Here is a new, improved version!
Below is a weekly chart of silver employing the Directional Movement Indicator, which is a favorite of mine for determining whether or not a market is in a trending fashion or is just chopping or consolidating.
The line in black, the ADX, will rise if a market is trending. It can be a bit confusing but this line will actually rise if a market is moving lower also, as long as it is a trending move lower.
Generally speaking, when the ADX line turns down, the trend has been interrupted and longs or shorts will want to close out positions at that point and then wait to see what is going to happen next.
By noting the directional lines, the blue and the red, one can then see in which direction the market is pushing.
If the market is moving upward and the trend is higher, both the positive directional movement line and the ADX will be rising in unison. At that time, the negative directional movement line, the red line, will be moving down.
If a market is in a distinct downtrend, the red line will be rising along side of the ADX or black line with the positive directional movement line (the blue line) moving lower.
When the market is not trending, the ADX will be moving lower while one of the directional movement lines will be rising and the other falling depending on where the short term direction is leading.
What looks very promising on this chart is that it is a weekly chart and the ADX has resumed its upward turn which is suggesting a new leg higher as the market is back to trending, in this case, picking up where it left off a few weeks back when the market topped.
Keep an eye on the blue line. Ideally we want to see it surpass the peak from the previous high in price.
There will be more on this as time progresses and we get a chance to see how things play out.
as always Dan, excellent commentary.
ReplyDeletei thought you may want to have a laugh, i saw this headline on another fin. news site the other day, the story is...you guessed it...from kitco:
CPM Group: Reports of Physical Silver Shortages "Blown Out of Proportion by the Silver Conspiracy Theorists"
Source: http://www.kitco.com/reports/KitcoNews20110216DeC_CPM.html
now that's a funny headline.
Leave it to Kitco to take the bearish side of anything dealing with the precious metals.
ReplyDeleteThat is the reason I will never post a 24 hour spot market chart that links to their site.
Maybe we should let those fellows over there know that the shortage of silver on the spot market came about because all of us conspiracy guys exchanged our tin foil hats for ones made out of silver.
The best way to handle those guys is to simply ignore them and pay no attention to their drivel. They haven't been right in so long that I do not think anyone can remember. They have no credibility nor should they. If I was as wrong as often as they have been, as a trader I would have been out of this business years ago.
There is no shame in getting a market wrong. All of us are human at best and we can err. The shame is not admitting it and continuing to denigrate those who did get it right. Give credit where credit is due and get over the pride thing.
My take on Kitco is they get paid to be perennially negative on PMs much as Wall St economists/strategists are paid to be bullish on equities most the time.
ReplyDeleteThanks for that trend indicator, Dan. I learn something new every time I stop by. Thanks for all you do to educate us.
"The best way to handle those guys is to simply ignore them and pay no attention to their drivel"
ReplyDeleteI concur with this point of view Dan, however, every now & again, taking the opposite tack, and holding up the folly, of those who have made the perpetually wrong calls, and shining a light onto it, also serves an educational purpose for those new to the monetary metals. It is educational to know who in the world of PM's has credibility and who does not.
Even for those not new to monetary metals, they can also refresh, and refine their existing knowledge when reading a refutation of the points made by the "perpetually wrong".
You comment serves this purpose Dan.
"Give credit where credit is due and get over the pride thing."
Aaah... "the pride thing". IMO it is the bane to profitable investing, or to successful wealth preservation.
Actually, reading this kitco story a little deeper, and using it as a contrarian market psychology signal (or one of many), would mean that if we ever see a more PM's friendly posture in kitco's commentary in the upcoming years, then that may signal some kind of top. But who knows what the situation will be like then?
And whether swapping physical for paper profits at that time may or may not be a prudent course of action? I suspect it may not.
But I'm sure we shall see when we get there. However many months or years til that time comes.
amazing that a company whose business is buying and selling pm would be perennially
ReplyDeletebearish.