Michael Noonan – Applying market logic:
We often state that the market is replete with logic, even for those who do not know how or do not like to look at charts to explain the markets. Charts that explain developing market activity have been superior to all fundamental analysis over the last several years. For us, that statement would include for as long as charts have been maintained, starting with Japan’s rice market, a few hundred years ago.
Most market participants have some [unrequited] need to have fundamentals be the driving force behind their market comprehension. [See the stock market top from 2008 and the ongoing follow-up by fundamentalists who were unable to comprehend how their world of value investing had just been turned upside down. As an aside, charts were flashing a major sell signal after the top but well before the collapse]. We digress…not really. The point is valid.
There have been many calls over the past few years for a bottom in gold and silver, yet none ever materialized. Just like in advertising, the same old products are repackaged as “new and improved,” those so-called gold/silver pundits simply ignore their past and call for yet another bottom. People have short memories, except for when their accounts have suffered from believing and acting upon past false calls, and everyone is hungry to be among the first to participate in the final bottom that begins a trend reversal.
We are putting ourselves out as viewing February as perhaps signaling a potential turn in trend for gold and silver, and if true, it would mark December 2015 as a bottom. We leave the door open for the possibility of yet another new low, not as wiggle room or talking out of both side of our mouth, as it were, but regular readers of our commentaries know we like to see confirmation of any market call. Without confirmation, there can be no change, and to date, there has been nothing to confirm a bottom in PMs.
The significance of February is its decided change in market behavior on the monthly and weekly charts. The significance of the monthly and weekly charts is that both are more controlling for trend direction and, as a consequence, require more time to turn. Neither are used for market timing, the daily serves that purpose. If there is to be a change in trend, it will show up on the daily before the weekly and monthly.
While we have been reluctant to say the daily has identified a bottom for gold and silver, by the close of February, [this is Friday, the last trading day is Monday], both the monthly and weekly charts reveal a story that could not have been told prior to what has occurred this past month.
We have acknowledged that the fundamentals overwhelming support a bull market for gold and silver, beyond question. We have also stated that fundamentals do not apply, at least in terms of market timing, to reflect that overt bullish outlook. All fundamentals have taken a back seat to the elite’s central bankers that have been actively manipulating and suppressing the price of gold and silver at least since the 1960s, and not just over the past several years. What has been a far more accurate barometer for gold and silver since the market peak in 2011 than charts?
Many presume we are technical analysts. We are not. You never see moving averages, RSI discussions, conventional trend lines that keep changing when they cease to work, MACD, whatever that is, Bollinger Bands, etc, etc, etc. All are based on past tense market activity and imposed onto present tense market activity as a means for “predicting” future tense market activity. Many, if not all, have a similar consistency of a stopped clock: right twice a day with pinpoint accuracy but no so reliable on other occasions.
We read and interpret the market based upon the market’s own generated information using price and volume, over time, on the premise that there is no better an accurate source of information than that provided by the markets. Some, maybe most, see that as a distinction without a difference. If so, then why the total absence of standard tools for technical analysis, as just described?
The markets are full of logic. The objective is to read and perceive what that logic may be, for it is not always clear. For those times when it is not always clear, that is the market’s logic to say, stand aside or use a lot of caution before proceeding. The most important piece of market logic is knowing and identifying the trend, for that is the prevailing direction of the market, and one can be more profitable by trading in harmony with the established trend.
A subsidiary aspect to knowing the trend is to realize that they take time to turn, as those who have been waiting for a turn over the past few years can recognize or appreciate. Here is our interpretation of the market’s logic using the results from February’s market activity.
For the past few years, we have mentioned bullish spacing as a characteristic trait of a trending market. We have identified it since 2013, and the spacing has slowly been getting smaller and smaller over time. You can see from the chart below that it has narrowed to a point of almost disappearing, but it is still there. The fact that the spacing was not eliminated speaks for its strength as a market measure: sellers were unable to erase it, at least up to this point. [Everything in the market is subject to change.]
When bullish spacing was nearly eliminated in December 2015, note how small the bar was and how volume declined. The fact that the bar was small is the market telling us that sellers did not have the ability to move the market any lower and at a point in time when sellers have been in total control. Then, note how volume diminished. It was the lowest sell volume [red bar], since 2009. That is a message from the market.
The logic is clear. Sellers could not close out the bullish spacing evident by a small range bar at a recent market low and when volume was not there to drive price lower. While the logic is clear, does that mean one should act upon it and be a buyer? Absolutely not. That apparent support could still fail, as it did in four preceding swing lows. Then what is the point for that information? Excellent question.
Confirmation is the point. The four preceding swing lows were not confirmed. They were not validated, and knowing that the trend, the prevailing market momentum is down, it is foolhardy to trade against the trend and increase one’s risk exposure. The point of acknowledging February’s activity is that is has an increased probability of confirming that the December low could be the bottom. What could increase that probability to a certainty?
Confirmation that the next correction holds above the December low.
Not a lot of people appreciate the value of knowing and heeding the trend. The next most important piece of information is knowing that one move confirms [validates] the prior move. It is the market’s way of keeping yourself in the most advantageous position to profit from developing activity. See comments on monthly chart.
Michael Noonan is a Contributing Writer for Shift Frequency
SF Source Edge Trader Plus Feb 2016