Wednesday Evening 25 April 2012
There are several ways to measure which markets to buy/sell and how
to time entry. Previously, we have focused on silver, but now turn to gold. Reason? Gold shows greater relative strength, and that is a key
factor when determining which market to buy, [or which is the weakest market to sell when going short]. We have also made clear that one should be accumulating physical gold and silver to offset the growing cancerous effects that the relentless printing of fiat ultimately bring.
As an aside, we have recommended accumulating silver, more than gold, of late, irrespective of the erratic moves in the futures [paper] market. Note that the experience of the metals raid of customer's accounts at MF Global shows that one not need to see just inflationary prospects, and paper losses can come from other sources, with impunity, [well, not just metals, but the experience says not to trust anything paper-related...hold the physical metal [personally] for safety of wealth accumulation.
Another way to measure which/when to buy a market is to be aware of the larger time frames, greater in importance than the smaller time frames, [including the daily], and so we start with a look at the weekly chart of gold. While still in a trading range, the overall price level has held well since the September raid, er..., "correction." It is holding well because price is moving sideways and not moving lower.
Attention is drawn to the fact that the nine week rally from the December 2011 low has been corrected over the past nine weeks, but the correction is more labored and retraced less of the rally gains...and that is a bullish implication. We now know from the higher time frame that gold is relatively strong, one of the strongest markets, overall, and an excellent candidate to trade from the long side, if warranted.
We look to the next smaller time frame to make that determination.
We see in greater detail how the overall rally has been stronger than the correction since the February high. There is a repeat of that on a smaller time scale since the April low. Price rallied for five days to
the 1680 high, but has been more labored, taking much more time and covering less downside ground, going into today. We have been watching this market for exactly these reasons, noting that the smaller ranges on Tuesday and Wednesday presented a potential opportunity to buy, and for that decision, we turned to the intra day activity for timing.
As an additional insight, note the last two higher red volume bars, red indication a lower close, ostensibly a sell day. Also look at where the close was for each bar. The first of the last two red bar days had a close mid-range the bar, and that indicated buyers were present at the lows. Contrast it with the second of the last two red volume bars. volume was sharply higher, but look at the close...the upper end of the range. Buys were not only present, the position of the close tells us buyers were also in control. These are additional pieces of the puzzle, information generated by the market itself...
the most reliable source of market information, and fact, not opinion.
You can see a wide range, strong close rally, 4th bar from the end, which also was making a higher low from the previous trading day. The next three small range corrective bars were classic corrective bars that indicated a lack of selling pressure and a place to initiate a long position. Turns out, the FOMC results were announced just as we were entering buy orders, and the sudden drop on sharply increased volume only affirmed our decision to buy the drop, at market. See next chart.
Where we were expecting to buy around, or just under the 1640 area, when we observed the sharp spike in volume on the decline, that combination of falling prices and increased volume told us that weak-handed longs were either dumping or getting stopped out of their positions. This is another reason, or measure of assessing one's reason to buy. A sharp increase in volume activity is a change of hands, from weak to strong, and the close of the daily low bar, at the time, was well off the low, telling us buyers were stepping in, absorbing whatever sellers were offering. [We were watching a 10 minute chart, at the time].
Another factor is that this kind of unusual intra day exaggerated price activity has become more common, in what we would describe as "managed" efforts by certain large concerns doing everything possible to suppress gold prices, lest the "public" see gold as a much saner alternative to holding anything based in paper, either fiat "currency" or futures positions.
What transpired pre- and post-FOMC announcement is best described as a shakeout, buttressed by the sharp volume spike. It turned into a market gift, as it were, to get a lower fill than the 1639 area we expected just prior to entering the buy order.
There is some resistance at the 1660 level, but the more important resistance is at 1680. What will be key is to observe HOW price approaches each level for clues to see if they will act as a buffer. The decision to buy began with the higher time frame. WHEN to buy was determined by the intra day time frame, as the LAST factor under consideration.
As is often said, the success or failure of a trade is most often determined before entry, not guaranteed, but with a greater edge in the probability of the outcome.