Ok, lets look a few things and I'd like to share a few thoughts
Gold-
We saw gold hit 1306 on 5/2, that was the most recent yearly high. Since then, gold has manged to form a range, chop around and then this week, dropped out of the range.
Those 1260s didnt hold despite a few bounces from there. You might recall that from 2/11/16, that was one of our early 52 high break out points. Gold did attempt a few times this week to reach that area but could not settle there.
For next week, we want to observe two things-
1- can gold be bought up back into that range above the 1260s?
2- Can gold put in a series of steady higher highs and higher lows instead of lower highs and lower lows next week?
Failure to get back into the range and make lower highs and lows would put gold into a lower range. However, we cannot rush to judgement and say that is what happens next week. Let price show us what happens, do not react first. Either the buyers show up and push it back into that range or they dont, simple as that.
I want to stress again, let the market do what it wants to do. Do not go into next week with your mind filled with thoughts that this is what will happen. Just follow price.
Watch and see if 1249.60 holds for next week. If it slices through there, see how price reacts. Conversely, look to see if gold can get over the Friday high of day, which is 1261.20, those are the key numbers to watch to start the week.
In the chart I have zoomed out a bit to show our first big range we saw gold develop. We can see over two months, despite breaking out to 52 highs after 2/11, gold had some deep pull backs and then a lot of chop and nothing. Should be no surprise then that then some folks would get their panties in a bunch with a drop last week after weeks of nothing going on.
Silver
Same thing here as gold. Again to recap- We had that range of 16 broken that lasted for 2 months that resulted in a very explosive move of nonstop buying. The first yearly high was made on 4/29, 17.78 and a proper buy point. Notice how we made another 52 high and from there we have seen silver form a range and break lower.
We have seen this before, where silver broke the range of 16 to the downside and then found buying. It did this repeatedly and found buyers each time.
Its very simple, just as with gold, either buyers step in or they dont. Same principles apply here, higher highs and higher lows will get price higher and back into the range whereas lower highs and lower lows will result in lower prices. Dont over think this and solely pay attention to price.
At some point the buyers will step in. Dont rush ahead of yourself and just say "oh yea, this is done". If you have been buying at 16s you still have a comfortable cushion. If you bought the first yearly high of 17.78 you are below it but that is a proper buy point. We will discuss later a bit about these 52 high b/o points.
The number to watch for next is first if silver drops below the Friday low of day, which was 16.43 and pay attention to the Friday high of day, which was 16.67.
Let us talk briefly trends, patterns. I really cant go into every single detail for many reasons but all trends, patterns are dictated first by the asset. Each asset has its unique personality. Each asset reacts according where it it is in price and where its at.
Some assets, such as gold and silver, must deal with overhead supply. Remember, price has memory. I have repeated this many times, the simple fact that areas will have sellers and buyers.
Also remember market conditions are important to how an asset works. SOMETIMES, assets can break out to yearly highs but if market conditions are not ideal, break outs and break downs will not work or just not ready to go. The only element that helps things along is time and time alone.
Let us circle back to 52 high b/o (break outs). Some 52 high break outs act-
1- in a steady grind up, where buyers buy up every single dip and a 52 high is hit
2- some 52 highs breakout, then falter, pull back very deeply in price and then months later run back up
3- some 52 highs are violent, with major run ups and then collapse completely and again, these are determined by the asset. Some biotechs fall into this category. Some fast running tech company IPOs fall into also, as an example and other stocks do this pattern.
AGain, each and every single asset has a unique pattern and personality. Let me show you some examples-
AMZN
Take a look at this chart. From June 2014,
Amazon.com has continued to break out to 52 highs. Overall, a very strong uptrend but with violent deep pull backs. But each and every single time, it has consolidated those pull backs and raced higher (52 high break outs b/o indicated by the green arrows). You can see how profitable it has been able to play the 52 high b/o if you wanted to just play the b/o and then dump it. In other cases, if you were holding and adding, you are sitting on some major profits.
IF you bought right, added on the way up and then stopped adding, you are up big. This chart only shows to mid 2014, AMZN has been running for many years. The power of the trend and buying 52 highs is clear to see here, with DEEP violent pull backs.
GPRO
Here is an interesting pattern of an uptrend that experienced rapid buying early at the start of the IPO and then 2 years later, fizzled out. Notice where the green arrows to the left, month after month of buying, relentless buying that eventually stopped. In this type of pattern, the rapid, nonstop buying resulted in the stock losing its uptrend and entering its current downtrend.
Sugar ETF
Yet another commodity, as expressed in an ETF, I am using it solely to demonstrate price action. Notice that a 52 high break out occurred and then sugar then collapsed hard, retraced beyond its break out point but then after several months, as of Friday, made yet another FRESH yearly high. Notice that it bounced from a range and then it was off to the races again.
FNV
Take a look here. Look at the green arrows, all 52 high b/o points. This miner is in an uptrend. The earnings reaction was positive. Yet on Thursday (noted by yellow arrow), it dropped, retraced ALL of its gains going back to 2/24, where then it staged a very strong reversal and is in the process of putting in a series of higher highs and higher lows. In this pattern, the buyers said enough is enough and stepped in at a break out, illustrating our point that price has memory, in this case buyers showed up,, you guessed it, in an area where FNV had broken out.
The 52 highs have been sloppy and ugly. It is still there, hanging in to fight to stay in its uptrend.
So what is the point in these charts. It is illustrate that
1- all assets have unique characteristics to them
2- some have super sharp pull backs but it does NOT negate the uptrend
3- It is normal to see a break out tested and go lower from the first 52 high break out area and in some cases where a trend line is broken.
For this reason I highly stress to not get ahead of yourself and get all in a huff because a pull back happens in an uptrend. Allow it to play out. Manage the risk, the dont jump ahead.
Should we pull back more, you can either-
1- if you have profits, take them off the table if you dont want to go with the deep pull back
2- if you are down from buying the 52 high b/o, you can either stop out now or use a percentage stop. I would not go more than 10%, as an example.
Tiring as it may seem, I will say it again- Remember how I was saying in this thread, that when you buy, buy at the start of the 52 high or break of the range. Leg into it. I know some of you want to double down, so to speak. However, if you do that, in a uptrend, you can find that one time you do it, is when you get shook up.
You must balance your position size with the asset you are putting money into along with your emotions. If you are buying far from the 52 high b/o and putting in a lot of money, its going to be very hard to handle the emotions of "is this uptrend done?" "oh god, I am underwater by X amount" to "hey, I thought this was in an uptrend, I cant stand this, its going down".... it is going to play tricks with you.
Anyways, let next week come, go with the flow and lets take each day by day and not rush to judgement. If this trend is going to go dormant and do nothing for awhile, thats OK. However, I want to stress again and again and AGAIN that some uptrends, especially when there is overhead supply, will be very supply. In the case of gold, silver and sugar, that is very TRUE.
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Posted 05/19/2016 10:30 pm
