It never gets tiring to say how the market is the most reliable source of information in the form of developing market activity. Prior to the sharp sell off in mid-April, the prevailing belief was that central bankers had their golden teat caught in a demand ringer from which there was no escape. Never underestimate the [devious] ability of those in power.
No one expected Cyprus to happen, and no one expected the April sell-off to happen, at least for the reasons it did, which was massive [illegal] naked short-selling by JPM, sanctioned by the Comex and the Obama administration, who has yet to uncover any illegal doings by those who control Wall Street, [along with his administration.]
Regardless of the how gold and silver prices broke down, they did, and the market was telling anyone who paid attention that the odds favored lower prices. We certainly did not heed the higher probability, as was true of most of the PM community. [PM = Precious Metals].
Lesson to be learned. Never go against the market. It does not matter what your beliefs are, for beliefs are not reality, just an opinion about reality. It does not matter what the fundamentals are. All the fundamentalists and "value" investors had their world of beliefs turned upside down when the stock market crashed in 2007-2008. The signs of change were still there, but "unseen" in the light of day.
Where? In the charts, as they depicted developing market activity. The charts are neutral. When one begins to apply exogenous "technical" tools and superimposes them onto a chart, in an endeavor to "interpret" what any market is "saying," the technical harness may not always fit. Then a chart is no longer neutral.
What is a "technical harness?" RSI, Moving Averages, Bollinger Bands, MACD, Elliott Wave, et al, you name it. Many have their favorites and swear by them. They do not often swear at them when the tools fail, and most of them fail more often than not. You never see any such "tools" on our charts, for a reason. As a disclaimer, we do not pretend to be the best interpreter for reading developing market activity, but it is all we do.
Technical tools are all past-tense derived and imposed upon present tense market activity. Past behavior may be the best predictor for future behavior, [a Dr Phil-ism], but how any market performed in the past is not a guarantee of how it will perform in the future. One bull market is never the same as a previous bull market because the participants are not the same, so the behavior of the newer players will not be the same. Price may trend up, as it did in a previous bull market, but never in the same way. History bears that out.
What is the most important thing any one can know about a market? [At least from our view, based on market wisdom from past experts]. The TREND! Once you know if the trend is up, you then need a game plan on how to participate from the buy side. When the trend is down, the plan is how to participate from the short side. If there is no trend, then the odds are not favorable for either game plan. Plan accordingly.
What can be said for both gold and silver is their price trends are down, whether viewed from the Potemkin COMEX, or whether viewed from the known strong demand from any part of the world.
Is there anyone unaware of these two opposing forces? For right now, the world of make- believe is winning. What is right or wrong does not matter. What relationship supply has to demand does not matter. Whether central banks can make delivery of physical does not matter.
No matter what the disdain is that PM holders, and the rest of the world, have for the Potemkin paper exchanges; no matter what the demand is world-wide, what the premium is over spot; no matter how empty central bank [gold] cupboards are, what is the one source to which everyone remains riveted? The Paper Market! What else can be said?
Here is what the paper charts are saying:
First of all, homage is paid to the trend, still down, for both gold and silver. We have been unabashed advocates for buying the physical, at any price, for the past several months. We have not been advocates for buying futures against the trend, with a few [many profitable] trades on the long-side off support, and some trades were losers.
Ample explanation has been given to the staying power of a high volume, wide range bar and a close in the middle, [See Markets Provide Us The Best Information, click on http://bit.ly/18pk8yE, first chart and two paragraphs above]. Price continues within the bar's established range, and the past three week's closes have been within a small range. The market is saying there is a balance between buyers and sellers, [at an area where sellers should be dominant]. From balance comes imbalance, and we can expect price to move directionally, once the imbalance is triggered. Probability favors the downside.
Probability is not certainty.
The daily chart is an excellent example of how developing market activity reveals the most likely market direction. By knowing that the trend is down, it puts how the market has been unfolding into a cohesive process that typifies weak markets.
Even though the trend is down, we do not know how price will react to the potential support area at 1340. We know the signs to look for, wide ranges down, increased volume, if support is to fail, but until price develops, we cannot make any determination, except to be prepared for the how of then developing market activity.
Silver looks weak, plain and simple. Note the inability for a any kind of market rally over the past seven weeks.
Even though the weekly looks weak, one should not take anything for granted. The daily chart is more interesting, and it may be the best barometer for what to expect, moving forward.
You can see the difference in the price distance from the first box of clustered closes, on the left, and the next one, in the middle. There is very little downside from the last box, relative to the distance between the first two. Are we getting a market clue that sellers are running out of effort?
Developing market activity my be the truest and best source for reading a market's intent, but sometimes the understanding is only after some indication of confirmation. This is why we say to follow the market signals and not try to "predict." No one can accurately tell what will happen before it does. The way to follow the market's infallible lead to have a set of rules of engagement.
"If, Then." IF this happens, THEN do that, but only in that order.
The close on 15 April's sell-off was high-end on the bar, telling us that buyers not only met the effort of sellers but overwhelmed them to get such a strong close. Under these market conditions, the buyers were "Smart Money," not the public. We see more evidence of the same kind of support at 1, in mid-May.
Note the response for the next 12 trading days. Price stayed in a tight range. Where were the sellers? Why didn't they show up to press price lower when it was to their advantage? Did they finally show up on Friday with a sell-off on increased volume?
Compare volumes 1 and 2 and the difference in range size. 2 has strong volume but the bar range is half the size of 1. These are market messages. Sometimes they are hard to comprehend, at least with certainty. For now, the developing market activity is raising more questions which are not necessarily supportive of a market in decline.
How silver reacts to the potential support bars from 1 and 15 April will give important clues on what to expect as to which force remains in control. Right now, it is the force of supply, however suspect it may be. Confirmation is required, either way.
We would be remiss to not say, Buy The Physical!
