Applying The Best Technical Tools with Seasonal Analysis
By John Person
February is an interesting month as far as
seasonal trade situations. This article will look at how to improve the accuracy and risk reward parameters of a
trade by applying what I call the best technical tools with seasonal analysis studies.
First, the S&P 500 has shown a strong
tendency to decline right before the Presidents day holiday (February 20th) that can last into early
March. In addition, Crude Oil prices make a strong seasonal bottom. In the agricultural sector, Live Cattle
prices tend to see follow through strength from Januarys gains. Soybeans begin a bullish advance that can last
into late May through early June.
As for the precious metals, Gold tends to
peak out as can Silver from mid month. In fact, according to our work in the Commodity Traders Almanac, Silver
prices in the last 39 years has declined in this time period 29 years for a success record of 74.4%. One of the
worst performing years was last year as silver made a historic counter seasonal rally. The price of Silver moved
from Januarys close of 28.02 and by the end of April Silver traded to a high of 49.82, basis the continuous
front month contract.
Technically speaking I am viewing a potential
target of resistance in Silver between 37.00 and 38.00 dollars based on a variety of technical tools. First
using simple Fibonacci retracement levels from two different time and price locations we have what is called a
confluence of resistance between the 37.35 to the 37.95 area. From the high in April to the low in December of
2011, you will see we have an exact 50% correction level at 37.95. From the peak high in August to the December
low we have a .618% retracement value at 37.35.
Secondly, If you draw a simple trend line
from the peak’s of those two highs and extend out to the right it will intersect by mid month (red circle) at
the 37.00 level.
Thirdly, one of my favorite bearish candle
patterns is a Red Opening Marabozu formation that was created from the week of September 23rd.
Generally speaking markets will come back to test the midpoint of the real body (opening-closing range) and this
can act as a resistance level. Notice the similar reaction from the Red Opening Marabozu formation from May of
2011? The high made in August was just at the midpoint of that candle as marked “point “A” on the chart in
One last coincident resistance target level
is 35.52; this was created by the use of the Monthly Persons Pivot indicator. Using a daily chart in figure 2,
we see the current trend is up, and Silver is in an official buy signal as established from the green triangle
that was created on January 3rd. In the lower quadrant I am using Joe Granville’s On Balance Volume
indicator to better reflect the health of this current uptrend. Once and if prices do trade near the 37.00 level
I will be looking for a formal sell signal and confirmation from a potential divergence in volume to confirm the
uptrend has lost momentum before establishing any short position.
As shown, when combining what I consider,
the best technical tools with seasonal analysis studies we have identified a strong confluence of a
potential resistance level for silver. We have Fibonacci, trend line analysis, Candle Stick Analysis and Pivot
Points. All we need to do is wait for a signal to sell to generate to confirm a reversal to complete a time and
price objective. On the other hand do be aware if Silver penetrates this level of resistance drawn from the
various tools illustrated in this article, prices could extend significantly higher.
Technical analysis is a fascinating field, I have discovered the more tools that point towards a specific
resistance or support level the better the odds that level can hold I use seasonal analysis to alert me to time a
potential trend change, but when combined with the use of specific technical tools as I have used in this example,
we can nearly pin point the price level from where a price turn may occur. It will be interesting to see how this
trade scenario will work out, which we will follow up in depth during my presentation titled, The Best Technical
Tools with Seasonal Analysis Studies at the Traders World On-Line Expo, Friday March 2nd from 12:00
PM to 1:00 PM .
I look forward reviewing this set-up and we
will look for more opportunities at that time.
John L. Person.