were meeting the
effort of buyers, sufficiently to keep the close from being higher. The public see price is breakout out, above the previous 2008 swing high,
so they "jump aboard," not wanting to miss the market going yet
higher, or so they believe.

It also worth noting that this selling activity is occurring at the
previous high, actually, just above it, making it look like a potential
breakout, [SM is big on false appearances]. Price stopped at the overbought TL, [Trend Line], as well. There is a converging of a few
important observations that raises one's level of interest.

Few market participants pay any attention to higher time frame charts,
like a monthly, but a monthly is not used for market timing, anyway.
Timing goes to the daily and intra day charts, once the monthly and
weekly provide reasons for doing so.

The KISS principle at work. Rather than focus on too many things,
there is one factor we can take from the weekly chart, and it may
prove critically important. For sure, it alerts us to a change in
behavior not seen since the bull market began in 2009. It is highly unlikely that the public, and even many smart traders, would pay
attention to this subtle change.

It is the first time that volume has increased as the market sells off
from a high area. Most often it is an indication of a transfer of risk:
strong hands taking profits and selling to weak hands, eagerly
anticipating higher prices.

Some things never change, and noting those changes can be
rewarding.

The OKR, [Outside Key Reversal] high is a shot across the bow, a huge red flag when the other noted factors are added into the mix. There
are no accidents in life, not even in the markets. Everything happens
for a reason.

The May high has a possibility of being a top. The one caveat we
personally hold is that this bull market has been Fed fiat-driven,
actively managing the market for economical and political reasons.
Economically because the Fed is keeping its fiat-house-of-cards
afloat and does not want the market to come crashing down,
exposing its fiat-Ponzi scheme.

Politically, the Obama regime does not want to world to crash the fiat Federal Reserve Note Ponzi scheme, [Federal Reserve Notes are issued by the Fed and incorrectly called "dollars."], and force Americans to
realize the lies and deceptions since the Federal Reserve Act was
introduced in December 1913, oddly enough, 2 days before Christmas
when most of Congress was home on holiday. This is another story,
but more important than 99% of American can fathom. It is what is
impacting the markets, today.

The two strong reversals off important support is the market's way of letting us know that buyers are defending support. Will they succeed
is the all-important question? The last rally attempt failed as a retest of the May OKR high. Will this resistance hold, for it is an important
piece of information?

We started off saying charts are informative, not predictive. We do
not have to know in advance what this chart, and the others, are
saying. For now, we are seeing a flurry of red flags to be defensive in participating. This daily chart is telling us to sell out longs or at least
place close stops to protect existing profits. For any positions with
losses, this is a huge warning to take them now before they become
larger. For obvious weak stocks, taking a short position should be
considered, always depending upon one's rules and market objectives,
profit being the ultimate one.

Wednesday's sell off on increased volume was a strong warning, [3rd
bar from the end.] Thursday's rally, [next bar], erased the downside
effort of the previous day, but it failed to elicit upside buying, and it
stopped under the failed retest.

For now, as long as the retest swing high holds, selling against it would be the order of the day, but only when there are indications to sell.
What are those indications? They would be your rules of
engagement. If the market does this, then do that, and always in that
order. It is how to stay in sync with a trending market, in whatever
time frame chosen.

The tech-heavy NASDAQ is showing a little bit weaker, another red
flag. You can see how the trend is no longer up, once a lower low
occurred after the most recent lower high, as evidenced by the line
connecting the swing highs and lows.

The rally attempt on Thursday did not erase the previous down day,
like it did in the S&P, and each bar since the failed swing high, [not
marked, but 5 bars ago], has been a lower high and lower low.

What the daily charts are telling us about the market and the higher
time frames is that the potential for an end to this bull run is
increasing. It has not been confirmed on the higher time frames, but
the daily is serving ample warning for anyone willing to observe.

There are no Black Swans in the market, just people unaware of being
unaware.

Saturday 15 June 2013

Opinion: noun 1. A belief or judgment that rests on grounds insufficient to produce complete certainty.

That pretty much sums up what has been proposed and "re-proposed"
as to the lofty heights that both gold and silver will/may/should
attain. For many, the anticipated higher prices should have already
been attained. In fact, over the past several months, many
opinions have been "re-proposed" as often as central bankers have
re-hypothecated their gold holdings. With all the known information:
strong demand,[for the physical], inability to deliver the contracted
physical, etc, gold and silver remain at recent lows. Hence, the
"value" of opinions.

While opinions can never be asserted with "complete certainty," there
is any absolute certainty about them: they will never go away. Who does not have one? A brief editorial on the above follows, followed by
the charts.

[Some say their eyes glaze over when confronted with charts.
However, there is a high degree of logic within them, so for those with glazed-eye tendencies, maybe the appeal to your logic will help,
considerably, when reading our comments on/about them.]

We look for certainty in the charts, for they are absolute and the final
word at the end of day, week, month, etc. There can be no dispute
over a bar's high, low and close, plus the volume, for whatever the
time period under consideration. There can be differences of opinion
over their interpretation, but establishing a fixed set of parameters can mitigate most any potential dispute.

Little can be added to the ongoing developments, from a fundamental perspective, that has not already been painfully scrutinized and
presented. When a change does occur, it always, [or almost always,
to stave off picky detractors] shows up in the charts in some form of
a change in price/volume behavior.

In defense of charts, and for clarity of purpose, they present nothing
more than up to the moment past tense facts in the form of price and
volume. They are not predictive in value, contrary to many
misconceptions, but they can be helpful to read the market's intent.
When one can get a fix on the intent, what is then required is
confirmation in order to then act upon the developing information.

If one forms an opinion, based upon a reading of a chart's developing
market activity, the opinion can be proven wrong, with the blame
being assessed against the "faulty" chart, surely not one's opinion.
Alternatively, if one makes a reasoned determination about a market's
intent and then waits for confirmation to validate the intent, the odds
of being successful increase dramatically.

For many who played the futures market, expecting to score big time
on the anticipated sharp increase in gold/silver prices, the losses have
been huge over the past 20 months. Opinions can be costly. However, if one had waited for confirmation that prices were in a clear up trend,
as opposed the protracted trading range and now down trend, losses
would not have occurred or would have been relatively smaller.

Without rules for engaging the markets, opinions do not matter, and
blaming charts for the wrong reasons is a refusal to accept
responsibility for not using confirming rules. No one can escape from
forming an opinion. The difference comes in how it is executed in the
marketplace. An "unconfirmed" opinion can be dangerous. Even a
confirmed one can still prove wrong, but the circumstances are totally different. To the charts.

We can assert the trend is down because of lower lows and lower
highs. June is now just half-way through the month, so not much
credence can be placed on the abbreviated information. What can
be seen, at this point, is a very small range, so far, following a
small range in May that closed poorly.

What we know for certain is that the downtrend has not yet changed,
so lower prices can be expected. Whether lower prices develop
cannot be known, but it would be a safe bet to not buy into a
declining market. We may hold an opinion that gold will ultimately be
considerably higher in value, but there is no confirmation that price has begun to rally.

We have repeatedly advocated buying, and personally holding physical
gold, but for a different stated purpose, as a measure of insurance andthe potential for creating wealth, based upon past history.

We have stated that wide range bars with closes in the middle tend to contain prices for some time, moving forward. That is an assessment
based upon fact from proven market behavior. [See Markets Provide
Us The Best Information, click on http://bit.ly/18pk8yE, first 3 gold
charts, as examples].

There is insufficient market activity from which to draw a conclusion,
at this date. There will be some kind of developing market activity
that will alert us to a potential change, and even that will have to be
confirmed by subsequent market behavior.

Can this be stopping activity from which price will turn around, or is it a temporary resting area before price resumes the trend lower? We do not know. In fact, no one knows. What we do know is that it does
not matter. All we, or anyone, need do is wait for the market to
confirm its [advertised] intent, and then follow the market. Too
many try to lead the market, based on [ego] opinion[s].

The daily confirms the weekly and monthly, at least in that the[paper]
futures market is not going up. There we see the power of a wide
range bar containing subsequent price activity, and the last 18 TDs,
[Trading Days] show how weak the rally attempts have been.

The chart "story" remains the same: the price of gold is not going up,
for now, no matter whose "opinion" you hear/read.

Silver is a bit more interesting, as we suggested last week. Past swing highs can often act as support, and how price reacts to the potential
support factor will determine if the high will hold. Right now, the April
2008 swing high has slowed, if not stopped, the decline.

Confirmation of the "opinion" comes from the position of the close 3
months [bars] ago. It was in the middle of the range, telling us buyers
were present at the lows, [an example of the logic mentioned earlier],
and the following 2 bars have also held. In addition, we are seeing a
clustering of closes. What that means is a balance between the
forces of supply and demand. From balance comes imbalance, so at
some point, we can expect directional movement, up or down, from
this area.

The obvious question is posed on the chart: "Where are the sellers?"

Silver did not hold the wide range down bar in April, as gold did, but in
the process of breaking and going lower, it has not gone much lower.
The momentum has stopped, and we see that in how some of the bars have formed, [based on factual observations]. More developing price and volume activity is needed to determine the market's intent. For
sure, the paper market is not headed higher, at this juncture.

We said silver was more interesting. The two failed probe lower bars
are important pieces of information. They are a demonstrated form of buyers supporting the market. Will it hold is the question? [Will that
observation be confirmed?]

Additional information helped to give added confirmation to what we
posed last week, will it hold? The past 5 trading days say yes, at
least for now. That could change next week, with additional
information, but next week has not yet happened, so one can only
base a decision on what is.

In the previous week and now with last week added, we are seeing a
slowing of the downward momentum, [remember the monthly swing
high potential support]. Is it enough to stop the decline? It is a
question many would like to know, but not important to know, because the market will provide us with confirming market behavior that will
then put us in a position to possibly take a position.

If this happens, Then do that. Just like not putting the cart before
the horse, one does not "do that" before the If.

What we know for certain, based upon facts presented in the charts
as derived from the market, the best source of all, is not to be buying
the paper futures market. We covered some of this approach in a
different market, the S&P, if anyone wants to learn/read more on the
topic of learning to be more successful in trading markets. [See S & P
- Trend, Facts, Rules = Successful Trading, http://bit.ly/19efpTs].

Sunday 9 June 2013

Markets provide an opportunity to grow one's capital, and create a
return on capital, in addition to a return of capital, its preservation
being the benchmark to ensure it remains fully intact. Is there a
magical formula for success in the markets? No. However, there
is a realistic approach to increase the odds of consistent returns
while keeping exposure to risk at an acceptable level.

The S&P used to be our mainstay market concentration, but we
stepped away from that market when central planners took over,
starting with POMO, [Permanent Open Market Operations], conducted
by the privately owned Federal Reserve. With fiat being pumped
into the markets on an ongoing basis, it was a fatal blow to free
market operations, where supply and demand were the true measures
of value. Now, [then], there was only an artificial demand that took
quarrel with any attempts by supply to alter the Fed's upward
trajectory.

These circumstances were unacceptable, and so we withdrew from
analyzing the equity markets, rightly or wrongly, but right for us.
There may be change coming, and if/when it does, 2008 will likely be
relived, again, possibly worse, given how the buy side market has
become so distorted. It is now back to our game plan, and greater
attention will be given to reading developing market activity, which is what we do.

Are successful results possible? Absolutely! There are never any
guarantees in obtaining profitable results, but we know for certain that guidelines exist for gaining an edge in all markets: Trend, Facts, and
Rules.

The trend is the most important first piece of knowledge one can have in order to become profitable. Trends persist in the market, and they
often go much farther than many think likely. If you want to be
successful, you must always trade in the direction of the trend, in
whatever time frame chosen. Plus, one must also be mindful of the
next higher time frame to not run into a larger, potentially opposing
force. Just this one observation, alone, can enhance one's odds for
success.

Facts. They are incontrovertible, conclusive, not subject to dispute.
Facts are in direct opposition to opinions, themselves subject to beliefs or judgment, both of which fall short of certainty. We want as much
certainty in decision-making as possible. Facts provide that.

There are ways of determining the trend based on facts. There are
ways of determining which force, supply or demand, is in control,
based on facts. When you take the trend and combine it with factual
market observations, it results in creating an edge for every market
decision that can lead to stock market success. There is one more
element.

Rules, the missing ingredient for a majority of market participants.
What undercuts successful trading/investing more than anything else? Having an opinion. We all have them, but they cannot be the compass upon which decision-making is based. Why not? Opinions are
subjective, and almost always charged with emotion, ego, both of
which are destabilizing factors.

Why do so many people lose so much money? They have an opinion about what a market will/should do. "This market can't go much
higher." But it does. [Trend]. "The market is overdue for a
correction." It may be, but it does not correct. [Trend]. Once
positioned in a market, emotions take over. "I can't take a loss. The
market will bounce back." [Going against the trend and ignoring the
facts.] You get the idea.

Rule One: Trade with the trend. Rule two: Buy strength, not
weakness. Rule three: Buy at support, once proven it will hold. Etc,
etc, When you have a fixed set of rules that determine when to
take a position within an established trend, the risk factors have been
greatly reduced, and the odds for success have been enhanced.
Neither is guaranteed, but the odds of probability are now tilted in
your favor.

With this brief, but comprehensive groundwork, we apply it to better
understanding the charts and moving forward.

The first fact to determine for the weekly S&P is the trend, and
clearly, it is up. You can see how the lighter line connects the swing
highs and lows. The highs are higher and the lows are higher, the
essence of a trend. [It does not matter how one defines a trend, as
long as the guidelines for its determination are used consistently.]

It is also apparent that price closed higher for the week, and it did so
on increased volume, both facts, regardless of what opinion someone
may have. What does not show is how the weekly bar looked so
weak, going into Thursday, and it appeared that the market would
continue to sell off. However, the time frame is weekly, and we have to wait for the end of the week close in order to make a valid
assessment. That would be a basic rule for weekly.

If one made a determination to take action, based upon apparent
weakness on lower prices starting Thursday morning, that action would have been based upon a judgment made at the time, [and proven
wrong]. Taking any action at that point would have meant it was
based on opinion and a breaking of rules, or alternatively, not even
having a set of rules in place, which is just as bad.

This is not to belabor the point, rather to drive home the importance of knowing the trend and adhering to rules, based upon market facts. The time frame is weekly, so no decision can be made until the close
of the week is known, another fact. Despite the apparent drop in
price, almost 50 points, starting out Thursday morning, the Trend,
reasserted itself, and by day's end, price rallied the most in a single
day from low to high close in many months.

The weekly chart shows a strong, trending market. Higher time frames are stronger than lower time frames. The daily chart had been selling
off, longer in time and greater in price since the November 2012 lows.
The sell-off was approaching a swing high support from April, and the
bottom of the down sloping demand line.

The fact that price reversed and rallied so strongly from a known
[potential] support area, demonstrated how and why knowing the
trend is so important in order to react to the developing market
activity and not be swayed by emotions. This is how to trade in the
markets: knowing the trend, using facts gathered from the market,
and having a set of rules for engagement.

What to do now?

Was the May high the high for this move? The trend says no. More
evidence of a change is needed to make an informed decision. There
are two likely scenarios. 1: The high is in and this is a retest of the
high that will fail, leaving price to go lower. 2. This was just a natural
correction within a bull market, and price will make higher highs,
keeping the trend intact.

With a set of rules, the decision is an easy one. For now, we have to
go with the trend is up and should be heeded scenario, until proven
otherwise. We can also add the fact that the last swing low, from
Thursday, [should it hold], left bullish spacing. The last swing low is
above the last swing high, as the two horizontal lines show.

A weak retest of the 1596 low will confirm that the daily trend remains
up. [The weekly is not close to turning, at this point.] What is a
weak retest? Smaller range bars and lower volume when price
declines, indicating sellers are not in control, as one example. Should
that happen, it can set up another buy opportunity, next week.

The NASDAQ shows greater spacing between last Thursday's low and
the mid-April swing high. It is testing 50% of the previous range, a
general guide, indicating overall strength. There is a slight conflict
between the stronger volume on the sell-off from the May high,
compared to the lesser volume from last week's rally. The possible
offset to that negative is the fact that price rallied so easily from the low. Where were the sellers to stop the buyers?

Bottom line is, in both markets the trend remains up, and a solid set of rules to determine when to buy within an uptrend will best serve one's
objective of consistently profitable trading success.