Saturday 27 June 2015
Last year, the rage was the record-setting number of coins various mints were selling to the public, such an incredible demand that would surely impact the demand factor for gold and silver. Then the focus changed to how many tones China and Russia were buying each and every month, scooping up all available supply with their insatiable demand. Gold and silver responded by going lower.
The most popular gold/silver sites, the most respected gold/silver analysts from around the world all chiming in how gold and silver will go through the roof while both metals continue to still languish in the basement, as it were.
Who has not heard $5,000 gold, $10,000, even $50,000 gold by an exuberant few? Same for silver, $200, $400, $1,000. During all this time, gold has yet to hold above $1,230, silver above $18. There is a huge gap between current prices and unfulfilled pie-in-the-sky price projections. This has caused much disappointment, even delusion by some because the sum of their purchases were often under water. Huge imagined profits actually became real [unrealized] losses. [This does not mean they cannot become profitable]
We wrote a little in-house commentary, last week, Adapting To Changing Markets, to reflect how we have chosen a more focused approach to the short-term aspect of the markets, questioning the validity of the existence of free-trading markets, anymore.
The elite’s central bankers have virtually taken over almost all the Western world’s financial dealings and markets. A few, like crude oil, have become political tools.
The article is worth a read to understand the context of this commentary and how one should be in greater control of their financial destiny in these markets. The situation being what it is for the PMs crowd, there are three simple choices available. For those unhappy where the price for gold and silver are trading, sell, get out. Take a loss and move on and quit complaining. Life is too short, [unless you remain long gold and silver and have been awaiting a rally, then life has been long for the longs.]
You can hold what you have and remember the reasons for buying and accumulating either metal, or both. Attendant with the hold strategy is to keep on adding at these low prices, while recognizing that low can still go lower. The reasons for buying have not changed. In fact, they have gotten worse, and the ultimate outcome is a virtual guarantee that prices will go higher. What has been so difficult for most is the no guarantee as to when, and this gets into the context of our little commentary about adapting to market changes.
For the past few years, we have refrained from the long side of the PMs market, at least the paper portion. We have not hesitated to recommend buying and holding the physical metals for many cited reasons. As buyers, we are still long physical silver from as high as $47, and gold from as high as $1,800. Are we satisfied with our purchases? Definitely. Are we concerned/disappointed about some purchases at much higher prices? Not at all.
The reasons for buying were to protect against what seemed to be the shortening prospects of a collapsing fiat Federal Reserve “dollar” and the Western banking system. It is no different from buying home insurance to protect against fire/water/natural forces. Do you get upset when you look at your canceled checks and bemoan how you spent money on insurance and did not get to use it? Enough on the issue of holding PMs.
What everyone could benefit from is developing a set of rules for engaging in the markets. Why have rules? Rules put a market into a defined context. They serve as a guide to becoming successful in trading, and is that not the primary purpose for trading in the various markets? More importantly, having a defined and written set of rules will remove you from the emotional element of the markets few consider. Markets Are Neutral!
Almost all traders/stock participants develop some kind of emotional relationship with the markets. Many have a fear of them, cannot understand them, worry about what a market can do to them. “The market stopped me out.” “The market took my money.” “The market was rough on me, today.” You probably have your own similar kind of sentiment. All are wrong! It is the driving factor why rules are so necessary.
What is a market? It is a clearinghouse of information of the interaction between all buyers and sellers. All a market can do is generate information in the form of price and volume. That’s it! The markets are neutral, devoid of feeling. Does the market know or care what you buy/sell, when you buy/sell, and at what price? Absolutely not. You are the one that makes these determinations. They may result from the market information you see, but the decisions made are your own interpretations/perceptions and resulting beliefs about your expectations of what will develop, and that is where dysfunctional emotions get attached.
If you are experiencing fear of loss, disappointment in how the market is “behaving,” and the market is neutral, then from where are those feeling coming? From you! Any kind of emotional attachment is self-generating because the market is in control, you are not. The question is, why not?
What if you had a set of rules for participating in the market. Let us start with just one, a simple one: Rule 1: “I will only trade in the direction of the trend.” If the trend is down, my rule says I cannot buy. If gold and silver have been in a down trend, I cannot be a buyer, period. On that basis, one could not have traded in the futures for the past four years, and it is this reason why we have kept advocating not to be long futures. It does not get any simpler.
“This looks like a great buying opportunity.” “The market is oversold.” “It has to go higher from here,” etc, etc, etc. What is the trend? Down. Who cares if it looks like a great buy opportunity? Who cares if it is oversold? It does not have to go higher from a certain level. Ask how many thought gold and silver could not go lower three years ago, two years ago, a year ago, a month ago? Anyone buying had the weight of market momentum going against them and the greater likelihood of taking a loss. Was it the market’s fault for those making a bad decision to buy in a down trend?
Let us look at more complex issues but all based on the premise of the necessity of having a clearly defined set of rules.
How many have been saying the Fed’s fiat “dollar” is going to collapse, become worthless? Maybe the “dollar” will collapse and become worthless, but what do the charts say? The trend is obviously higher. The flip side of Rule 1 is, if the trend is up, I will not sell [short].
In recognition of the trend, our comments from two weeks ago, [1st and 2nd Chart] were to focus on how buyers were keeping sellers from pushing price lower and opening the door for a rally. We said the daily told a clearer “story.”
Markets are constantly testing and retesting support/resistance areas. With this knowledge, one can devise more rules that give rise to trade opportunities that are in harmony with the trend, [which vastly increases the odds of a successful trade].
On many occasions, we have mentioned how a market reacts to support or resistance will provide important information. Price retested a swing low from May. How did it respond? Volume remained relatively high, the close was near the high of the day, and this tells us buyers overwhelmed sellers at support setting up a buy opportunity.
Note that bar at support [arrow]. You will see this kind of pattern repeat in the markets over and over and over. All you need to is to develop a set of rules for how to enter into a trade under these market conditions: up trend, support tested and held, increased volume and a strong close. The probability for price to go higher under these and similar conditions is greater than not.
How do you think your trading results would be if you traded nothing but this kind of pattern set up with the trend? What you would quickly realize is that you would be in control, not the market. If the market does not show you this kind of pattern, you do not make a trade. What can the market do to you otherwise? Nothing. You have nothing to fear from the market because the market activity is not what you require.
Not every trade will necessarily result in a profit, but over a series of trades you will make money, guaranteed. But you must have a defined set of rules that captures these kinds of trading opportunities.
There also has to be rules for exiting. Trading multiple contracts, one can scale out of a position and lock in profits to reduce risk exposure. The reason for taking partial profits on the rally that followed the pattern buy signal came from a resistance area where we added a horizontal line that show where/why the rally stopped/paused. The last two small range bars show how the sellers are unable to push price lower, and the reaction, so far, has been weak. Weak reactions lead to higher prices. The trend favors higher prices. It is not a guarantee, but the odds of continuation are greater than not.
You always want the odds in your favor. How do you get the odds in your favor? Have a fixed set of rules to take advantage of market set ups, and there are so many kinds, and they all repeat over and over and over. We cannot say that enough, so we repeat.
Unusually large spikes in volume are generated by controlling interests, smart money, however you want to reference these monied participants. They are typically a transfer of positions from weak into strong hands. The public it too disparate to unify into a collective pack and move volume in a concerted effort, so it is always smart money doing the moving. Also, note where the volume spike occur…almost always at market tops/bottoms, swing highs/lows, important support/resistance areas.
This volume spike is near an important low, and more importantly, in this particular instance, it is occurring at the RHS [Right Hand Side] of a protracted TR. The farther price moves along the RHS of a TR, the closer it is to resolve [ending]. We may be getting an important clue here. Will the daily provide more detail?
There are several things going on here. First, let us acknowledge the potential for a set up that is very similar to that discussed in the fiat “dollar” chart, above. Prior week’s support is what we showed in the prior week’s chart. Another horizontal support line was added, [dashed line], to show how support is an area, sometimes layers and not just a single price, as many opt to use.
Price spiked lower, last Friday, retesting the March low and briefly going under the retest from late April, but note how price rallied strongly into the close on higher than average volume. Tuesday had a larger spike volume to the downside, but the close of Friday was higher than the close from Tuesday, and we infer from that that the Tuesday spike volume was strong hands buying, weak hands selling.
Everything needs to be confirmed, which means Friday’s bar where buyers overwhelmed sellers and took control needs to have a positive retest. It could be brief, subtle, and on occasion, not at all. One can never know, nor does one need to know. Just follow the established rules, and everything will work out.
Silver’s positively developing activity yielded a closer look at how gold was developing, and we took a more focused note that the TR since the end of March has been holding like a rock above the March retest swing low. The entire TR is a retest and one that is holding well, under the circumstances.
It is possible gold and silver are starting to see a change in sentiment.
Gold daily shows what we keep saying and something of which you should always be aware: markets are always testing and retesting, and in the process, these test can leave behind important clues. There was a retest of the recent low in May and a lower retest in June, but the June violation of the May swing low was brief. In fact, maybe you can recognize the character of the June retest. We did not label it as a retest pattern as was noted in the “dollar” and silver charts, but that is what it is. You can see how not all retests are exactly the same, but they respond similarly.
What makes gold’s retest from Friday of greater interest is the manner in which is was much more obvious in silver. Lastly, the spike in volume, arrow bar, ostensibly shows a strong rally and close on strong volume, collectively a positive statement. Sometimes, the volume can have the opposite effect where sellers have “hidden” in the rally but really took control from the buyers, and price moved lower, at leaf for a bit.
The net effect has been to show how one should always be reading the market from its perspective, based on the market’s activity and what message[s] it may be conveying. Then, armed with a set of rules, impose them on the market and decide not to engage unless and until your rules of activity are being respected, presenting you with an edge.
Trading is a business and needs to be treated like one where you are the center of every decision.