Sunday 4 January 2009
Being Sunday, I have not yet been able to get copies of the two gold charts I had referenced.
Sails:
If it will be helpful, by all means, repost what I posted. I am curious to see the difference.
Cuttlefish:
When I said I do not follow gold stocks, and most mentioned were around $10, or less, you followed up with mention of NCM, having gone from 17 to 34. While waiting for my charts, let me address NCM. It is Austrailian, so the only chart I could find was from BigCharts.com. It is lacking in volume detail, too bunched, but similar observations can be made.
[One will have to get their own chart to follow this line of analysis.]
If you have a position, it may be better that you do not read this so as not to influence you, one way of the other. NCM has outperfomed gold, itself since the rally from the Oct lows. Gold has yet to exceed its last swing high, while NCM did go above its Oct swing high, showing relative strength, a plus.
In my earlier post, I drew the conclusion to be short gold from last Monday's close, as the first signal, and/or again on Firday's close, with a stop above 900. Let us jump to Friday's close for NCM... several factors converge.
Implicit in any anlysis I advance is that the markets are organic, they evolve as a result of influences, ultimately all coming from human input, and as a consequence, they are psychologically driven. No one has to agree. I am merely qualifying all remarks in the gathering of factual information provided by the market itself, in the form of market activity as depicted in charts. Trading is an art, not a science that can be distilled into artificial mechanics, no matter how sophisticated the effort.
It's close on Friday, 2 January, was slightly under mid-range of that day's bar, and just under Thursday's close, both occurring at the high of NCM's current upswing. Those are facts. What is the underlying logic behind those facts? What is the story of this market?
Note further that the current swing high for NCM is at 35, strong resistance when you look at previous failed rallies back in April, May, and a weaker July. Also, in March, price gapped down through 35, adding more to the significance of that price.
The fact that price closed under mid-range on Friday's bar says that sellers were present. In the battle between supply and demand, the close decides the winner. Here, sellers [supply] won...a fact. Another fact is that price closed lower than the previous day...a sign of weakness, [otherwise, the close would have been higher than that of the previous day.]
Now, consider the logic behind these facts gathered, so far. The price of NCM is at a swing high, which also happens to be strong resistance, and as just observed, at a place where selling has appeared, just the opposite of what one would expect of a market undergoing a rally. If the market is strong, would you agree that signs of buying, [demand], should be showing up?
To emphasize the apparent weakness, and seeming lack of demand, look at volume. As the market rallied into a strong resistance area, volume dropped to its lowest level on the entire chart. From that, it is logical to infer that demand buyers are unwilling, or unable to participate in this rally.
Once again, all we are doing is gathering factual information, the activity the market is exhibiting. We are not done.
See the wide range bar with a high end close, I am guessing from Monday, 22 December? A sign of strength. But wait, look at the volume activity attendant with that day. A large volume spike. Generally, when you see an unusual spike in volume, it can mean the end of a rally/trend, depending upon where it apears. This particular volume spike occurs at last July's failure rally, and, just under the identified strong reisistance at 35. Caveat emptor.
Now, this is a bit more detailed. From that day, 2 weeks ago, note the price activity, [don't forget volume] that gets NCM to where it closed on Friday, just past. It took seven more trading days to barely make a new high, with so little volume behind that labored rally....and we already addresed the character and quality of the end of this rally, so far. The point to note is that the rally to get to Friday's high took a lot of time from the bar that we thought could be strength, but apparently is not, and there was no conviction in volume.
This also fits in with the analysis of gold itself, as commented previously and independently of this chart. Both are exhibiting signs of selling activity at a point where buyers should be in control.
Given that facts just gathered, and applying some logic, all describing the overall market activity in the span covered, it seems to me, at least, that the market is telling a story. When you consider that the market is comprised of every possible participant that has made a buy/sell determination, that is powerful information to have.
Could the deduction be wrong?
Of course. Maybe I built in a bias in thinking from the start, and I am jumping the gun. That happens. Keep in mind, there was zero consideration given to mechanical devises, like moving averages, stochastics, RSI, Elliot Wave, all attempts to capture the market in a square box. Somethimes they work, and I guess that is what keeps their appeal to people trying to capture lightening in a bottle. There was no consideration to what news might have been going on. Hell, take away the identity of the underlying stock, and what difference would it make?
It could be that the activity in Gaza may prompt a buying spike. That is what stops are for. Nothing is 100%. All we want is an edge, an advantage in making a buy or sell decision. Should the market spike higher, it does nothing to alter the underlying character of the market, and it is likely to prove short-lived. If not, if price works higher, that is okay. The loss for being short was reasonable, and taking 10 trades with stories like this, or any variation of the market acivity theme, will lead to success.
If there is no spike, and gold does continue lower from Friday, the market advertized itself. All that was necessary was a gathering of facts.
Don't anybody throw stones at me for not providing a chart, or for the length of the post. Go to BigChats.com, put in NCM for symbol, and when it comes back not found, go to country and click on Austrailia, and you should get a chart to compare with this narrative.
As to its length, there are no short-cuts in gathering facts.
I trust this effort to be more successful?
The Edge