“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


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Monday, April 25, 2011

Silver - 8 hour chart update

The chart shows a very large volume spike on the big down candle suggesting the presence of long liquidation in a large way as many bulls rang the register once it appeared that the market was not going to take out $50. It is however a bit tricky reading this because we are also now into rollover activity where traders begin moving positions out of the May contract, which will soon be going into delivery, and into the July, which will then become the most active contract. Some of that activity tends to distort the overall volume readings. Nonetheless, the big volume down day is technically significant.

Open interest in the July is now larger than the May by the way so I will soon be shifting my analysis to that contract once its volume exceeds that of the May.

I should note two significant occurrences here. First of all, there STILL IS NOT SHORT COVERING on a large scale occuring in silver based on the continued increases in open interest as the price moves higher. There may be a short in trouble but there seems to be more than enough NEW SHORTS who are willing to stand in front of this market who are not afraid of either adding on to their existing shorts or putting on a fresh new short position. I continue to find that remarkable given the size of the paper losses that the bears have been enduring. The entity involved seems to have an unlimited wallet.

The second occurrence is that silver has not yet exceeded its all time high made way back in 1979 even after its spike higher in overnight trading in Asia on Sunday night. 

We now need to see where the market will base after this big move up and then back down. The gap from overnight was filled in New York trading, less than 24 hours after it was formed. That is too soon to be a breakaway gap meaning it looks more like an exhaustion gap. I should point out however that generally, exhaustion gaps are preceded by breakaway gaps. We have not had even one of those occur this year.

The way I am reading this is that on the daily chart we show a spinning top formation meaning that a temporary top is in the silver market but since I have not seen any short covering of significance over the last week  and since there was no breakaway gap evident on the way up, I am extremely hesitant to say this move is over to the upside or that silver will now collapse as some suggest is what normally occurs after a parabolic move.

We can definitely set back some from here but I am more inclined to look for the market to establish a new base of support instead of collapsing as some might be suggesting. What we will need to do is to allow the market to show us where this support will emerge. Currently the chart shows initial support near $46 followed by a band near $44.00 - $43.50. Let's see how things go from here.

If it is going to renew its move higher, it will need to clear $50 and hold that level on any move back.

One thing is for certain however - if the Dollar takes out 74 and cannot recover that level, silver, and gold, are both going back up.


8 comments:

  1. Dan

    I know people say they appreciate what you do.

    The limitations of language stand in the way of helping you understand what I mean when I say: I'm not trading on what you do, but it serves to reassure me we are headed in the direction I suspect we're headed for. And I know I ended a sentence on a preposition. Forgive me.

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  2. Thanks Jake - I appreciate your kind words.

    these markets are extremely dangerous and unless one is careful, they can get hurt quite seriously. The day to day stuff can grind you down which is why you have to take a longer term view of the macroeconomic picture. The situation is that the US financial house is in horrific shape and for now it seems as if nothing is going to be done to correct what ails it. Heaven help us all.

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  3. Hi Dan

    This correction is almost a relief. It has been going nuts since $35. Hopefully the price will consolidate here for a bit and then get ready for the next big run up.

    I hold physical (as advised by many commentators such as yourself) and would doubtless be feeling quite different if leveraged.

    Having said that I am planing to put some cash in to call options on silver futures now.

    Can you recommend a broker? I am looking at OptionsXpress.

    Cheers, Rad

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  4. Just looked at your weekly silver chart with the blue lines again and realise my "nuts since $35" should have been since $25.

    If it goes pat $50 soon we might have to invent a new term. Parabolicer?

    Rad

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  5. This bull has to shake off some weak hands. Newcomers on leverage and "get rich quick" dreams will be crushed. Old timers with the metal in their hand will just shrug.

    ReplyDelete
  6. Further : I am impressed that the Kitco silver chart has $1 per vertical axis tickmark. That's a first, it's usually a LOT less.

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  7. In times like these I like looking at CIGA Eric's longterm gold and silver charts. Silver has broken above its longterm trading channel, so longterm it's up. Click on chart to enlarge it.

    http://edegrootinsights.blogspot.com/2011/04/battle-to-control-trend-is-fierce.html

    Thanks Dan for your service.

    ReplyDelete
  8. Dan, you said, "The entity involved seems to have an unlimited wallet".

    Certainly China, India and Russia (or all three) could fund a serious ongoing short. Or this could be an inside job. Just wild speculation on my part, but the way this manipulation has been playing out for so long that now seems desperate, we certainly can look no further than those that stand to lose the most, especially if gold and silver go halfway to Armstrong and Alf numbers.

    Going further with the thought... could these 'unlimited funds' that the shorts have to continue the game be from a new, top-secret TARP program, where manipulation losses are paid in Monopoly money? Might some banks be considered "troubled Assets? Might the Fed itself consider itself a troubled asset?

    Does me no good to ponder or speculate any longer on this, but due to the blatant ongoing shenanigans and elitist behavior by those currently in control of all things monetary, I would not be the least bit shocked to learn of criminal activity of this sort right here at home in the US.

    Sad to say, that's pretty much what I expect. Sad, dangerous, outrageous and infuriating.

    ReplyDelete

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