edgetraderplus'  Instablog

Sunday 17 March 2013

The last time we analyzed copper, we were buying at $3.75,
anticipating an upside rally to the $4 area. Next day, we were
stopped out with a few cents loss, and price has dropped recently
to as low as the $3.47 area. Based on the speed of the decline and
the heaviest volume along the way down, copper should drop even
further, or so one might think.

Past history on a chart is important, but the most important part of
all is the present tense developing market activity because it is the
culmination of all previous efforts. We take another look at what the market is saying about where it may be headed.

The ultimate question to always ask is, "Why?" Why did the rally or decline stop here? Why was the range so wide/short? Why was
volume so heavy/light? After the "Why?" question would be "Who?
The latter helps explain the former. As in life, everything in the
markets happens for a reason. Let's see if we can "reason" what
is going on.

Reference is made to the wide range bar down back in September 2012. "EDM" stands for Ease of Downward Movement. This tells us
that sellers are in control and are totally overwhelming buyers who
are getting crushed on the way down. Why did this happen?

If you count back six and seven bars earlier, you see a small retest
failure high of the last failed high in April, and those two bars told
everyone who cared to observe them that the market was now in
the hands of sellers. After those two bars, you next see a three bar
rally. Why were the ranges smaller and on less volume? Because
demand was weak, and that was a poor response to the selling
effort. These clues were in place before the EDM bar in September.

Yes, this is a hindsight analysis, but you need to understand how
markets function because they repeat themselves over and over.
When you understand past behavior, you can better understand
present tense behavior. The opportunity for making a trade, and
preferably one that has an edge, always exists in the present tense.

Long story short, instead of continuing lower after the EDM on
heavy volume, price went sideways. Why? Who were the sellers on
the way down? The public and weak longs. Who were the buyers?
The same ones that started the selling back in April and August.
What you see was a transfer of risk from weak hands into strong.
Controlling influences, aka "smart money," were doing the buying.

The series of boxes show the initial support, then the first resistance, which not so coincidently stopped at the poor 3 day
rally response back in August. Ping-pong back and forth, support
then resistance, the boxes get smaller. Why?

As price moves along the RHS, [Right Hand Side] of any trading
range, including a contracting one, it is getting ready to move
directionally, one way or the other. The forces of supply/demand
are more in balance. Balance leads to imbalance. Would it be helpful
to know in which direction the next move will be? Here, no need to
ask "Why?"

In between the last two boxes is a wide range bar lower with a poor close, and you can see how it occurred on the heaviest volume.
Why and who are crucial to know. We said the Who sometimes
explains the why. Who was doing the selling, and more importantly,
who was doing the buying?

Who was selling? Once again, the public expecting higher prices,
along with other weak longs who could not financially withstand the decline. Who was buying? Controlling influences, once again. Always remember, patterns repeat, over and over, not always in the same
fashion, but similarly enough to rhyme. From that rhyme comes
reason.

Note how abruptly the decline stopped over the last three weeks.
No further downside, and closes have clustered. A clustering of
closes is a pause, just before a market moves lower from the
preceding momentum, OR, the pause can be stopping action to
reverse the activity that has been moving lower.

The market does not always send out invitations to reveal its intent,
but there is a lot of logic in HOW price moves and develops over
time. Maybe a closer look at a daily chart can add to the logic we
attempt to assess?

How a market responds to an obvious move gives important
information. In the weekly chart, we discussed how a three-day
rally was a poor response to a two-day decline, back in August
2012.

Applying the logic from the weekly analysis, we can conclude that
the public and other weak-handed longs were selling with abandon
when price cascaded lower with impunity. In just 5 trading days, 3
months of buying effort was erased. Why?

Why? The Who wanted in, but at much lower prices. Note how
heavy the volume was. Compare it to the April 2012 volume when
sellers, [the Who], were selling whatever buyers could stand, just
before price collapsed lower in May. Note the drop in volume. Most
of the smart money has already sold at higher levels. Volume then
picked up again in late May and early June. Why? The you know
Who were back buying in their short positions.

Logic tells us that it was smart money buying on the way down, at
the end of February. Volume decreased in March because almost all of the public and weak longs were spent. The response to the
waterfall decline has been relatively muted. Why? No more sellers.

If there are no more sellers, what is likely to be the next important
move? Demand will be on control, and price will start to rally. The
public, just having been taken to the cleaners will not trust the
rally, or not be able to buy anymore, and price will rise without much resistance.

That is one possibility. The other is, copper is going much lower, and the response is just a pause before that event. Which way?

Answer: we do not have to know in advance. We do not have to
guess, or worse, "predict." Instead, all we need to is let the market declare itself, confirming its next direction. What will that
confirmation be? Ease of Upward Movement, [EUM], on increased
volume, or EDM on increased volume. Once the market declares its
intent, and it will, we just go with the flow.

What would be some clues?



The above daily chart shows total volume. The one below shows
individual contract volume. We look at numbers 1, 2, and 3.

1: Highest volume occurs at the low, and the close is off the low.
We always say the market is the BEST source for information. Here,
the market is telling us smart money is doing the buying based on
the heavy volume. Why? The public does not generate heavy
volume. It reacts to prices by panicking out at the lows, unable to
withstand any more losses or meet margin calls. Logic gives us the
answers to Why and Who.

The location of the close, off the bottom. lets us know buyers were
present, or else the close would have been lower, and maybe even
the range. A decline in volume over the next four TDs tells us selling pressure has abated.

2: Wide range up, strong volume. [Re-read "Answer" paragraph
above last chart]. We see a sign of buying when sellers are
supposedly in control.

3: Note the selling "response" to the buying at "2." After 3 TDs of
effort, price has been unable to break under the low of the wide
range up bar on increased volume. Why[not]?

Logic would suggest that copper is being accumulated here, or price would have dropped lower. An upside reversal from area 3 would be
another important "tell" as to which way copper is likely to move next.

Why, Who, and a little bit of logic takes the "guesswork" out of
which way to go. Waiting for confirmation removes some of the risk
in taking a position, and "prediction" is an unnecessary element in
trading. Can we be wrong? Absolutely. We will take potential trades
like this all day long, knowing the risk is defined and the odds offer
an edge. Some will result in losses, but the winners will more than
compensate.

Source: The Market.

Saturday 16 March 2013

So many headlines are saying "$5,000 Gold, or $10,000 Gold; Silver,
The Investment of the Decade," etc, etc, etc. Will that happen? A
history of failed fiat currencies says yes. When will it happen? That is
the question few articles address because they simply have no clue,
beyond their sensationalized headlines.

Who can best answer that question? It is not Who, but What, and
that comes from the market itself, ever the most reliable source. The
answers may not always satisfy, but the market is never wrong. What
can be said with certainty is that before gold and silver, [PMs,
Precious Metals], can go up, they first have to stop going down.

Remember, all the dire headlines about failed currencies and
countries are well-known by controlling market forces, as are all of
the purported PM shortages; the lack of available physical metal to
fulfillfutures/ETFcontact obligations; China, India, and Russia being
huge buyers; Western countries over-hypothecating gold holdings;
empty central bank vaults; tungsten-filled bars being delivered, you
name it. It has all been stated, restated, then stated again, yet the current price of gold and silver do not reflect these "realities."

Why not?

What is missing is consideration given to those in power and their
ability to hold onto that power, at all costs. The outright lies being fed to the world's public, at least in Europe and the United States,
continue to dominate headlines by the bought-and-paid-for television
and print media. Where is the outrage? What little there is comes from
the relatively small community of "fringe" bloggers, [the best truth-
tellers], and those who have been consistently buying physical gold
and silver, but they are no match for the powerful forces that will
destroy whatever gets in their way, be it a country drowning in debt,
salvaging it with yet more debt, or the debasing of one's own fiat
currency, to keep the lie alive.

For now, the lies are winning. They have to, in order for central
bankers to keep power over everyone and everything else.

Until you start seeing currencies collapse, the Euro, the Federal
Reserve Note, [aka known as the "dollar."], $5,000 or $10,000 gold and $200 or more silver are not in the picture, and the charts are telling
you as much. Yes, price is being manipulated by four primary large
banks each and every day, and some say the exchange prices do not
reflect the realities of the market. This is not true. The reality is, the
manipulators are still in charge, and for as long as they are, the price
of gold and silver will remain where they are. Were it otherwise, you
would see the price of gold and silver considerably higher.

For now, the market is saying the suppression of the price of gold and
silver is alive and well. The operative words are: "For now." Until you
start seeing price move higher, the market is sending the message that PMs are locked into a protracted trading range, [TR].

You be the judge. Do any of these charts even hint of a price panic to the upside? Forget a price panic. Do they look like they are about to
rally strongly, or at all? Sentiment and bias aside, the market is telling
a story that differs from the PM community's beliefs and expectations,
at least for now, and that is reality.

Trading ranges last until they stop, and this one has not yet stopped.
One thing no headline mentions is the possibility that the price of gold
and silver can break out of the TR to the downside! The market is at a critical juncture, and it will provide us with some valuable information
based on how price develops, starting next week.

To the charts, starting with weekly gold:

The lower channel line acts as an oversold indicator. Price is now in its fourth week of being oversold. Remember, oversold is a relative term,
and it can lead to being even more oversold. When you view gold's
performance last week, you see a small range rally. This is the market's message that demand is not very strong. Price closed near the upper
end of the bar, but compare that rally bar with the larger down bars
two, three, and four week's earlier. Ease of movement remains to the
downside, and the burden of proof for change is with the buyers. So
far, they are not meeting that burden, or so it seems.

What may be the most important piece of information on the chart is
the fact that the swing lows of the past few weeks are higher than
those from last May. If gold is to rally from here, next week should see more upside, or at least no further downside. From the February 2012
swing high, near 1800, price declined and then went sideways for 26
weeks, half a year, before breaking out to the upside. The current
decline is in its 23rd week.

The mentioned higher swing low is a positive sign. The two wide range
bars down, 4th and 5th from the far right, had no follow-through
lower. It takes time and effort to turn downside momentum. Demand
may not have been strong, last week, but the higher close also tells us that supply, [sellers], was weaker at an area where sellers should be in control.

The current facts from the market clearly shows price is moving down.
Each level was preceded by a rally that failed to reach the high of the
small TR, just prior to moving to the next lower TR. Are we seeing
another failed rally that will lead to yet another lower level? For now,
the odds say yes.

We do see some indications that current levels can hold. As price
reached the lows in late February, volume was much greater than it
was at the beginning of March, as price held. If we are to see gold
rally, some evidence has to begin next week. The possibility of a failed
swing high is apparent, but it has yet to be confirmed. While the odds
for a rally may seem small, if the current lows of the TR and channel
are to hold, the odds are greater than they appear, but they also have to be confirmed by a rally, and soon.

We did make two attempts to get long gold, twice, last week, but
rallies are not holding, and breaks are sharper and faster. While the
trades were profitable, the activity is not that of market strength.
Buy the physical, but wait on the futures.

Silver still shows a more promising outlook if a rally is going to get
underway from current levels. The clustering of closes can be a resting area, prior to resuming the trend lower, or it can be a turning indicator
that shows the trend down has stopped and buyers are about to take
the upper hand.

Sellers are supposed to be in control as they push price lower, but it
appears they have stalled at an important potential support area, as
we have described in previous articles.

There are beliefs and biases, and then there are observable facts. The expectations for biases and beliefs point higher. The observable facts
are pointing lower. You can see how the rally efforts since the mid-
February lows have been relatively weak, not even able to retrace
back to 50% of the range of the last decline. This is an established
fact. Facts rule over biases and beliefs.

We end on a positive note, "Anything Can Happen!" For all the
negative appearances, the current levels are where there has been
proven support within the larger TR, and the selling volume of the last
three trading days is much less than the volume when a low was made in late February. The market is telling us there is less selling pressure,
and it may still be poised for a rally.

The premiums for buying physical gold and silver are starting to
increase, and that is a very positive sign. The reasons for buying and
holding physical PMs remain as pressing as ever, and the window for
doing so is getting smaller. Do not waste the opportunity the market is offering to add to your holdings, and for those who have been on the
sidelines, start taking action. Get yourself to a coin dealer and buy
what you can without concern for price or premium.

The "dollar" has lost at least 20% of its "value" over the past several
years. If ever a trend were true, it has been the constant decline in
purchasing power of paper fiat since the Federal Reserve took control
of this country's currency. That trend is about to accelerate even
more, eventually reaching the fiat's true value: zero.

The Fed-induced stock market rallies are at all-time highs. The rally in
silver and gold, over the same time span since 2007 are 50% higher
than stocks. This is a fact that should have everyone buying more gold and silver. Markets never lie. Trust them.

Sunday 10 March 2013

Few actually invest in an index, like the Dow, S&P, NASDAQ, etc. Most have individual stocks that may or may not be a component, yet what
everyone hears about are how the various indices performed. "The
Dow was up/down 80 points, today." "The S&P is near all-time highs."
The more pertinent question is, where is/are your stock[s] relative to
the market? If the indices are up but your stocks are down or not up
by much, what does that say about your portfolio?

Where the Dow and S&P are at/nearing historic highs, does that mean you should be long the stocks in your portfolio? Because charts do not lie, we decided to look at individual stocks to determine if one should
buy/hold/sell them. Which stocks? Warren Buffett is purported to be a
market "oracle," before he joined the Dark Side. Six of his stocks were
in the news last week, so we looked at three of the best performers.
Then, we randomly selected several more for an unscientific grouping.

What little we know about stocks is irrelevant because we know how
to read charts, and charts reveal what ALL participants are doing, from the most informed with the best and most expensive research, to
everyone else making a decision to buy or sell. We also know that
many investors overstay their positions. That may come from the fact
that Wall Street analysts are loath to issue "sell" signals for fear of
losing their jobs, even though it may mean investors are losing a lot of
their money.

Here is a look at 3 of Buffet's holdings and then a few other recent topperformers.

Wells Fargo Company, [NYSE], has been laboring to go higher during
the past three years. Where indices are at their highest levels in
recent years, WFC is not performing very well, and it is at resistance.

The daily gives a clearer picture. The last two bars are overlapping at
a resistance point. If price cannot get above the 36.50 area on strong volume and upside activity, this may be the best WFC can do. One
would want to be defensive, if long.

DaVita Healthcare Partners, [NYSE], is a trending market with higher
swing highs and higher swing lows. Last week's performance raises a
red flag with a new high, increased volume, but a lower close. At new highs, sellers were stronger than buyers, and the net swing high gain
is not much since last November's swing high.

The high volume weeks reflect strong buyers, but one needs to be just a little wary, here.

A look at the daily shows why the weekly chart raises a red flag. The high, 3 trading days ago, was an Outside Key Reversal, [OKR], a new
high, a lower low, relative to the previous day, and a low-end close.
The developing market activity is telling us sellers overwhelmed
buyers and took control.

This factual observation is confirmed next day when price gaps down
on sharply higher volume. Friday's small range is the market's way of
letting us know that the response from buyers was weak. With indices
doing much better, this could be a stand aside for longs, purely based
on observing market behavior.

IBM, [NYSE[, an old stand-by, and it is showing its age. While indices
have rallied well over the past year, IBM can only move sideways. Can
it go higher? Yes. Will it? That is a more pertinent question. Point "B"
failed big time when it retested swing high "A." Right now, "C" is
retesting the upper resistance level. How is it faring on the daily?

The smaller daily ranges are the market's way of showing that demand
is weak, otherwise, the ranges would be larger. Sellers have not
stepped in, but they could be waiting for the rally to go just a touch
higher. How price reacts to the 212 area will be an important tell for
IBM's future. If it continues higher, fine. If not, the market is sending
a message.

Ubiquitous GOOGLE, [Nas], is a market in an obvious up trend showing no signs of any weakness. This is a market leading the NAS index.

Smaller ranges are not necessarily bad, as long as they maintain
upward momentum, and what corrections there are, are relatively
small, like the end of February and last week. When you compare
GOOG with the first three stocks, you can see how well a strong price
move leaves little guesswork about being long, or not.

LinkedIn Corp, [NYSE], is another stock that is not sending mixed
signals or raising red flags. Developing market activity is telling anyone
watching that this market is healthy.

All one has to do is observe the corrections since the strong breakout, last month. There is very little give-back, telling us buyers are in
control, very much in control. Also note that very little need be said
when a stock is doing so well relative to the rest of the market.

Celgene Corp, [NAS], is probably the strongest of the group. All we are doing is looking at individual stocks as they compare to the various
indices from which they came. Last week was an impressive one: a
wide range and strong close.

It is interesting that some of the stronger markets are NAS stocks, the weakest index, relative to the S&P, and DOW. The NAS has been
struggling to recover the 50% retracement of its range from the 2000
high to 2002 low.

What this little exercise does is put an individual stock as measured
against an index to see how it is performing. One can look, and within
a few minutes make a determination about the overall condition of a
stock as a candidate to be held, like the last three stocks, when
compared to the relative performance of the first three.

What we did not do is show any stocks that are near their lows or well under 50% of their last year's range. Those stocks do not belong in
one's portfolio, and if anyone has any, well, that ship has sailed, not to sound callous, but the market gave signs of weakness a long time ago,
and if one chooses to ignore them, the lessons can be expensive.

[We can do a multi-time frame chart analysis of a stock, for a fee, if
anyone is interested.] [mn@edgetraderplus.com]

A mistake many make, when assessing a poorer performing stock is to
see how the market is rallying, overall, and then "hoping" that stock
will "catch up." Markets do not work that way. This is an easier way
to make a factual assessment based on what the market has to say
about a stock you may own. It takes away the emotional element of
being tied to a decision made that may not be doing all that well.

One thing about the market, it never lies.