Saturday 2 February 2013
The January monthly charts are now complete. Not sure that anything new can be learned, but it is always worth looking, never presuming anything. Remember, the point of reading developing market activity is to make factual observations of the information that the market is generating.
The information takes the form of highs and lows for successive bars, over any/all time frames, where price closed, [telling us who won the battle for that bar], along with volume, the energy/effort of each bar. It reflects the bottom-line decision-making of all participants, but our interest is learning what smart money, [those who control/ influence the market the most], is saying in their net decisions, for they always try to mask their intent. Their “fingerprints” are all over the market, usually in the form of high volume days, for it is not the public that generates high volume. We proceed:
January was a smaller range bar with the close just above mid-range. The smaller range, also being the 4th bar lower in a correction, tells us that sellers were unable to extend the range lower. Therefore, buyers are influencing price direction when it moves to these lower levels. That can change next week, next month, but it is what we know for certain for right now, the present tense. The fact that price closed just above mid-range the bar also tells us buying is not that strong, just as selling is not.
Putting this into context, price is in a protracted trading range, [TR], and the current price is in the middle of that range, so we could be pushing on a string to formulate any decisive conclusion. This, despite the strong forces/convictions of those on the long side, opposed by central bankers/governments, ostensibly selling forces, or so they lead one to believe.
Speaking of pushing on a string, no matter how we looked at this chart and could make comments, the net effect is that price is dead center of the TR, and the center of anything is neutral. The past five months’ activity is above the 50% area within the TR, and with closes clustering in the same area for the past seven weeks without going lower, the edge is marginally on the buyer’s side.
On a daily chart, the edge is on the side of sellers for the trend is down, denoted by a series of lower highs and lower lows. Recently, gold has been weaker relative to silver, so how silver is performing could be more pertinent. What can be said of this chart, recalling how the monthly range was smaller as price moved lower, we see how price held a very small range, 5 bars ago, and above the half-way point of the down channel, while staying closer to the upper channel line. Within the down trend, this is a potential red flag for sellers, or a sign of caution for which to be aware.
When we analyzed silver, the last three bars on the daily chart stood out as overlapping. After making remarks about them, we decided to do the same for gold. Whenever you see overlapping bars, it tells of a battle being waged between buyers and sellers. In order to determine if one side has an edge, we look at a smaller time frame to judge the composition of the daily bars.
What we see is that the strongest volume activity, and by extension, the greatest influence from smart money sources, occurs at the lows. Logic tells us that smart money buys at lows and sells at highs. Even a 5th grader would have to conclude that strong hands were buying the dips.
The caveat to this final time frame is that it is the smallest and therefore least reliable. However, it can sometimes be the forerunner of what is to happen next. For that to be true, subsequent developing activity would have to start working higher, almost right away. What is needed now is confirmation, for that is how markets work. One factor lead to and confirms the other.
We did take an initial position from the long side at 1663, Thursday evening, should one want to question the validity of this commentary. We prefer to believe that our decision was led by developing market activity, and we are just following along. Time will tell.
As with gold, the same protracted TR is clear. We happen to prefer silver over gold, in general, but like both, and we “see” a slightly clearer picture within the TR. A trading range can go on for months, even years, so no conclusion is being made for either metal, at this time. What we know for certain is that as price moves farther along the Right Hand Side, [RHS] of a TR, the closer it is to resolve. No resolve here is apparent, but distinctions can still be made while in process.
The two month rally, to 2 on chart, began from the bottom of the range when sellers had every opportunity to put buyers into a hole, but did not, [could not]. The rally followed three cluster closes, mentioned because they can be important indicators. Note how the range at the top, 2, was smaller as it approached resistance. Here was the market giving a warning that the rally was meeting opposition, and it did. The subsequent correction has been labored, by comparison to the rally. Four bars, twice as long to correct, and not even fully correct the rally.
The lower low of January was just marginal, indicating no ability of sellers to push price still lower, and the close was in the upper half of the range, unlike gold’s lesser convincing close. While still locked within the confines of a trading range, edge to buyers, at this point.
The horizontal line from LLBH, [Last Low Before High], is broken into dashes to show it extends into the future long before price ever retraced back to it. The LLBH did prove to be valid support, moving forward.
Trading range = neutral. Down channel = negative. A clustering of closes can be a pause before resuming the previous direction, or it can lead to a turnaround. From a futures perspective, silver is slightly negative. From a buy-the-physical perspective, it remains a no-brainer. Keep on buying, at any level, at any price. When the SHTF happens, there may be little opportunity to ever buy at these price levels again. Same for gold.
No one knows when any economic breakdown will occur, and it may take many more months, even a few years, but insurance is only justified when one needs it the most. It is too late to get it when it becomes so obvious that one should have had it. “Better a year early than a day late” is so true, under current conditions.
Look for closes on the extreme of a range, particularly when in conjunction with some other chart point. They can be traps for sharp reversals. The daily trend in silver is down. That pretty much covers it, regardless of sentiment. Pay attention to the message of the market. It is superior to sentiment.
When the last three overlapping bars on the daily chart are dissected into 20 minute segments, we see how the strongest volume occurs at the lows. Usually, increased volume denotes a change of risk, from weak hands into stronger hands. This is a more subtle read of developing market activity on a smaller time frame, but not any less valid. The primary difference is that smaller time frame analysis are acknowledged as less reliable, unless the analysis leads to a similar direction on the next higher time frame in a lock-step fashion
For disclosure, we also took an initial position long in silver at 31.45 during evening trade on the 31st of January. One may see it as bias, and that could well be true. We did so because of the volume activity at the lows on the 30th, the failed probe lower on the 31st, after a fast move lower from the day’s high with no further downside follow-through, and what appears to be a low-risk entry should the assessed read of market activity be valid.
We just like to practice what we preach, on any time frame. It may be a short-lived trade, for we remain mindful of the higher TR time frames.