Wednesday Evening 1 June 2011
The sharp decline in silver on Wednesday, while gold rallied, did
not come as a total surprise. The extent of the decline did. Keeping
in line with the previous article dealing with context, we start with the
weekly chart. The two horizontal lines are drawn from the last swing
high, bottom line, and the last swing low, smaller top line, with the
word "spacing" to the right. We have mentioned this concept a few
times, and in the last article on silver, [See Silver - Context:
Accumulation Likely Underway, click on http://bit.ly/lcrMKG first
paragraph after first chart]. It is an indication of overall market
strength, and it says the trend is stronger than a normal uptrend,
one without spacing.
A valid question to ask is, what happened to the sellers AFTER the
large decline at the beginning of May? What followed were
consecutively smaller range bars and, to the point, a clustering of
closes. We often mention a clustering of closes as an indication
of market balance between the forces of buyers and sellers. It is
a sign of a resting spell prior to the preceding market direction
continuing, in this case, lower, or it can also mark a turning point,
as it appears to be doing, for a rally did ensue starting last week.
The small range bar tells a story in itself. The reason why that
range was so small, third bar from the end, is because sellers were
either absent or unable to extend price lower. The position of the
close, on the upper end of the range and just a touch higher than
the previous day, says that buyers were in control at an area where
sellers should have buyers on a rout.
We also discussed the fact that there was a likely transfer of risk
going on, from weak-handed sellers to strong-handed buyers.
[See 5th and 9th paragraph from the article link above]. The
weekly chart, which we did not cover in the previous article, tells
us that the trend is not only up, but up in a strong manner,
evidenced by the spacing. It could be that price may decline and
eliminate that spacing, but that has not happened, so we deal with
the facts before us in the present.
It was apparent from the daily chart from the two wide range bars
down, the second week of May, that the recovery rally was more
labored, 12 days, up to the small range bars, third bar from the end.
Herewe see the opposite of a small range bar neat the high of a
rally. It tells us that buyers were absent and unable to extend the
rally higher. That led to the Wednesday sell-off low of 36.35.
For price to move higher, above the last failed rally high at the
39.50 area, buyers need to be able to absorb the sellers, and then
There was also discussion of how markets are constantly testing
and retesting support/resistance areas, probing to see what supply
or demand may still exist. [Click on http://bit.ly/lcrMKG, second
paragraph, and numerous mentions throughout the article]. We
picked support as starting at the 36.50 area, and we emphasize
area rather than a specific price for the market may undershoot
or overshoot a single price. [See last paragraph after third chart
of linked article].
You can see how price on Wednesday retested the low, and new
support from 26 May. Will it hold? No one knows, but given the
overall trend, this is a buy area. It is too difficult to be specific for
futures traders, given the large price fluctuations and very high
margins, but it is like a fire sale for those buying physical silver
they can hold themselves, bars of any affordable price range for
an individual, and 1 oz Eagles.
For physical silver to hold, it is Buy! Buy! Buy!, for there is no
concern for margin problems, and we are of the belief that silver
will ultimately surpass $50 easily, and at least triple that amount.
Holding silver is a far superior way to grow one's wealth,as opposed
to holding any form of fiat, especially that issued from the Federal
Reserve. Always remember, it is not that the price of silver, or gold,
is going up, for an ounce is still the same ounce. Instead, the
purchasing power of fiat keeps going down, and it takes more and
more fiat to buy that same ounce of silver or gold.
Hold physical silver and gold, and we believe silver will continue to
outperform gold, as it has been in this bull market.