Best of the Week
Most Popular
1. Gold Final Warning: Here Are the Stunning Implications of Plunging Gold Price - P_Radomski_CFA
2.Fed Balance Sheet QE4EVER - Stock Market Trend Forecast Analysis - Nadeem_Walayat
3.UK House Prices, Immigration, and Population Growth Mega Trend Forecast - Part1 - Nadeem_Walayat
4.Gold and Silver Precious Metals Pot Pourri - Rambus_Chartology
5.The Exponential Stocks Bull Market - Nadeem_Walayat
6.Yield Curve Inversion and the Stock Market 2019 - Nadeem_Walayat
7.America's 30 Blocks of Holes - James_Quinn
8.US Presidential Cycle and Stock Market Trend 2019 - Nadeem_Walayat
9.Dear Stocks Bull Market: Happy 10 Year Anniversary! - Troy_Bombardia
10.Britain's Demographic Time Bomb Has Gone Off! - Nadeem_Walayat
Last 7 days
Stock Market Crash Edition - 26th Mar 19
Handy Ways to Boost Your Home Income - 26th Mar 19
US Treasury Bond Yield Inversion and Political Fed Cycles - 26th Mar 19
Golan Heights Oil all about the Shekels - 26th Mar 19
Falling Yields a Catalyst for The Gold Catalyst - 26th Mar 19
Can We Lock Up Rachel Maddow Now? - 25th Mar 19
Real US National Debt Might Be $230 Trillion - 25th Mar 19
Friday's Stock Market Sell-Off - New Downtrend or Just Correction? - 25th Mar 19
20 Days Left to Find Buying Opportunities In Gold - 25th Mar 19
Will the Historic Imbalance in Gold Stocks to Gold Price Resolve ? - 25th Mar 19
EasySMX Wireless Games Controllers Review - 25th Mar 19
Stock Market Short-term Top - 25th Mar 19
UK Population Growth - Latest ONS Immigration Statistics and Consequences - 24th Mar 19
The Fed Follows Trump's Tweets, And Does The Right Thing - 24th Mar 19
Yield Curves, 2yr Yield, SPX Stocks and a Crack Up Boom? - 24th Mar 19
Risk/Reward in Silver Favors Buying Now, Not Waiting for Big Moves - 23rd Mar 19
Similarities Between Stock Market Today and Previous Bull Market Tops - 23rd Mar 19
Stock Market DOW Seasonal Trend Analysis - 23rd Mar 19
US Dollar Breakdown on Fed Was Much Worse Than It Looks - 23rd Mar 19
Gold Mid-Tier GDXJ Stocks Fundamentals - 23rd Mar 19
Which Currency Pairs Stand to Benefit from Prevailing Risk Aversion? - 23rd Mar 19
If You Get These 3 Things Right, You’ll Never Have to Worry About Money - 22nd Mar 19
March 2019 Cryptocurrency Technical Analysis - 22nd Mar 19
Turkey Tourist Fakes Market Bargains Haggling Top Tips - 22nd Mar 19
Next Recession: Finding A 48% Yield Amid The Ruins - 22nd Mar 19
Your Future Stock Returns Might Unpleasantly Surprise You - 22nd Mar 19
Fed Acknowledges “Recession Risks”. Run for the Hills! - 22nd Mar 19
Will Bridging Loans Grow in Demand and Usage in 2019? - 22nd Mar 19
Does Fed Know Something Gold Investors Do Not Know? - 21st Mar 19
Gold …Some Confirmations to Watch For - 21st Mar 19
UKIP No Longer About BrExit, Becomes BNP 2.0, Muslim Hate Party - 21st Mar 19
A Message to the Gold Bulls: Relying on the CoT Gives You A False Sense of Security - 20th Mar 19
The Secret to Funding a Green New Deal - 20th Mar 19
Vietnam, Part I: Colonialism and National Liberation - 20th Mar 19
Will the Fed Cut its Interest Rate Forecast, Pushing Gold Higher? - 20th Mar 19
Dow Jones Stock Market Topping Pattern - 20th Mar 19
Gold Stocks Outperform Gold but Not Stocks - 20th Mar 19
Here’s What You’re Not Hearing About the US - China Trade War - 20th Mar 19
US Overdosing on Debt - 19th Mar 19
Looking at the Economic Winter Season Ahead - 19th Mar 19
Will the Stock Market Crash Like 1937? - 19th Mar 19
Stock Market VIX Volaility Analysis - 19th Mar 19
FREE Access to Stock and Finanacial Markets Trading Analysis Worth $1229! - 19th Mar 19
US Stock Markets Price Anomaly Setup Continues - 19th Mar 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast March to September 2019

Silver Price Behavior Change, Enough For A Bottom?

Commodities / Gold and Silver 2013 Jul 29, 2013 - 10:59 AM GMT

By: Michael_Noonan

Commodities

One of the largest issues many have with technical analysis is linking an understanding of their fundamental “beliefs” with prices on a chart. By fundamental, we include simply the knowledge of any number of known factors, shortages, record buying of coins, people generally positive about the “news,” as a few simple examples. There is a need for a hand- to-eye type of association between existing fundamental “beliefs” and current prices.

Beliefs are formed opinions about reality, but not necessarily reality itself. Change the belief, and you change the reality. The current wide-spread belief is that there is a huge shortage in silver, relative to the demand. From that belief an expectation of higher prices arises. The reality is, for whatever reason, price has declined to levels that have surprised almost all who follow the silver market, and gold, as well.


Technical analysis is a measure different from fundamental analysis. We will depart even more by qualifying our approach as a specialized subset of technical analysis. How so? We read price and volume behavior, over time, in the form of developing market activity. It is what one sees on a chart, price ranges, close locations, volume, time factor[s], but no more.

We do not use artificial tools like Relative Strength, Fibonacci, Bollinger Bands, MACD, Elliott Wave, even moving averages. From our view, they are past tense information being imposed upon present tense activity with the expectation of divining the future.

Developing market activity captures all of the KNOWN buy/sell decisions that impact the market. Anything that does not translate into executed prices remains an opinion about the market and has no direct effect on price. What is the difference? An executed price is an opinion that has been converted into an action, and we want to know what the results are from those actions, for they derive from smart, sophisticated players, with the most informed sources, the strong hands, all the way down to the least informed, weak hands, with a variety of skills in between.

It is this collective that makes the market, and they are best seen in the charts, via price ranges and volume, over time. It is the truest form of market reality from which a myriad set of beliefs about that reality follows.

What we endeavor to do is follow the market’s lead through the use of a set of rules for engagement. The first rule is to know the trend because it is the trend that dictates how to position oneself in the market, always with the trend. There is less of a hand-to-eye bias. It is the trend that is reality, whatever one’s belief about that reality may be.

With this editorial, we turn to the charts, ignoring the fundamentals, all the news. All we need to know has already been “priced in.” Everything else is an expectation based on news and fundamentals, and they do not always go hand-in-hand with market reality. The best example we can cite is where price expectations are/have been within the precious metals community, $50, $150, $300, and where the reality of price is, by sharp contrast, just under $20.

We are on long-standing record exhorting the purchase, and personal holding, of physical precious metals, with no recommendation for buying/holding paper futures. The two are now separate and distinct. Buy the physical at current prices, for they are likely to be the lowest prices for the next several years, possibly decades.

What is presented below are charts for the paper futures markets, currently the only price mechanism for silver and gold. That may be coming to an end, sooner now rather than later, but for now, it is what it is, and what is is reality.

The primary purpose of a trading range, [TR], is to set the stage for the next move that follows from whichever way price leaves the TR. It is a form of “stored energy,” as either buyers absorb sellers prior to a rally higher, or sellers absorb buyers prior to a decline lower.

Once price moves directionally, establishing that all-important trend, there should be on- going market activity to confirm market direction. We will not go into what is believed by most to be a purposeful, and artificial attempt to suppress precious metal prices. If that is the case, it will show up in price behavior. The futures markets attract some of the best minds in the world because of the opportunity of phenomenal rewards. Smart money is not fooled for very long, if at all.

We are not showing the larger time frame charts, monthly, quarterly, annually, but an argument can be made that they remain in bull trends undergoing a correction. Few who trade futures ever look at those charts, and we are looking for change in the present tense.

There was a large volume break, some would call it a surprise bear raid, on exceptionally high volume. If the stored energy in the trend was distribution, there should be a sizeable and strong move lower. Rather than continue immediately lower, price moved sideways, eventually hugging the 22 level.

When price stays near a price, up or down, it will generally break in the same direction preceding its arrival. 22 did give way and did so on high volume, again. However, a closer inspection does not support lower prices. Keep in mind, as you look at price and volume development, you are seeing, firsthand, how market movers are translating their information into buy/sell decisions, and how those decisions are impacting the market.

In the first two-day volume effort, the exceptionally high volume first bar was followed by another high volume buy effort. It is considered a buy effort because price closed higher. What needs to be asked is, what was the result of all that buying effort? There was none. Price failed to follow through to the upside. This is important market information.

If price cannot go higher after such an effort from buyers, who is really in control? Sellers. What is the trend? Down. Who controls in a down trend? Sellers. Did sellers just prove they could stop buyers cold? Yes. What does that mean for prices? Still lower. Did price go lower? Yes. Did developing price activity give us confirming information that price would go lower? Yes. Did it require guesswork? No, just applied logic in following developing market activity.

As an aside, do you think RSI, Bollinger Bands, moving averages, etc, could have reflected this information, at that point? Absolutely not. They may have already been pointing down, but could not convey the same information just determined by the market itself.

The next two designated volume bars provide more information. [High volume activity is almost always a sign of smart money activity. The public does not generate this level of volume, they only respond to it, usually on the other side, by smart money intent.]

There is another break lower, from weak support at 22, which is what the “hugging” of that level “told us,” as it was happening. We “knew,” in advance, that 22 would likely give way, and it did. So another break, just as price broke the 26 level, but there appears to be a difference, and differences can lead to clues.

Compare the volume on the break from 22 to that of the break from 26. It is much less. Relatively less volume means less relatively less selling effort. Why? This is a great opportunity to keep buyers under duress. Also, the range of the bar breaking 22 is not as large as the bar breaking under 26. Downside momentum is lessening.

What happens next day is opposite to what happened previously. This time, volume increased sharply over the previous day, and note both the size of the bar and the close location. The bar is smaller on increased volume. [Increased volume equals increased effort.] Logic tells us it is smaller because buyers were not only meeting the effort of sellers, they stopped all sellers efforts cold!

Look at the location of the close: upper end. If sellers were in control the close would have been on the lower half of the bar. We are being given immediate market information from the best available source, the market itself. The momentum to the downside just came to an end, at least to those of us reading developing market activity, according to the read of 1 and 2 on the chart.

3 shows a weak rally response, after the fact. This is a reminder of how a trend has to be respected for it takes time to change one. No artificial technical tools could have presented this information, not on these days, and not in such an informative manner.

We look to the daily chart for more detail and maybe more clarity.

What needs to be noted is the decline in downward momentum from price level A to B, relative to the next decline from B to C. If momentum is losing its force, it should show up and confirm it in market activity.

There is a series of numbers, 1 through 6, that alerts us to a change in market behavior. It cannot be stressed enough to remember that we are “reading” the decisions and intent of smart money as they execute in real-time in the market. Follow the logic:

1. Increased volume, wide range down, low close. Sellers in control. Next bar, higher volume, smaller range, no downside given the increased effort, and the smaller range tells us sellers lost control to buyers, at least on that day. This is a red flag, a warning for shorts/sellers.
2. Increased selling effort, again with no downside follow through. Another red flag.
3. A rally day on increased volume. There is no upside follow through, but no downside.
4. Another increased selling bar, poor close, and again, no downside follow through, and a lost opportunity to cancel the buying effort from 3.
5. After two days of marking time, after 4, a strong rally and close on increased volume,
with the close above all the selling effort of the past month. This is clearly a change in market behavior by smart money.
6. After 3, price failed at 4. After bar 5, it has taken 4 days, three of which are selling efforts, and the last one the highest volume effort, but the 4 day effort did not erase the single rally bar 5. That is a relative sign of strength when price is near its lows after a protracted decline from $50.

It is too soon to know if this is a bottom. What can be said is that rallies within a down trend are normal, and if a rally ensues from here, that part can be expected without making a determination of a trend change. It takes time to change a trend, and a change starts on the lower time frames, but we do not have enough evidence to call this a bottom, at least in the paper futures market.

A lack of downside follow through on Monday, with rallies on strong volume would tell us to expect a challenge of the 21.50 area. Let the market lead. It always does.

[Written Sunday afternoon].

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

© 2005-2019 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

6 Critical Money Making Rules