Monday Evening 12 December 2011
Sometimes, it is simply a matter of being the messenger of what the
most reliable source of information has to say, and that comes from
the market itself, just by reading what it depicts. Most everyone has
an opinion, and letter writers make a living offering whatever insights
or bias they want to report. Frankly, the market does not care what
anyone's opinion is, for it will do what it does, irrespective of all opinions.
For us, the TREND is the single most important piece of information
you can have, because it puts the price momentum into a context,
and there are certain proven market behaviors that repeat themselves
in a bull or bear trending market. Right now, we have ourselves a
bullish market in gold, and the best way to make that determination
is to start with the larger, more controlling time frames, monthly first.
Before proceeding, there is one more thought we want to share
about any market, trending or not, and that is: ANYTHING CAN
HAPPEN! Never lose sight of this powerful statement.
Most everyone is aware of the myriad claims that gold will be over
$3,000, $5,000, up to $30,000 the ounce, at some point in the future.
Maybe. What we can only know for sure is what gold is doing in the
present tense because NO ONE can know what has not yet happened.
What we hear less of is the potential downside of gold. More than a
few occasionally parrot Jim Roger's 1,200 objective, where he would
be a buyer. All of these opinions prompted us to take as clinical a
look at gold as we could, overall bullish bias notwithstanding. Even
with a bias, we can still see trouble, if trouble is to be found. Let us
put that thesis to the test.
If there is one thing we can all agree upon, it is that gold is in an
undisputed uptrend move, aka a bull market. Since late 2008, there
has not been one swing low that has been violated. The Outside
Key Reversal bar, [OKR], which formed at the high four bars ago,
establishes a likely trading range. What that specific bar shows is
a wide range down with a poor close. Sellers were present to stop
the upward momentum. Stopping does not mean ending.
The reason why we drew the two horizontal bars to show the high
and low of the bar is to suggest a potential trading range confined
to those points. The trading range is necessary in order for demand
to absorb all the selling [supply] activity before the market can go
higher. No one knows how long that process will take, so we just have
to let it continue to unfold and look for clues that the trading range
may be ending, something we do not yet see.
In the event that the bull market show more weakness than is
currently being exhibited here, we marked the half-way retracement
from the 2008 low to the 2011 high, about 1301. Anytime a market
can hold above a 50% retracement, it is a sign a relative strength,
and an indication that the market will go higher. This goes back to
our comment about the importance of knowing the trend, because
a trend exhibits certain characteristics, and this would be one of
them, as a guide.
This is also what we mean by being a mere messenger and
relating what the market activity is saying. What we want to
see is reinforcement of this trend from the next lower time frame,
a weekly chart.
This perspective of a weekly chart shows how each swing low remains
intact, including the large sell-off low in September. It held well above
the previous July low. You can also see how the price momentum
accelerated in 2011, moving up and away from the established
trendline. The only way for that to happen is from strong buying.
Another look from more recent weekly activity follows.
We have talked about the concept of spacing many times before.
Essentially, when a swing low holds above a previous swing high,
it created a space between them. It tells us that buyers are so
eager to buy that they do not wait for a previous high to be retested.
Again, we see spacing in the strongest of bull [or bear] markets,
and we get another indication as to the character of this bull move
in gold. Solid!
When the high occurred in September, there was a sharp, ease of
downward movement, [EDM], noted on the chart, and that is where
supply overwhelmed demand to take price lower. We can expect
that starting point to be defended by sellers, hence it is market as
potential resistance. [Everything is called potential until it is proven
We show where spacing gave way in the September decline. We
referenced it as a lack of strength, instead of calling it a sign of
weakness, for the overall market is incredibly strong, up to this point.
The ensuing weeks' activity was put into the oval to show how price
held the close of the wide-range, low bar, at about the 50% of the
bar's range, and that was a fairly good show in response to the 390
There has been a weakened showing by the inability of price to
reach back to the resistance line, the area we said sellers would
defend, and for now, the near-term weekly is in a trading range,
still without violating a previous swing low. It is possible a lower
swing low can develop, but that is in the unknown future, and we
stay with the present tense facts that are known.
The lower time frame daily chart says trading range, trading range,
no doubt. Some analysts are using the market swings to depict a
coiling wedge. We prefer to go from one support area to the next
and watch HOW price responds, positively, or weakly, to better
determine if support will hold. Volume has increased on the sell
days, including the breaking o the support line drawn. If sellers
are to remain in control, and we see no signs they are not, they
have to keep the pressure on to get price lower, and we marked
the 1,600 area as the next potential.
The reason for using the 1,600 area, next, is due to the way in
which price held that level after the low. There was one small
break under 1,600, third bar after the September low. We see
that as a probe to see if there were any more sellers or stops
under 1,600, and the market found none, so a rally followed.
That level was retested, again, a few weeks later, but it held,
indicating buyers were present, and they are likely to defend
that area, if they can. We shall see.
Because the only conclusion one can reach from the developing
market activity is that gold is in a bull market, that is the direction
one want to be positioned. However, the daily chart is saying there
is a battle going on because price is in a trading range, and we do
not yet see a change where demand is showing more strength than
At some point, there will be a trading opportunity to go long, or
add to existing positions, but until we see evidence of a market
turn, it is best to wait on the sidelines. A trending market tells us
what signs to look for, and right now, they are not there. That
means price can continue lower, but we need to see more
evidence that sellers remain in control, and for that, we need
This message was brought to you by the gold market.
[Silver is relatively weaker, still].