What Charts Are Telling About The Gold And Silver Price Direction

Governments and all politicians lie, the media lies, charts do not.  Why not?  Charts are comprised of all the trading activity that develops each day.  They accurately chronicle all buying/selling activity and nothing more.  In that regard, charts are neutral, simply depicting the net results of all active participants.

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It is important to understand that if a chart causes an emotional reaction: disappointment, fear, elation, unmet expectations, none of these emotions come from the charts but come, instead, from you as the observer adding your own interpretation/reaction.  We do our best to present the observable facts, some of which may lead to potential conclusions, but at no time are charts used to predict the future, ever the unknown.

The fiat Federal Reserve Note, known to the world as the “dollar,” being more and more shunned by the more reality-driven, pragmatic Eastern world, is still in survival mode and will remain so until the elite’s BIS/IMF system is ready to fully let that fiat lose all credibility.

As an example of dealing with facts, note the sharp increase in volume, last bar, see arrow.  Volume represents the effort between buyers and sellers.  When a volume bar is red, it means price closed lower that the previous close, typically denoting sellers won the battle.

When the volume bar is green, price closed higher from the previous close, credit given to buyers for prevailing in that time period.

Last week was the highest down volume for the past few years.  That is an observable fact upon which all can agree.  However, note the impact of that volume [effort], on last week’s bar.  The range was smaller than the week before, and the close was above the prior week’s low.

Armed with these facts, ask yourself, if last week was the highest volume for a down week, what was the payoff for the sellers?  We do not really see one, for the reasons just cited.  If all of that effort produced little in the way of results, what does that say about the selling activity?  Their effort is being absorbed by the stronger buyers.  Here it is important to remember the trend, which is up, because the trend tends to perpetuate until it changes.

Selling efforts tend to lose potency in an uptrend.  This is the logical conclusion that can be drawn from the neutral information generated by developing market activity captured in chart form.  Based on this read, it makes sense to say that the trend remains in effect, and for as long as it does, price will trend higher.

The chart cannot “predict” how the market will unfold higher, just that the probability of price going higher is greater than otherwise.   How to take advantage of this information is the art form of reading/interpreting a chart.  That is an entirely different issue.

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The dark horizontal line is called an Axis Line because price is respecting it over a protracted period of time, initially as support, now as resistance.  It would not be unreasonable to say that until silver can regain above 18, it will remain in a down trend.

Of particular interest is the fact of how small last week’s range was, the smallest bar since last September.  Here again there is logic in the market.  The range was small because sellers were unable to extend price lower, and that is true because buyers were meeting the efforts of sellers in what was a stand-off.  If sellers could not move price lower, then that opens the door for buyers to rally the market next week?

Will that happen?  No one knows, but the odds are more favorable for that event to occur, but that does not mean sellers cannot step up and push price lower immediately, next week.  This is why charts are not predictive in nature because anything can happen.  All one can do is gauge the probability of one event happening more than another.

Note where the small up slanting line to show where higher lows starts.  The swing low in March was also a small range bar where the same conclusion was drawn: buyers stopped sellers from extending price lower, and that opened the door for a rally.  The odds favor a similar event for next week, but not one that is guaranteed.

If you note last week’s volume was still relatively high, it means sellers were making an effort, but buyers were overwhelming that effort, stopping sellers cold, at least for last week.  Odds favor a rally, but one need not develop because sellers may come back in greater force and take back control.  Anything can happen.  It is a probabilities game.

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We see the daily chart amplifying the odds for a rally next week.  The first seven TDs [Trading Days] in June had the highest volume, the greatest selling effort, all but one of the TDs were red.  Typically, smart money [controlling interests], sells highs where you would expect to see selling volume greater.  When volume is noticeably higher at a swing low, it would be smart money doing the buying and the public selling their longs at lower prices before they [may or may not] go lower.

That increased selling effort stopped at previous support.  Note the smaller rectangular bar inside the square box.  There is a clustering of closes, in addition to the overlapping of bars.  Experience tells us overlapping bars means balance between buyers and sellers, and from balance comes unbalance.  The clustering of closes is another form of balance, a resting of price before resuming the trend preceding it or reversing direction.

The last two bars show high end closes.  Closes in the upper part of a bar tells you that buyers were more dominant in that time period.  If we connect these pieces of factual observations, higher volume at support, overlapping bars, a clustering of closes, upper range closes for the last two bars, the odds are more favorable for buyers over sellers.

It is a logical conclusion based solely on developing market activity.

We used it to take a small position from the long side recognizing a limited downside risk by using  a protective sell stop [never trade without stops], and an unknown potential for a rally to the upside, a favorable risk/reward situation within a down trend.

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Gold is slightly different, but not by much.  The weekly close, two bars ago, on declining volume told us sellers were not as active as price moved lower.  That opens the door for buyers to attempt to rally price higher.

In this instance, price is in a TR.  Back in December 2013, there was a similar set up, but price had been in a steady decline moving into that swing low.  Nothing is ever the same because the participants are totally different so price will develop differently.  We just cannot know how, nor do we need to know.  A trade based on favorable probability odds either works or it does not.  It is that simple.  Over a large enough sample of favorable trading odds, the net result will be profitable.  That is the Law of Probability.

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The biggest tell for us on the daily chart are the two high volume days at 1.  That they occurred at the swing low, in a zone of support, is more indicative of buyers more active than sellers.  The rally, last week, was weak, but that speaks to not being able to predict how a market will develop going into the future.

For disclosure, we also took a long position in paper gold, based on everything covered. Time will tell.  If it does not work, another trade potential will come along.

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