Silver - The PM Bellweather? Possibly.

Sunday  7 July 2013

A shout-out to I M Vronsky and his crew, [Gold-Eagle], for reaching its 475 Millionth view
since it began on 1 January 1997.  Congrats!

This is a singular look at silver because of its current position on the charts that may be
giving our first hint of potential bottoming activity.   It is a “fashionable sport” for many to
call a bottom, or a top, even though “they” are consistently wrong.  No one can tell what
has not yet happened, aka the future.

Charts speak the loudest, [admittedly, not always the clearest, but for a reason], and they
never lie.  Why do charts never lie?  They just are.  A chart is the true record of all buy and
sell decisions executed, coming from the most informed to the least informed.  Most of the
problems lie with those who form an opinion, and how they choose to impose it onto what
any given chart “says.”

We prefer to follow the message of a chart, not lead or predict what it may, or may not do.
There is a high degree of logic in charts, and we try to draw conclusions from them, just
not always successfully.  As a road map, reading charts  is superior to fundamentals,
opinions, and mechanical technical tools which all use past tense information, impose it
on the present tense, and expect it will divine the future tense.

It appears that silver is at a potential bottoming area, and very close attention to how price
develops from today forward may provide key information from which one can profit.  To
start, everything in a chart is potential until it is confirmed.  The adjective bottoming, as
in ongoing, is used because a bottom of any market is a process.  It does not happen in just
one day, and it can sometimes take several months to reverse a down trend.  Always keep
that in mind, and let the market prove itself to prevent needless risk exposure for those
insisting to be first.

It can be seen from the Quarterly chart that the current correction has run deep, but price
is nowhere near taking out the 2008 swing low, from which the bull move up began.  Few
ever look at a Qtrly chart, but the few who do are in the “smart money” category.  Smart
money does not care about daily charts,[ as most everyone else pays such close attention
to them.], because they are only interested in major moves, and it is these longer term
charts that show them best.

Longer term charts are used for context, to put a market into a perspective, ultimately
for making a trade determination.  Clearly, the trend in silver, and gold, is down.  What
we can learn from the monthly is the fact that price has reached an important support
area.

The current price has entered the identified support, and we explain that support is an
area, not just a specific line or price.  Consequently, what becomes important, as the
lower time frame charts provide greater detail, is to watch how price responds/reacts
to the target area.  What we are looking for are clues in a change of behavior, for it is a
change in behavior that leads to a change in a trend.

The weekly more clearly shows the area of support at which silver has now reached.  The
daily reveals much more.

A support line was drawn only on the weekly to show the importance of the $26 level, but
$26 shows up on each of the higher time frames, and from that, we know when $26 is
retested, it should offer resistance, certainly the first time around.   We also noted how the
Ease of Downward Movement, [EDM], sliced right through it, once broken.

Price is always important, but when coupled with volume, it can be the most telling of all
information, and it is always right up to date, for everyone to see as it develops.  Whenever
you see high volume moves, it is your key that smart money, [SM], is active in the market.
SM moves in such volume, sometimes it just sticks out.  For the most part, SM tries to
hide its intent, but it is almost impossible to do at important market turns.

The public and speculators do not create high volume; they react to it.  Everyone knows
it is axiomatic that SM sells tops and buys bottoms.  The public is always on the other
side.

Here is where the logic comes in.  Note the first high volume bar in June. [We were off
one bar to the left when we drew it in].   Price is breaking under a small congestion area.
The next highest volume bar, just to the left of the oval,  is sharply higher than the first.
It is when price broke under 21 and 20 on the same day.  So many weak longs and stops
were washed out.  [Guess who was on the other side?]

Within the oval, there are four trading days to discuss.  Red volume bars means the close
on that day was lower than the day before.  Compare the first red price and volume bar
with the one 4 days earlier, when price broke under 21 and 20.  The volume of the first bar
within the oval is almost equal to the down volume bar from 4 days ago, but compare the
size of the trading range.  The first price bar in the oval is much smaller.  Why?

Volume increased sharply, and the bar was smaller.  What the market is letting us know is
that buyers entered the market and were more than matching the effort of sellers.  Were
that not true, the price range would have extended lower.

The 2nd bar in the oval is much less subtle.  Volume was greater than the day before, but
look at the tiny price range.  Buyers stopped sellers cold!  It was like opening a basket at
the 18.50+ area, and the buyers said, “We will take as much as you have to offer.”  For all
of that increased effort, [volume], sellers were totally spent.  Buyers were totally in control
at a price level and trend that had been dominated by sellers.   There is more!

Next day, the highest contract volume and highest volume in months produced a price
bar that rallied and closed on the high, producing an Outside Key Reversal Day, [OKR].
This could be the bottom.  It needs to be confirmed.  If it is not the bottom, the market
is telling us we are very close to seeing one.  Either way, what we saw two weeks ago was
an important change in market behavior.

If we were ego-driven and wanted to impress, we could say this is the bottom.  It may be,
but we still will wait for confirmation.

We are seeing a price change from weak hands into strong hands, [in the paper market].
The 4th bar in the oval was another up day.  Volume was the smallest of the 4, and note
how the price range narrowed, and the location of the close was under mid-range the
bar.  Buying had been expended is what that bar was saying, and we see price corrected
right after.  Most of the buying has been from short-covering.

The last bar on the chart shows a down day, wide range and high volume.  While price
did decline, it did not make a new low for the increased effort.  We now get to watch more
developing market activity that will confirm, or not, the logical conclusions extracted from
the market itself.  Now news.  No opinions.  No mechanical tools.  Just price and volume
that have combined to tell the story, straight from the market’s mouth.

Silver stackers, these lower prices are a gift you should keep on taking.  Stay tuned.