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Mish's Daily: Solid or Liquid Gold?

April 28, 2016

By Mish Schneider

“The eye sees only what the mind is prepared to comprehend” Henri Bergson

Aphantasia is a hypothetical condition in which a person cannot mentally visualize imagery. For example, if you ask a person to describe even the most familiar image, a mother’s face, that person cannot. In essence, it’s a blind mind’s eye.

Professor Zeman, a cognitive and behavioral neurologist at the University of Exeter, thinks it may affect up to one in 50 people.

Luckily, in trading and investing, one can rely on charts and not a “mind’s eye” memory of price action. Even with that, traders look at identical charts yet draw very different conclusions.

Perhaps it’s because they are not literal, and “see” images imagined rather than real. Perhaps it’s because chart reading requires one to see the past in order to predict the future. We tend to make predictions based on our own experiences and not solely on mathematical probability. The trader’s dilemma- our own psychology-gets in the way.

Take the Gold chart (GLD) for example. While some were buying at the beginning of 2016, others were predicting that gold would break $1000 an ounce and head much lower.

Even to this day, some analysts “see” a head and shoulders top.


Above is the weekly chart in GLD. What do you “see?”

Do you see the last several weeks of consolidation preparing for a breakdown with an eventual drop in price back to around 110? Do you see that consolidation preparing for a breakout in price with a move up to 127.60 the 200 week moving average?

Even if you do “see” or predict which direction, do you have the patience to wait for that breakout/down from recent consolidation to reconcile?

Do you look at chart patterns? Phase and moving averages? Fibonacci sequences? What about new weekly high closes or low closes? Heck, do you even look at charts? And if so, do you look at charts across several timeframes?

If you are a fundamental trader, maybe you don’t even look at charts.

Turns out, preliminary studies indicate that those with Aphantasia compensate with a good memory or solid problem-solving skills.

Therefore, the takeaway is that when it comes to chart reading, even if you are adept at conjuring up images in your mind, make sure you compensate with solid problem solving. That means a trading plan with a predetermined risk/reward.

S&P 500 (SPY) 207 big support then 205, 202 with 200 game changer

Russell 2000 (IWM) 113.20 daily chart support. Then 112.00. Has to close the week above the 50 week moving average at 114.40.

Dow (DIA) 178 support then 174. 181.42 recent highs

Nasdaq (QQQ) Unconfirmed return to bearish phase. 105 support. 108 pivotal

Volatility Index (VIX) Another possible good reversal candle-new lows, close on highs with volume

XLF (Financials) 23.21 the 200 DMA

KRE (Regional Banks) Unconfirmed recovery phase. 40.40 some support. Weekly chart resistance at 41.08 to clear by Friday

SMH (Semiconductors) Broke 54 making that pivotal. 52.80 key weekly support

IYT (Transportation) Needs to clear 148 hold 140

IBB (Biotechnology) 266.75 the 50 DMA

XRT (Retail) 45.50 the weekly MA to close above and 44.50 support to hold

IYR (Real Estate) 77.40 pivotal, especially on a closing basis

GLD (Gold Trust) If closes the week over 120.54 it’s a new high weekly close for 2016

SLV (Silver) And we are out of the consolidation-

GDX (Gold Miners) Getting close to resistance and overbought but still running

USO (US Oil Fund) 11.42 the 2016 high way back in January

XOP (Oil and Gas Exploration) 35.55 the number to close above this week

TAN (Guggenheim Solar Energy) Room to 23.38 and better if holds 24

TLT (iShares 20+ Year Treasuries) 129.50-130 key resistance

UUP (Dollar Bull) New 2016 low