Saturday 3 January 2009
From a longer term perspective to a shorter view
of gold, having just finished updating charts for the
past week, this is what could unfold:
[Apologies for the lack of charts, but that is not
within my limited scope of abilities.]
I reference charts and how they depict the forces
of supply and demand, along with volume. It
reveals the net activity of every possible source
of market participation...the footprints of all the
players, who cannot hide detection.
This is market activity, the most reliable source of
information, derived from the market itself. And,
it is factual data. From this information source,
one can often make valid assessments of where
price may go, depending upon the time frame
employed.
Here is but one way in which to view "technical
analysis."
Late October through November, gold built a base
from which a rally ensued, to 835, about 55 $ above
the trading range high, 780, 30 October.
The next rally, to mid-December, stopped at 885,
about 50 $ higher from the previous TR high, 835.
The high on 17 December, a relatively wide range bar,
closed slightly above mid-range, saying there are sellers
up there. The previous bar, 16 December, was also a
relatively wide range bar with a poor close, again, an
indication of sellers present.
[A range depicts the battle between supply and demand.
The close says who won.]
The bar on 18 December, similar to the two just
described, with a low end close, sellers still present.
For the next four days, price holds in smaller ranges.
This is detailed, but very revealing. Of those four
days of consolidation, the two largest bars show
under mid-range closes, and the message should
be apparent: selling is present.
That small range which contained the sell-off from the
885 high held at the top of the prvious highs from the
end of November. [previous resistance becomes
support; previous support, once broken becomes
resistance.]
What we are doing here is gathering information
from the market in order to ultimately make an informed
decision. It takes more time to explain, but it does
provide direction, eventually.
There is a rally out of that small range to the upside.
The bar is wide range, showing ease of movement to
the upside, but it comes clothed in caveats...
26 December bar.
The close is at the top, can mean exhaustion, but we
do not know that, yet. The reason for taking that point
of view, [beyond experience] is because that wide range
bar to the upside does not make any advance over the
recent highs. That is what should be expected in an up
market, [which is not saying gold is in an up market.]
More telling, the rally occurs on anemic volume, and
the lack of volume says there is not a lot of buyers
participating to the upside. Isn't that what one would
expect from buyers, if they are in control. Yes, IF they
are in control.
Last Monday, price made a marginal higher high above
885, emphasis on the word marginal. Look at where
price closes...right on the low.
The message of the market for that day?
A recent rally high that should excite buyers and give
reason to route the sellers, if price is to go higher, says
buyers are not willing, or able, participants. [= the
message.] So it is the sellers that are obviously in charge.
Obvious now that it is pointed out.
Also, note the lack of upside thrust of this recent high
to that of the previous thrusts, in the area of about
50 $, +/-.
Too soon to say?
Stay with me.
Tuesday's bar is lower, and the close is again low end.
The market is saying that selling is in control, based
on the observable facts, and all we are doing, at this
point, is observing HOW the market acts as it makes
a rally high to the current level.
Wednesday was a pre-holiday market, so volume was
sufficient to make a souflle, but the range was wide
to the upside, again on air, with a high end close that
fails to take out the high from the previous day.
That brings us to Friday, 2 January. Price rallied above
the previous two day highs, but the close was just under
mid range, and lower than the previous day's rally close.
Without getting into too many observations, that little
high from the past week may have attracted some new
buying, but the activity could very well be a trap.
Can this information be put to profitabe use?
Go back to 10 October. That is a huge range, a
vertical bar to the downside, and on a sharply
increased volume day. That bar says nothing but
sellers were present to push the market down, at
will, with buyers unable to stem the tide.
[That was the market's message then, and subsequent
activity confirmed that message. Right now, price is
simply retesting that supply area.]
Friday's activity is going up against that huge supply
bar. When the activity of the past two weeks is
put into a context...yes, price is up, but it is not
exhibiting strength...we can draw a reasonable
conclusion. In fact, [and we only like to deal with
facts], the internal interpretation of the recent market
activity strongly suggest seller are present more than
buyers.
Sellers = supply, buyers = demand. Based on the
principle of supply v demand, supply is flexing itself
more than demand. If supply is greater than demand,
what can be expected?
Using the facts gathered, so far, let us take a look
at a weekly chart. What will not be apparent, until
it is pointed out, is that the range for the week is
the smallest since the October low.
What does a smaller weekly range say? It says that
sellers were in control and kept the range from
expanding higher, and that prevented buyers from
making any further gains to the upside. Supply is
in control, according to observable facts.
Note the range of the bar two weeks earlier, and
note where price closed for the week. That week's
message from the market should begin to make more
sense. The last week was an inside bar, contained,
and the close was right on the high. On a daily bar,
it was earlier noted that a close on the very high
could mean exhaustion...buyers were spent, too weak
to push price higher.
Also from the weekly chart is the most significant piece
of information of all.
Do you see it?
The trend. It is down. In a down trend, we should be
looking for opportunities to sell. Isn't that what we
have been able to glean from observing the quality of
market behavior on the daily chart, and the weekly range,
small, [contained], and a mid-range close says sellers
are in charge?
A proper trade is to be short with a stop above 895 or
900 hundred, [to avoid spike-like one day behavior].
There is no need for any mechanical indicators, drawing
converging lines, [that may somethimes work], Elliott wave,
etc, etc, etc.
Nope. The market itself tells us everything we need
to know, and it tells us in a timely fashion, minimizing
guesswork, and minimizing risk exposure.
Could this analysis be wrong?
Absolutely!
But....
I will take trade setups like this all the time, knowing
that the timing could be off a bit, but using and
relying upon the factors of supply and demand, market
principles that are, have been, and will continue to be
relaible and true, and will consistently lead to more
winners over losers.
For me, being short from Monday's close was obvious,
for the reasons cited. Friday's close is added
confirmation to be short, add to positions, or go short
if not yet having taken a position.
Market activity. There ain't anything any better.
Just one person's opinion.
Happy New Year!