Gold And Silver - Pushing On A String Amidst A Shaky Environment

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.