Best of the Week
Most Popular
1.The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - Doug_Wakefieldth
2.Tesco Meltdown Debt Default Risk Could Trigger a Financial Crisis in Early 2015 - Nadeem_Walayat
3.The Trend Every Nation on Earth Is Pouring Money Into - Keith Fitz-Gerald
4.Do Tumbling Buybacks Signal Another Stock Market Crash? - 26Mike_Whitney
5.Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - Nadeem_Walayat
6.Gold And Silver Price - Respect The Trend But Prepare For A Reversal - Michael_Noonan
7.U.S. Economy Faltering Momentum, Debt and Asset Bubbles - Lacy Hunt
8.Bullish Silver Stealth Buying - Zeal_LLC
9.Euro, USD, Gold and Stocks According to Chartology - Rambus_Chartology
10.Evidence of Another Even More Sweeping U.S. Housing Market Bust Already Starting to Appear - EWI
Last 5 days
Stocks Bear Market Crash Towards New All Time Highs as QE3 End Awaits QE4 Start - 31st Oct 14
US Mortgages, Risky Bisiness "Easy Money" - 30th Oct 14
Gold, Silver and Currency Wars - 30th Oct 14
How to Recognize a Stock Market “Bear Raid” on Wall Street - 30th Oct 14
U.S. Midterm Elections: Would a Republican Win Be Bullish for the Stock Market? - 30th Oct 14
Stock Market S&P Index MAP Wave Analysis Forecast - 30th Oct 14
Gold Price Declines Once Again As Expected - 30th Oct 14
Depression and the Economy of a Country - 30th Oct 14
Fed Ends QE? Greenspan Says Gold “Measurably” “Higher” In 5 Years - 30th Oct 14
Apocalypse Now Or Nirvana Next Week? - 30th Oct 14
Understanding Gold's Massive Impact on Fed Maneuvering - 30th Oct 14
Europe: Building a Banking Union - 30th Oct 14
The Colder War: How the Global Energy Trade Slipped From America's Grasp - 30th Oct 14
Don't Get Ruined by These 10 Popular Investment Myths (Part VIII) - 29th Oct 14
Flock of Black Swans Points to Imminent Stock Market Crash - 29th Oct 14
Bank of America's Mortgage Headaches - 29th Oct 14
Risk Management - Why I Run “Ultimate Trailing Stops” on All My Investments - 29th Oct 14
As the Eurozone Economy Stalls, China Cuts the Red Tape - 29th Oct 14
Stock Market Bubble Goes Pop - 29th Oct 14
Gold's Obituary - 29th Oct 14
A Medical Breakthrough Creating Stock Profits - 29th Oct 14
Greenspan: Gold Price Will Rise - 29th Oct 14
The Most Important Stock Market Chart on the Planet - 29th Oct 14
Mysterious Death od CEO Who Went Against the Petrodollar - 29th Oct 14
Hillary Clinton Could Be One of the Best U.S. Presidents Ever - 29th Oct 14
The Worst Advice Wall Street Ever Gave - 29th Oct 14
Bitcoin Price Narrow Range, Might Not Be for Long - 29th Oct 14
UKIP South Yorkshire PCC Election Win is Just Not Going to Happen - 29th Oct 14
Evidence of New U.S. Housing Market Real Estate Bust Starting to Appear - 28th Oct 14
Principle, Rigor and Execution Matter in U.S. Foreign Policy - 28th Oct 14
This Little Piggy Bent The Market - 28th Oct 14
Global Housing Markets - Don’t Buy A Home, You’ll Get Burned! - 28th Oct 14
U.S. Economic Snapshot - Strong Dollar Eating into corporate Profits - 28th Oct 14
Oliver Gross Says Peak Gold Is Here to Stay - 28th Oct 14
The Hedge Fund Rich List Infographic - 28th Oct 14
Does Gold Price Always Respond to Real Interest Rates? - 28th Oct 14
When Will Central Bank Morons Ever Learn? asks Albert Edwards at Societe General - 28th Oct 14
Functional Economics - Getting Your House in Order - 28th Oct 14
Humanity Accelerating to What Exactly? - 27th Oct 14
A Scary Story for Emerging Markets - 27th Oct 14
Could Tesco Go Bust? How to Save Tesco from Debt Bankruptcy Risk - 27th Oct 14
Europe Redefines Bank Stress Tests - 27th Oct 14
Stock Market Intermediate Correction Underway - 27th Oct 14
Why Do Banks Want Our Deposits? Hint: It’s Not to Make Loans - 26th Oct 14
Obamacare Is Not a Revolution, It Is Mere Evolution - 26th Oct 14
Do Tumbling Buybacks Signal Another Stock Market Crash? - 26th Oct 14
Has the FTSE Stock Market Index Put in a Major Top? - 26th Oct 14
Christmas In October – Desperate Measures - 26th Oct 14
Stock Market Primary IV Continues - 26th Oct 14
Gold And Silver Price - Respect The Trend But Prepare For A Reversal - 25th Oct 14
Ebola Has Nothing To Do With The Stock Market - 25th Oct 14
The Gallery of Crowd Behavior: Goodbye Stock Market All Time Highs - 25th Oct 14
Japanese Style Deflation Coming? Where? Fed Falling Behind the Curve? Which Way? - 25th Oct 14
Gold Price Rebounds but Gold Miners Struggle - 25th Oct 14
Stock Market Buy the Dip or Sell the Rally - 25th Oct 14
Get Ready for “Stupid Cheap” Stock Prices - 25th Oct 14
The Trend Every Nation on Earth Is Pouring Money Into - 25th Oct 14 - Keith Fitz-Gerald
Bitcoin Price Decline Stopped, Possibly Temporarily - 25th Oct 14

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Stocks Epic Bear Market

Copper – Huge Sell-Off. Who Is Doing The Buying?

Commodities / Copper Feb 24, 2013 - 04:15 PM GMT

By: Michael_Noonan

Commodities

Market activity rules! It is the basis for understanding the motivation for all moves, up or down. If you want to know what smart money [controlling influences] is doing, watch when volume activity picks up, especially at highs and lows for that is when a transfer of risk from weak into strong hands occurs.

You do not have to pay attention to news, what others are saying about the market. You get far more accurate, and current information on where the market is headed by reading what the market is saying about others. This comes in the form of price/volume behavior. Smart money is very deft at hiding their hand. They move much larger positions, so it is during high volume activity when one can best determine when they are active, and what they may be doing.


One thing known about the markets is that the public does not generate high volume. They respond to it. The driving force behind sharp volume increases comes from controlling influences, what we call "smart money." Another thing known about markets is that they never lie. All they do is generate information available for everyone to read at the same time. Charts provide the proverbial pictures worth more money than words, particularly when they reveal important knowledge.

Last week we posted our article, Copper - Poised For A Breakout. The market broke down, instead. We always go with the developing market activity known at the time. Change can only come when there is an unexpected change in market information. On the day when expectations were for an upside breakout, the market did the opposite, a very powerful message. It can be difficult to adjust to abrupt market moves, but that is what stops are for.

Were we wrong in the analysis? Absolutely, and not for the first time. It is okay to be wrong. The most important part is not to be wrong for long. Just move on to the next trade because profitable opportunities are always coming along. We deal in markets, not egos.

[A Commentary was posted: Copper - When Trade Recommendations Do Not Work, click on http://bit.ly/15bSPXf, on 19 February 2013]

It is newly developing market information that either confirms or negates one's position. To succeed in trading, one must always be flexible and go with the will of the market and not the will of the ego. What was is past tense and will not change. To survive, one must move forward and change with the market.

The monthly chart is from our last article, with an added comment. Anything can happen.

A valuable lesson to learn about the markets is that the factual activity, in the form of various bar ranges, from small to large, with accompanying volume, from low to high, and so much in between; these known market facts take precedence over any and all formations imposed on the chart structure. A triangle, a wedge, a trend line? They can be helpful as guides, but the bar/volume structure is supreme.

We never use mechanical tools, like moving averages, RSI, Bollinger Bands, MACD, etc. They work, occasionally, as does a stopped clock: deadly accurate twice a day. They are past tense-derived market activity imposed upon the present tense, and the two are often not related, except in the user's mind that "sees" a relationship.

The most important information on the weekly chart is the high volume from last week. A lot of longs were liquidating, and losses mounted for those late in acting. The question not enough ask is, "Who was on the other side,doing all the buying?"

As an aside and pertinent to our non-use of mechanical tools, how helpful were they in last week's dramatic change? Rely upon past tense tools at peril, from our perspective.

This daily chart shows total, [combined contracts] volume. We wanted to know if there were any distinction in that and the lead month contract, just in case.

There were none.

If you go back to the above chart, where does your eye go? Almost all look at the most recent activity. There are no accidents in market activity. Everything happens for a reason. The history behind present tense price activity provides important information, guideposts, if you will.

Nature abhors a vacuum, as do the markets. Past tense relates to present tense when the present tense relates to past tense. Take it as a circular statement, but it has meaning. A down trend in daily copper changed at the end of November. What do you see? Two very wide bars up with strong closes and increased volume. This is the kind of activity that gets retested, all the time.

There is a sell-off in mid-December with the opposite activity. Two wide range bars down with weak closes and increased volume. Typically, this action tells us sellers are in control. It looks like weak hands were bailing out and some stops were being hit. Where was the downside follow-through?

Price did violate support, but it rallied to a higher high. Who was doing the buying when so many were selling? We say smart money, based on factual market information. What needs to be known about smart money is they sell high and buy low. If smart money were doing the selling in mid-December, the increased volume would have appeared several trading days earlier, at the swing high.

Taking past tense activity and applying it to present tense, we look at last week's action. The 22 cent decline occurred on record contract volume. Who was doing the selling? Longs, established at higher levels earlier in the month, and even from January, when those positions were still profitable up until last week's high. Weak hands were getting out, many apparently not soon enough. [Always use stops.]

Where is the bulk of the volume? On the way down and at the lows. Ask a few logical questions: Would that be smart money deciding to sell on the way down and at the current low? Or would controlling influences be buying, a transfer from weak hands into strong?

Patterns appear in the markets all the time, over and over, slightly different in detail, but similar overall. The pattern of last week's decline is not unlike the pattern from December. The intensity is much greater, currently, but it is a repeat, not only from two months ago, but from similar patterns in many other markets, exhibiting the same qualities of market behavior, the human element of trading that has not changed over hundreds of years.

If you look at the last bar on the chart, it overlaps the previous one. Overlapping bars indicates a struggle between buyers and sellers. This says buyers were meeting the efforts of sellers, at the lows, not overcoming them, but slowing the selling. That is confirmed by the small net gain lower from the previous higher volume down day. The lower volume, Friday, also says selling pressure abated. Small signs, but signs nonetheless.

That same previous higher down day, second bar from the end, was the second highest volume and the smallest range down of the three from the high. The market is giving us information. When increased volume results in a smaller range, it is because buyers, in this instance, were meeting the efforts of seller and stopping the range from extending lower. These little market messages begin to add up. There was both smart money buying and short-covering on the way down. That is who is on the other side.

It takes time to repair damage, and smart money will punish those who impatiently get in their way. Let the market settle down, and then look for confirming signs that a low has been established. Why wait for confirmation? Price can still go lower. Never forget: Anything Can Happen, and often does when you least expect it.

The opening to this article was: "Market activity rules!" For a reason. Never ignore it.

By Michael Noonan

http://edgetraderplus.com

Michael Noonan, mn@edgetraderplus.com, is a Chicago-based trader with over 30 years in the business. His sole approach to analysis is derived from developing market pattern behavior, found in the form of Price, Volume, and Time, and it is generated from the best source possible, the market itself.

© 2013 Copyright Michael Noonan - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Michael Noonan Archive

© 2005-2014 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Free Report - Financial Markets 2014