There are two distinct advantages derived from reading charts. They are all based on factual information, in the form of executed trades, and they are a short-cut for reading about all the exogenous factors, [mostly fundamental], that impact the market.
Everyone familiar with or interested in silver knows about the dwindling supplies, the manipulation of the COMEX/LBMA paper markets, the M F Global disappearing act of accounts that stood ready to take delivery of [unavailable] silver, the inability to make good on deliveries, etc, etc, etc. All facts sufficient to drive silver to above all-time highs, yet price continues to languish in the $18 - $25 range.
We attribute silver's inability to fulfill PM holder expectations because Western world central bankers will not allow the price to rise. For years, central bankers have been winning all the battles, but the ultimate outcome of the war has them doomed. However, it may be many more months, possibly a few years, before the war is lost. What happens in between will financially ruin paper holders, [contracts, stocks, fiat currencies, etc.], and reward those smart enough to have accumulated and personally held the physical metal. See Do You Prefer Fundamental Tale Or Technical Reality? http://bit.ly/1eQNE4P
The stackers will be rewarded for their insight and patience. The latter continues to be tested, but at the same time, it offers the advantage to accumulate more at these likely never-to-be-seen-again prices for the next few generations.
Americans have been "conditioned" to "want it now!" Chinese think in terms of future outcome[s] and planning accordingly to be in a position to enjoy the benefits of what is almost sure to come. Nothing is ever guaranteed, just like tomorrow is promised to no one. We get to live in the present tense and conduct our lives as to what will bring continuity for the next day/week/month/year/decade.
The reasons for buying and accumulating silver are more pressing with each passing month. No one knows how the central bankers and their compliant governments will "change the rules." As an example, it may become a "criminal act" to buy or trade in silver. Already, there are reporting requirements in place that allows the government to track who is buying. Right, NSA?
Already the CIA has told bankers to get out-of-the-way when agents raid suspected safety deposit boxes that might contain silver and gold. Always remember: If you do not hold it, you do not own it." If anyone is storing PMs in any financial institution, you are at risk of losing it all.
Get while the getting is good.
Play the financial chess game for desired end results that are not dependent on the next rally/decline in the faux paper markets. Time is running out to buy and hold. Price does not matter. If price were to go to $200 the ounce, would you be concerned that you paid $28 instead of $22, not that $22 is currently available. Or, how about if at $200, you missed buying because you did not want to pay $28 or $35, so you have none/less when price reaches the $200 example?
Better to be smart, not "right."
What are the prospects for silver, according to the charts?
Everyone can have whatever opinion [s]he wants, but facts prevail. Everyone can have a belief about what the market should do, but charts tell you what the market is doing, irrespective of opinion or belief.
There is a high degree of logic within the markets, and it is evident when one suspends opinion/belief and considers only the known facts, available to everyone at the same time. The market is the most reliable source of information, and all we need do is read the developing "story" unfolding.
We break the monthly down into its various phases. You can see each phase has shortened its time element. The current, new phase just getting underway is way under the element of time. Logically, does the latest developing phase have enough framework to overcome the largest, just completed peak phase?
Common sense says no. Even we are of the belief and opinion that silver will ultimately go much higher, but the key word is ultimately. For the present tense conditions, that is an unrealistic expectation. From this chart, we know silver is highly unlikely to rally to $100, $200, or $300. Actually, not even $50. Facts keep our beliefs in check and context.
From this, it would be futile to expend mental energy promoting the premature notion that silver will become worth considerably more per ounce. Right now, it is struggling to maintain between $18 - $25. That is a fact.
The weekly chart zooms in on the difference between the last peak phase and the currently just developing new price phase. As mentioned, trend lines, TLs, are not the most reliable charting tool, but they can be a general guide, and right now, silver is not positioned to challenge/break the existing TL. The "Market NMT," [Needs More Time].
The reason why we keep referencing opinions/beliefs is because they are subservient to the factual market forces. Right now, the fact[s] of the market have silver "valued" where it is, rightly or wrongly within the context of your own belief/opinion. Always remember beliefs and opinions are expressions of the Ego. Egos are emotionally driven; facts are reality based.
Upon which would you rather rely?
Buying and holding the physical metal aside, [the best and most consistent choice for reasons outside of charts], near-term traders have some valuable, factual information provided by the market.
Putting price into market segments, we can see support from the first box, on the left, was broken to the downside, and another lower trading box formed. Broken support becomes future resistance, and you can see how price was unable to rally above that established broken support/now resistance from the first box.
Once price rallied above the resistance of the second box, that now former resistance becomes new support. strengthened by the same support from box 1. The resistance of box one, the $25 area, acted as effective resistance for the third and current box.
We already have a context for market expectation in buying and holding physical silver. The lower, daily time frame can be used for making short-term buy/sell decisions in the paper market. Yes, it is blatantly manipulated, but if we have some rules of engagement, then we need no be concerned about purposeful market manipulation. We can choose to buy/sell based upon sound trading rules that offer an edge.
One such rule is buying a known support area, if and only if developed trading rules determine there is an entry signal, based on past, similar market set-ups. There was one such opportunity on Wednesday, marked as Buy on the chart. It was prior to the Lying Ben comment that in line with all previous broken promises, the promise to taper would also be broken, and there would be none.
Good luck often comes to meet preparation, and we got "lucky" at a known support. The next day, note how small the price range was. That is the market giving us factual information that buyers were being matched by sellers who prevented the range from extending higher. The recommendation was to exit half the position to lock in a great gain and see what develops on the balance, with a large potential profit cushion.
Most were waiting for the Fed announcement before deciding what to do. Established rules said to engage from the long side, which was prior to the "announcement." If we were wrong, the risk was small. If the signal were timely, there was an opportunity for profit. One can never know how much potential profit may result, but in this instance, it was substantial, given current market conditions.
Charts tell us whatever we want to know about the market, in whatever context we choose to view it, and even take advantage of the available information. At the time of the trade decision, everyone else had the exact same chart structure available to them. Many simply choose not to learn how to use it. They prefer formed opinions or beliefs over facts.
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.
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