First of all I would like to publicly thank one of my readers, "Silverwood", for noting that I erroneously reported in an earlier post that silver had ended the year 2010 at the $28.00 level. I mistakenly used the LOW for the month of December 2010 instead of the closing price which on the front month futures contract was $30.93.
Based on that price, Silver is ending DOWN on the year 2011.
Note on the following chart that it has retraced 50% or half of the entire rally made from the lows in 2008 which marked the bottom during the eruption of the credit crisis and the inception of the Federal Reserve's Quantitative Easing program. That rally took it all the way to $50 before it then promptly collapsed.
Bulls would have preferred to see it close the year ABOVE that 50% Fibonacci retracement level near $29.30 but alas, it could not do so after staging a decent bounce off of this week's low near $26.
A period of base-building in a sideways trend would benefit this market as many players are simply too worn out from its wild swings up and down to mess with it right now. Silver is a seductive lover which promises all manner of satisfaction only to then break your heart with its fickleness. If it can settle down some and grind sideways ABOVE $26 for some time, then we should start seeing some confidence towards it on the part of more investors outside of the dedicated silver bulls.
If you note on the chart the line marked "SUPPORT" in dark red. That line comes in near $26.30 and extends down towards $26.15. THREE times over the last year it has held price and attracted sufficient buying to take the price higher. IT MUST HOLD in order to prevent a drop all the way down towards $22 - $21. If the bulls can take price back above that 50% retracement level near $29.30 and preferably put a handle of "3" in front of the price once again, then I think silver will be okay and attract some new buying as well as minor short covering.
In order to get a sustained uptrend going however, it is going to have to convincingly clear $35.50. If risk trades come back into vogue early next year, then this should be a relatively easy matter for the bulls to accomplish. If however risk aversion is still the order of the day, then this market is going to struggle.
"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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