Sunday Evening 26 August 2012
We always say, "Let the market lead, then follow it," as opposed to "predicting" what "might" happen by getting in front of the market hoping it will follow your lead. Right now, price has shown a breakout
potential that needs confirmation. Every move needs confirmation to affirm its validity, or it could prove to be a false move. For now, we follow the market's lead.
When price rallied above 28 on an intra day basis, it went above a smaller trading range within the larger trading range where price was in the middle. In the middle of any trading range is where the level of knowledge is least because price can move up or down within the range and not violate the range or necessarily trigger a new event. From the 28.50 area, the rally has not looked back, somewhat of a surprising move from a market mired in a lower range level. Yes, price was moving farther and farther along the right hand side of the range, from which breakouts occur, but there is no set move as to HOW any breakout will develop.
We waited for some kind of pullback that showed lack of selling pressure, but none developed. By the end of the week, we viewed silver from a different perspective, and that was a new weekly high and close over a recent formation, by itself a buy signal for a longer term move, so we selected a long position at 30.60, near the close, Friday.
The monthly chart has not yet painted its close, but we were mindful of how it was shaping up with just a few more trading days remaining, and that observation made the buy choice easier because of the
continuing synergy between all primary time frames. You can see how the rally left behind the clustering of closes we have so often mentioned.
[See Silver and Gold - Postured To Go Higher, click on http://bit.ly/Sd6ll1, shown on the silver charts monthly - daily.].
Of course, we have maintained a bullish bias throughout the correction from the 50 highs by virtue of the financial economic suicide all central banks have been leading the world by the nose, country by country,
for the last several decades, just now reaching an out of control crescendo as the reality of holding "paper-based" assets of any kind comes home to roost. More and more people are seeing through the
myriad lies and deceits, continuing at an ad nauseum level to this day. Sadly, most of the world's population will never see the dirty deceit until it is way too late, but that remains another story. "Those
unaware, who are unaware of being unaware," will never change.
What we view as the singlemost important bar of the past 70 bars was the deciding factor to get long near the close. Anytime price closes above a four week pattern, it indicates a very strong likelihood the direction of the breakout will continue much higher. There were a few added bonuses to this 4 week breakout scenario...the end of the right hand side of a protracted trading range at significant support within a much larger bullish pattern, and Friday's close was the first weekly close above the supply trendline. This is simplicity in itself.
Will it work? Odds favor it, but we always have the ever present "Anything Can Happen" behind every situation. Most people "hope" a bad trade will get better instead of having a "fear" that it will get worse, the opposite of how fear and hope should be regarded. In this situation, one should "hope" price will get better in the weeks ahead.
The daily chart provides factual reason for maintaining a hope for continued prices, all "fundamentals" aside. Point and figure charts are used to measure moves. We show the lengthy trading range that has
accumulated "stored energy" that will propel price once it leaves that range, and a "quick count" of that range says price can rally to the 37 to 41 area. The last swing high was 37.50, so the lower end of the
full potential should be carefully monitored. There will likely be more development moving forward to hone in on where price may encounter resistance.
We have advocated buying physical silver and gold in just about every article written over the past several months, without concern for price, unlike futures. Those who have been buying throughout this
trading range should be satisfied with the decision[s]. As to the futures, a margin game with a heavily manipulated market, more caution is required. Anyone not yet long will have an opportunity to get on the long side during some kind of correction, for markets are always testing and retesting support and resistance areas.
Last week, we entered the coffee market on exactly that premise of retesting support, and in this case, coffee was retesting support from a breakout that occurred two years earlier. Anyone interested in the
technical workings of the market will find the analysis of great interest, for we will find the precise same premises in the silver and gold markets in the days, weeks, and months ahead. See Coffee - Context And The Danger Point, click on http://bit.ly/RfRwkD, the whole article. We often mention using charts for context, and we have mentioned the danger point on previous occasions. Here, you will see a blending
of both that methodically lead to taking a position in a market.
Gold shows the same situation as the weekly silver chart, so no further comment is needed.
The daily chart shows two technical considerations to which attention should be drawn. Support and resistance levels are usually drawn as a straight line, mostly for convenience, but that "convenience" has led to a sloppy acceptance of a straight line as "official." Actual support and resistance are more of a wavy line, much like a river flowing in a meandering fashion. Previous support led to future resistance, and you
can see more clearly how the straight lines do not fully capture the reality of them.
The second point is how gold is hugging the resistance of the last high before low, LHBL, area. If a point of resistance will hold a market, price will react away and to the downside. Here, even though briefly, we
see price staying right at resistance, not reacting away. Given that the current rally in both gold and silver have had such slight reactions from recent lows, we would expect gold to exceed the 1670 area.
The stage appears to be set for both metals. We await the next Act.
Addendum: We just ran across this article and cannot pass it up, so we pass it along, the Fed as a " parasitic wealth transfer machine."