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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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  • Taking Stock Of Silver Stocks - SLW, PAAS, CDE, AG, SSRI, HL

    Wednesday 5 February 2014

    We are of the simple opinion that any substitute for the real thing
    is never as good a choice as the original, even when it comes to
    Precious Metals. There are so many other considerations that enter
    the picture when regarding mining stocks. One of the primary ones
    is management, what it can do to a stock's performance separate
    and apart from its underlying purpose, silver production. There can be poor management, mismanagement, decision-making related to
    stock performance instead of getting the maximum performance out
    of its mining operations, overspending, misspending...you get the
    idea.

    Here is a reading of some of the top silver mining companies from
    a chart perspective. Charts show the best bottom line results from
    all observations one can make in an assessment of any company.
    While we see it as a way of cutting through everything else, this
    shortened version of viewing a company from a purely results-
    oriented perspective, via reading a chart, should not be quickly
    dismissed. In fact, from this kind of look, one might more easily
    see the value in dismissing some of the stocks as buy candidates.

    Another important consideration to be held in mind is to always buy
    strength over weakness. Do not buy a stock because it is low, and
    you think it may rally and play "catch-up" with the rest of the
    market. There are very valid reasons why any stock is weaker,
    relative to other companies in the same sector.

    In no particular order:

    However one wants to view SLW, the performance is slightly weaker
    to the metal itself. It is a positive that the last sell-off has taken 17 weeks to retrace the prior 9 week rally. The last 4 weeks on the
    chart show a clustering of closes. A clustering denotes balance
    between the efforts of buyers and sellers. From balance comes
    unbalance. A look at the daily chart may give a hint as to which
    way the unbalance will go.

    SLW W 5 Feb 14

    It seemed a little more positive on the weekly as the daily chart
    shows issues for buyers to overcome more than for sellers. The
    arrow points to an ease of movement lower, 8 TDs ago, [Trading
    Days]. Buyers have not been able to regain ground lost in a single
    day over the next 7 TDs of effort.

    The position of price, under a 50% retracement, is relatively weak.
    It does not mean that buyers cannot overcome resistance, but they
    have to put in a better show, now.

    SLW D 5 Feb 14

    We do not show the 50% retracement area for PAAS, but it is
    apparent from the eye that price is not even close. The gauging
    of how price is, using a 50% mark, is a general guide that demonstrates overall weakness, being unable to rally to that level,
    or strength, when price can rally to, and even exceed a half-way
    retracement.

    The sloping down trend line was broken, last July, but the breaking
    of a trend line is much less significant than overcoming a horizontal
    resistance supply line; the one at $14. The designation of an "Axis
    Line" is one where previous price support has now become one of
    resistance.

    PAAS W 5 Feb 14

    Here, you can see the validity of horizontal lines being significantly
    more important. The TR, [Trading Range], from last August led to
    a decline, so expect it to act as resistance whenever price rallies
    back to it. That rally occurred in January, and price encountered
    selling because those sellers who went short, last August, are
    defending their territory, as it were.

    What is positive about where PAAS met resistance, currently, is that
    price has not sold off as it did last August. It appears buyers are
    meeting the effort from sellers and preventing the market from
    going lower. Sellers have the edge, based solely on overall market
    conditions, so it is up to buyers to overcome sellers to gain control.

    PAAS D 5 Feb 14

    On the scale of relative strength or weakness, PAAS, for example, is
    stronger than CDE. Given a choice between the two, PAAS should be bought over CDE. Compare where PAAS is trading over the last
    several weeks, relative to where CDE is trading, and the concept of
    relative strength becomes very clear.

    Bearish spacing occurs when the last swing rally high is under the
    last swing rally low, and the two horizontal lines, one above 20, the
    last swing low from the end of 2012, and the line above 15, showing the last swing high. Whenever there is a space, it indicates a much
    weaker market because sellers did not need to wait and see how the last swing low would be tested. They were aggressively selling into
    the rally above 15, leaving the telltale space.

    CDE W 5 Feb 14

    The negative read on the weekly is amplified by the closer detail on
    the daily chart. It speaks for itself.

    CDE D 5 Feb 14

    The chart comments need not be repeated. AG is laboring. The
    inability to rally even above a 1/3 retracement speaks to the general weakness of this stock. Mention was made from the outset that
    reading a chart cuts through all other considerations, particularly
    fundamental ones, and gives a clearer picture of how a company is
    faring on its own, and more importantly, relative to other companies in the same sector.

    AG W 5 Feb 14

    Where are the buyers?

    AG D 5 Feb 14

    The swing highs and swing lows were connected to give a slightly
    different way of looking at how a stock is performing.

    SSRI W 5 Feb 14

    Where the weekly SLW seemed that it would lead to a more positive look on the daily chart, which the daily failed to do, SSRI has a more positive look on the daily than one might have expected from
    viewing the weekly.

    There is still some work to do for buyers to overcome sellers, but
    the direction of price, since the last swing low, is at least pointing
    upwards. How SSRI is able to recover from the recent sell-off, or
    not, will give an important clue in what to expect, moving forward.

    SSRI D 5 Feb 14

    Look at where price is, relative to resistance at the $4 level. This
    is another relatively weak performer and one that should raise
    questions as to why it should be bought, or even held.

    HL W 5 Feb 14

    The takeaway from this exercise is to 1. demonstrate the importance of the ability to read a chart, based solely on price and volume activity. Note that no reference was made to any mechanical
    technical tools, like RSI, Moving Averages, etc. They are not
    accurate as to timing, and if not, why bother with them? 2. The
    importance of relative strength when assessing whether to buy one
    stock over another within the same sector, or even buying in one
    sector relative to another one that is clearly performing better.

    The objective is to be profitable, and the above analysis has
    provided examples of how one goes about improving one's effort
    in attaining that objective.

    HL D 5 Feb 14

    Tags: Silver, SLV, SLW, PAAS, CDE, AG, SSRI, HL
    Feb 05 8:40 AM | Link | Comment!
  • Gold And Silver - Call For Explosive Upside In PMs Misplaced

    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

    Feb 01 2:45 PM | Link | 1 Comment
  • Gold And Silver - Chart Reading More Accurately Depicts Fundamentals/Technicals

    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

    Jan 25 2:51 AM | Link | Comment!
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