"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


Tuesday, May 10, 2011

Silver shedding open interest

Based on the reported open interest and volume numbers by the exchange, silver's rally yesterday was sparked by fresh shorts who sold the bottom last Thursday and Friday and are now having those sky high margins hit them for a change. Perhaps they have now learned that what is good for the goose is also good for the gander.

The market has had a nice pop off the low down near $33 but has yet to regain its footing above the 40 and 50 day moving averages. Until it does, its technical posture, while greatly improved, still remains bearish on the daily chart. You will note on the chart that unlike gold, which has retraced half of its recent losses, silver has not yet been able to recapture the 38.2% retracement level of its recent leg lower.

These steep sell offs followed by steep recoveries are always unsettling. What silver needs is a period of consolidation which will allow this excess volatility to get wrung out and let things calm down a bit. There has been way too much emotion in this market and that is being reflected by these wide price swings. 

I like the fact that it continues to move away from the $33 level but I would feel a bit more comfortable from a bullish standpoint if it could at the very least clear last Thursday's high which is near $39.40. That would also put it above that 38.2% retracement level referenced above.

We will have to watch and see what level the stronger-handed shorts begin to dig in. There does look to be some resistance entering in here above $38 as I write this.

Once again, as usual, the shares continue to weigh on the entire sector.

Gold - 4 Hour chart update

Gold has retraced exactly 50% or half of its losses from the recent all time high to last week's low just above $1460 and is now encountering selling resistance as anticipated. Bulls will need to push price through $1520 to prevent a drift lower back down towards $1500 initially. This will lead to a period of sideways trade allowing the market to consolidate and perhaps shed some of the excess volatility.

Volume is rather mediocre at this point reflecting the relative caution among many players. A breach of $1520 should see volume intensify while a downside break of $1500 will do likewise. An uneasy truce is currently being reflected in the market between bulls and bears with neither side willing to get too agressive at the present time. Things can change very quickly in these markets however.