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.
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