Monday Evening  26 December 2011

 The only way we relate to the markets is through charts, for they reveal the final decision-making from
ALL participants, and they are the single best source for market information.   If you are not a chartist,
the following may not be of interest.  However, while the following analysis is detailed, it is filled with
logic from reading developing market activity.  It is void of guesswork, and it sets the stage for what
one might reasonably expect going forward.

 As an example, skip down to the second chart and note the small range bar inside an oval.  Cover up
the right hand side of the chart and just deal with what was known, up to that point.  That single bar
was a huge red flag for the bulls.  No one knows how the future will unfold, but if you were told at the
end of that quarter in 2008 that there could be a problem for the long side, uncover the rest of the
chart and ask yourself if that piece of information could not have saved a lot of headaches for what
has since transpired, heading into 2012.

 If that kind of logic in reading a chart is not interesting, stop reading here.

The most important consideration for any market is knowing the trend in whatever time frame is being
considered.  Trading only in the direction of an established trend puts one in harmony with the market
forces.  This analysis starts with an annual chart and goes down to a monthly.  You will need a copy of
each chart to reference from the narrative, instead of moving the text up and down to view the chart.

The point of viewing the market from different time frame perspectives is to develop a context in order
to plan one's strategy.  There are a few important features about this annual chart that gives some
possible insight to be better able to follow market behavior, instead of trying to anticipate it and hope
the market will follow the anticipation.  

 The 2008 high formed an Outside Key Reversal, [OKR], a higher high, lower low, and in this instance, a
lower close relative to the previous bar.  When we get to the monthly, we will see how then developing
market activity provided a clue to a potential trend turn, which did, in fact, turn to sideways from up.
An OKR can be stopping action for a trend, so it was an alert for buyers to become more defensive in
holding any long positions.

 In case anyone is wondering as the analysis moves forward, the larger time frames are not used for
timing trades.  While the OKR ended in December of 2008, there were other signals from the lower
time frame charts several months prior to the end of the year.  Remember, we are interested in context.

 After the OKR, the next notable feature is how the bars have been overlapping since 2007.  When bars,
in any time frame, overlap each other, it reflects a struggle between the forces of buyers and sellers.
For the moment, there is a balance, or sorts, and that will eventually lead to an imbalance.  It is the
ensuing imbalance where trade opportunities exist.

 The two dashed horizontal lines represent the highest level of knowledge on the chart.  The high is
where sellers overcame buyers, and the low is where buyers overcame sellers.  One is future resistance,
the other, future support, both potential until confirmed.  For that reason, we conclude that the annual
chart is saying a trading range is likely to continue for at least the first several Quarters. 

 The value of analyzing different time frames is to see if there is some synergy between them.

 Granted, this is an analysis of past tense activity, but it is necessary to understand the how and why
of the past activity to better deal with what is yet to come.  If we do the analysis well, it eliminates
guesswork moving forward.  Now the Quarterly chart.

 The top, at "A," was a small range bar in an established uptrend, and it was a serious red flag for the
following reasons.  The fact that the range was small tells us that sellers were active and matching the
efforts of buyers.  If that were not true, the rally would have extended higher.  When we can understand
the logic of market activity, we can better appreciate the "message[s]" from the market.

 What gives the above interpretation a more compelling consideration is the volume.  There was a sharp
relative increase in volume, the highest for any quarter, at the point.  This tells us that for all of the
increased effort of the buyers, sellers stopped that effort cold.  For all the effort from the buyers, we
can see there was no payoff, and that, too, is amplified by the close.

 We can see the close was about unchanged from the previous quarter, and it was lower from where
price opened, just a little bit, for that same bar.  The largest volume effort up to that point produced
NO upside result, hence the market activity issuing a red flag, a huge warning.

 The Euro gives confirmation to this information by selling off sharply for the next two quarters, and
the trend has turned from up to sideways, confirmed by the next three years of market activity.

 You can see a horizontal line drawn from the low in 2005, the last swing low prior to the next up wave.
It should act as support at some point in the future.  The low in 2008 held above that support, and from
the position of the close at the upper end of the range, we can conclude that buyers were actively
supporting the market.  The sharp drop in volume says the upper end close was more likely from short
covering and not new demand.  The next quarter confirms that with an inside range, lower close.

 From two quarters of a fast move down, high to low, [second and third bars after "A"], the ensuing rally
shows relatively smaller ranges, and it takes four bars to correct the action of the previous two, and the
correction fails to recover all the ground lost.  That too, is a market message.  We can also see that the
retest rally ending in 2009 closed poorly...at the low end of the range, telling us sellers were in control.
There are more signs of weakness noted by the close was lower than the opening for that bar, and it
was lower than the previous bar's close. 

 We now have a low in 2008 followed by a lower high in 2009, a sign that the trend is no longer up.  Of
course, the red flag information would have prompted a defensive strategy well before this 2009 lower
high confirmation of weakness.  Note the size of the next two bars and the location of the closes...wider
ranges, showing how the ease of downward movement, [EDM], was greater, as it had been from the
2008 high.

 The low in 2010 was very interesting.  It made a lower swing low, adding to the character of the market's
weakness.  However, note where the low occurred...just above the support established by the last swing
low in 2005.  [These higher time frames are not for market timing; that comes from the lower time frames].
The question to be posed then was, will this potential support hold?

 The monthly will provide more insight into formulating an answer, but we see support did hold as price
rallied to the 2011 high.   The 2010 low held just above the 2005 support, and it left behind what is called
spacing.  that was  the market giving us some added information about where it held and what one might
logically expect to follow.

 From the 2009 high, price declined in two bars to the 2010 support low.  Now, look at how many bars it
took to reach the  2011 high:  four bars.  It took twice as long to not even fully recover the lost ground,
and the 2011 retest high ended with a small range bar.  You now better see the significance of the
analysis of the small range bar at "A."  The decline over the next two quarters would not have come as
a surprise, given the red flag tip in advance, just as it did in 2008.

 The markets repeat patterns over an over, in all time frames.  Once you become familiar with them, it
helps knowing how to maintain a position, giving notice to move stops or liquidate, and always know
in which direction [trend] to be positioned.  Throughout all of this, there was absolutely no need to
know what central banks were doing, how countries were faring.  The charts provided the most reliable
and unbiased information.

 Going back to the key reversal bar high of 2009, the low end close told us sellers were in control, as
mentioned above, and sellers will defend their positions from that price level.  The small range end of
rally bar of 2011 stopped at that area where sellers dominated buyers, and buyers were stopped, once
again, at the same price level, but a little lower.  The point in backtracking a bit is to further demonstrate
how market-generated information is the most reliable when you put it into a context.  It gives an astute
observer an edge when paying attention to important price levels and HOW they developed.

 As the current quarter comes to an end, we once again see wider ranges down, greater ease of
movement lower versus a more labored effort on rallies.  But...while the current quarter is a wide range
bar lower, and price is hovering low end, telling us sellers are in control, take note of the lack of net
downside progress from the previous quarter's low.  It is just a piece of information to see where it fits
in the developing puzzle.

 The greater detail of the monthly clarifies the higher time frame analysis.  Looking at the small range
high from the quarterly chart, we can see the composition of it on the monthly.  There are two important
features that give us an insight as to future market expectations, at that specific point in time.  After the
strong, wide range move up in March, 2008, price stopped going higher.  April was a small range bar with
a weak close.  A note of caution?  Need more information before deciding that.

 What follows is the developing market information that shouts caution.  We see overlapping bars.  We
already know what that indicates from the previous discussion about overlapping bars.  Additionally, the
closes are clustering.  When you see a cluster of closes, it is either a resting spell before resuming the
preceding trend, or it marks a potential turning point.

 Look at the last bar of the cluster.  A new high was made, but price closed poorly.  Where are the
buyers?!  Looking at where price closed for that month, June 2008, it was also the end of the quarter,
and from the chart above, that was the small range bar circled, on increased volume.  The red flag from
that quarterly chart was clarified on the monthly chart.  If one were not out of long positions, yet, the
developing market activity, up to that point, said to raise stops, just in case.   

 Why?  If it is a turning point, the balance from the overlapping bars will lead to imbalance, and July
confirmed it with a strong move lower.  We did not have to be aware of whatever the news was, at
the time, the message from the market itself was flashing what to do should the red flag warning
come true.  We mentioned during the analysis of the annual chart that market activity gave a clearer
warning several months prior to the close of that year.

 We see the greater detail as price neared the potential support from 2005.  There was also the low
from 2008 that could act as support, so we had two price levels from which to be aware as to HOW
price reacted to them.  The end of the decline in 2010 was a small range bar, small because buyers
stepped in and prevented the market from going lower.  This was accomplished by meeting and
overwhelming the effort of the sellers AT AN AREA OF POTENTIAL SUPPORT.  Because close was upper
end of the range, it is another message from the market for shorts to be cautious and move stops
or just stand aside.

 Just as the small range at the high was a message of caution for longs, the small range at support in
2010 was a note of caution for shorts.  It led to a substantial rally.  Once again, the developing market
activity was providing important clues, and we haven't read a single newspaper throughout the analysis.

 The question now is, how important is the 2010 low?  That low was stopping action, but it was not
necessarily ending action.  At this point, in late December 2011, there is confusion as to what to do next,
and here is why.  Price has been in a trading range for three years, and right now, it is just about in the middle of that protracted range.  Whenever price is in the middle of a trading range, our level of knowledge is at its lowest.  The highest level of knowledge comes at market turns, as we have just seen at  the
2008 high, and again at the 2010 low.  Here, in the middle, anything can happen; odds are 50-50, no
edge.  All we can do is take a look at how price has been developing as it moves further along the right
hand side, [RHS], of the trading range.

 What we know for sure is, the farther price moves along the RHS of a trading range, the closer it is to
reaching a resolve.  How long will the trading range last?  Look at silver, it lasted a few decades. No one
can know because the future has not yet happened.  [This is not to suggest that this trading range will
last for decades.  The point is, it will last until there are signs of a breakout.]

 We have already made some observations about the character of this trading range, noting that the
EDM is greater than the more labored rallies.  We know for certain that there are lower highs and lower
lows, and that is how a downtrend is defined.  These are factual observations.  No guesswork is needed.
When we compare the 2011 decline with the 2010 decline, in 2010, price dropped from over 150 to just
under 120 in 7 bars.  In 2011, price has declined from just under 150 to just under 130, a smaller drop,
but it has already taken 7 bars to get there, so this current decline is a bit more labored.  That tells us
price may not yet be ready to leave the trading range.

 Now you can better understand what the level of knowledge is least when price is in the middle, and
this detailed analysis leads to the same conclusion, but with reason, for not being sure what to do.
The overall picture remains negative, on balance, but that does not mean a rally back to 140 or 145
could not happen.  It would not change the trading range, but where the rally ended, and how could
lead to selling, it the developing activity were weak.

 At this stage, it is a function of, "If this...then that," and that entails asking a series of questions.  If
the market continues lower, exit all longs.  If the market rallies and ends the rally on weakness within
the trading range, use that rally to exit longs.  If the market rallies and ends in weakness, go short with
a stop above the trading range, etc, etc, etc.  If the market does this....do that, in response.

 A weekly chart, not included, also shows the Euro in a trading range with little edge to be had.  We can
see that trading from the edges, 2008 high, 2010 low, based on the logic of developing market activity
affords substantial profit potential, and that caliber of potential makes it worth the wait.  It cuts down
on the number of trades, but it magnifies the profit potential many times over, and isn't the purpose to
make money and reduce risk?

 [We did not consider the high in late 2009 as it would have entailed too long an explanation to explain
how a short position was warranted, and this analysis has been long enough.]

 Not many traders take a longer term consideration in their positioning approach.  There are many
advantages to be had by the process.  While a daily trend Euro chart is down, it is hard to find an edge
there, as well.  We know from the higher time frames that price is in the middle of a three-year trading
range, making the level of trading knowledge low, the most recent low on the daily did not make much
net progress below the October, late November lows, around 132.

 Those already short may want to be aware of placing stops to protect profits.  Those not in the market
are not missing anything, unless willing to assume big risks that could be equal to or greater that the
reward potential.  As to being long, the question would be, why?  We see no evidence of a turning
point to the upside.