Thursday 3 December 2009
This is our first article on silver. The players are different, but a chart is still
a chart. What drew our attention to write about this market is the message
the it seems to be sending, and it is one that applies to any market, not just
silver.
The weekly chart gave a signal of caution last week when volume increased
sharply, but price failed to respond. Well, price responded, but not in a
positive manner that is consistent with market direction. Volume = Effort.
When the results from effort expended are not commensurate, it is an
indication that something is out of sync.
Price opened slightly higher for the week, [second bar from the end], made
a slight newer high, then closed lower than the opening and lower than the
previous week’s close, all on greater volume than the previous week. This
tells us that sellers were not only meeting the effort from buyers, sellers were
more than a match and put price lower.
This is a shot across the bow.
The Daily chart shows even more warning signs with activity from the last two
trading days. Note the wide range rally bar for Monday, third bar from the end.
Then look at the volume below it. Volume barely rose above the Friday-
shortened trading day after the U S Thanksgiving holiday. Here is a reverse
example of effort not matching results. The decrease in volume tells us there
was very little demand, and even less selling, so price rallied with little effort,
somewhat normal in a bull market.
Tuesday’s results begin to validate the warning from the weekly when the range
of trade for the day at new highs is small. It reflects a lack of demand, an
inability for buyers to extend price higher, and the effort, [volume], was anemic.
You can see that we drew a channel on the weekly chart showing the trend
direction. Those same lines are what is seen on this daily chart. The point of
the channel line is to see that price has stopped well short of the upper supply
line, an indication of weakness that dove-tails with the price/volume issues of
apparent weakness.
In addition to seeing how the market sends messages as to the strength or
weakness of a market, we remind you again of the most important element of
any price movement: the trend. This is not suggesting one should be shorting
silver based on these warning signs. The trend has weakened, but it has not
ended, so one has to respect the path of least resistance, still up.
What it does say is for those long silver, begin taking profits and/or move up
stops in case price begins to reverse. The indicators we have covered are the
kind that can turn a trend, but the lack of volume we mentioned that shows a
lack of demand also indicates that sellers are not sufficiently present to turn
this market down. The signs of weakness are an invitation for supply to enter
the silver market an create a correction of some degree, but as of today, that
supply is not there.
Plan accordingly. We will continue to keep a pulse on this market.
