Point & Go Figure: Minyan Mailbag - Perspective
Let's say you follow a $50 stock that trades 100k shares average daily. Now let's say that stock is knocked down a few points on a total of 6k shares. Wouldn't you buy that stock? And if that decline on that low of a volume broke some technicals on the way down, are those technicals still valid based on the low volume?
That is what happened to the gold market yesterday. A total of 6k contracts did that damage. There is no one around. You cannot garner any information from yesterday's decline. My bet is the same traders that knocked gold down yesterday, at some point this week, will cover their shorts.
You bring up a very important point. Technicals are not a be all, end all, and one sell signal in a strong uptrend, which is the case with gold, does not mean an end to a long-term bull market.
I mention buy and sell signals on Minyanville as they occur because, depending on one's time frame and activity, various technical "levels" are different for many traders. There is no one right answer.
Not all buy/sell signals are created equal. Relative strength and intermarket analysis (fundamentals, etc.) are critically important considerations, but those factors also do not exist in a vacuum and one's time frame and activity will determine how those factors get weighted when taking a position.
Having said that, however, in my opinion volume is the weakest link because it is the most deceptive and the most difficult to evaluate. In the long-run, the chart will reflect an accurate picture of supply and demand regardless of what volume on any given day suggests.
We know that nothing goes up or down in straight line, and I never have suggested, nor would I suggest, that someone make trades based on individual point and figure buy/sell signals alone. They simply provide a context for evaluation.
The long-term chart of gold, below, shows the air between here and 472. It also shows the long-term trend from the April 2001 lows. Only a move below $450 would raise eyebrows. But then, perspective is everything; one man's treasure... Short-term traders don't have the luxury of absorbing a 10% decline, while long-term bulls would likely see a move to above $450 as little more than a tiny hiccup.
Long-term Gold Chart (2x3)
If you would like a chart reviewed, let me know here.
I have added text and illustrations to the charts where necessary.
Charts courtesy Dorsey, Wright & Associates.
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