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Michael Noonan Edge Trader Plus Michael Noonan is the driving force behind Edge Trader Plus. He has been in the futures business for 30 years, functioning primarily in an individual capacity. He was the research analyst for the largest investment banker in the South, at one time, and he... More
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  • Silver - Lining May Be Fading. Price And Volume At Odds with Highs 0 comments
    Dec 3, 2009 9:30 AM

    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.

     SIZ W 3 Dec 09

    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.

    SIZ D 3 Dec 09

    Themes: Silver, Metals
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