Adam Hewison: Do You See the Trees In a Forest, Or Do You Just See the Forest?

There is a saying that goes like this “can’t see the forest for the trees” is a reference to people who get so involved with the details of an issue that they lose sight of the big picture.

If your involved in the markets, it is easy to fall into the trap of just looking at the minute or hourly charts, rather than considering the market as a whole. When you can’t see the market for the minutia, it means that you are deeply involved in a situation, and you are perhaps focusing too much on the inner workings of the market, and not enough on the big trends.

With all of this talk of problems in Greece, defaults, contagion and a host of other problems in Europe, it is easy for traders to get distracted, and not see the forest for the trees.

The most important element in trading in my opinion, is the direction the major trend for that market. It doesn’t really matter what the news is, if the market is doing something else. As traders I believe we have to look at the forest in this case the big trends in the marketplace.

Let’s look at them now: S&P 500 index major trend down. Gold major trend up. Metals major trend down. Crude oil major trend down. Dollar index major trend up. CRB index major trend down.
So, there you have it, all the major trends in all the markets we are dealing with right now.

Everything else is just individual trees, that don’t mean a heck of a lot in the big picture.
It takes a tremendous amount of energy to move a market and change a major trend. This kind of energy normally does not happen in one or two days. As they say in statistics, one data point does not make a trend.

Let's take a look at our Trend Analysis and Trade Triangles for Gold......

Our last remaining positive Trade Triangle in spot gold is hanging on, but is under pressure from the other commodity markets. Last month, gold closed at $1823 an ounce and last week it closed at $1656 an ounce. Currently we are trading about $30 below last week’s close. We are expecting gold to regroup around current levels. We would prefer to let this market settle down as we do have a mixed picture at the moment.

The Chart Analysis Score for gold is now at -60, indicating a near term trading range. This range is pretty broad based with support at $1550 on the downside and resistance at $1750 on the upside. I think most traders would be better off just watching from the sidelines as the volatility continues to contract. Only long term traders should maintain long positions with the appropriate money management stops in place.

December gold futures closed down $1.40 an ounce at $1,617.00 today. Prices closed near mid range today. The market consolidated recent more volatile price action today. The market was supported by higher crude oil prices, but gains in gold were limited by higher U.S. stock indexes. Bears still have the slight overall near term technical advantage in gold. Serious near term technical damage has been inflicted recently.

Monthly Trade Triangles for Long Term Trends = Positive
Weekly Trade Triangles for Intermediate Term Trends = Negative
Daily Trade Triangles for Short Term Trends = Negative
Combined Strength of Trend Score = – 70


Check out our Video... "How To Use Fibonacci Retracements"