Gold/Patience/Signs of Strength
Trader Scott’s Market Blog
December 20, 2016
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A sign of strength (SOS) and a sign of weakness are two of the most important concepts I ever learned. And the ability to wait patiently until there is an SOS can be very rewarding. But it’s a tall order, and since it doesn’t show up very often, there are other types of set ups in markets which can be also be good opportunities. An SOS can be a great timing tool on any time frame – intraday to very long term. The general rules are the same. The SOS is what “sets” the timing. A selling climax, oddly enough, is probably the best SOS. But an SOS is so effective as a timing tool because it marks a complete change of personality for a market, from a generally weak one, to suddenly a strengthening one. Maybe not a strong one yet, but at least the character of the market has changed. But there are several things about them to keep in mind. They are the most effective when they occur with either no news, or if they occur on supposedly bad “news”. Meaning, they basically come out of nowhere. What it’s showing is the strong hands have lost their patience, and they are greatly stepping up their short covering and outright buying. It’s beginning to set a foundation. Right now the strong hands are still not outright buying much, and only via options generally. And another thing is, an SOS is virtually always followed by at least one retest, often several – and often at lower levels. So it shows that on paper this sounds clear and straightforward, but in the heat of the battle it can be cloudy. And lastly, the first SOS is only the first step. But it’s when to start getting very attentive and to start looking to judge potential entry points on the reaction which invariably follows an SOS. The more SOSes, the stronger a market becomes.
Many posts have covered the 2015 time period in gold, so here are two charts from 1999 and 2008 which show this concept of an SOS. The arrows in the 1999 chart show the preliminary selling climaxes. Gold was starting to show some life by getting some quick 10% moves right from the lows. They are SOSes, but it was the explosion with the massive volume surge which was the big SOS. But per usual, it was eventually retested, and bullishly, on generally less relative volume. And in 2008 there was kind of the same situation with the huge SOS, more volatility, but the lower low selling climax. The volume stayed contained and the price exploded by 10% off the low day.
So now I’m waiting for a first bigger SOS in gold. There have been some small intraday ones marking some short term trading ranges, but that’s all. So for me, it’s just continuing to generally trade this, but not become more aggressive until the first SOS. That’s when those reactions and retests become much more important.
Trader Scott has been involved with markets for over twenty years. Initially he was an individual floor trader and member of the Midwest Stock Exchange, which then led to a much better opportunity at the Chicago Board Options Exchange. By his early 30’s, he had become very successful in markets, but a health situation caused him to back away from the grind of being a full time floor trader. During this time away from markets, Scott was completely focused on educating himself about true overall health and natural healing which remains a passion to this day.Scott returned to markets over fifteen years ago where he continues as an independent trader.