Sunday Evening 8 April 2012
When we last wrote on silver, we concluded, "...we need not be in any hurry to take a long position." That was back on 1 March, over a month ago. There was one brief attempt to go long, but it did not work, and we have been watching from the sidelines, until last Thursday. It is always best to take a position in harmony with the trend, and that means one must first define the trend in the time frame being traded, and also in the next higher time frame, to not be at cross-purposes. Since it has been a while, we will start with the monthly time frame, and work lower.
We continue to acknowledge the spacing in place, along with the failed downside probe low of December, because both have bullish implications in a market environment that has been quite negative [purposefully, by certain government friendly interests, bent on surpressing both silver and gold for as long as possible]. Despite the persistent onslaught of periodic strong selling, what has resulted, most recently, is a trading range, a non-trend,as it were, but not a down trend. In fact, the developing trading range may well be
the transition phase ending the down trend from the April 2011 high to the December 2011 low. This has not yet been confirmed and remains only a possibility, for now.
As is seen in the more labored decline of the past two months, with April just getting underway, we will see in the same lack of progress down in the lower time frames. For now, the comparison of the trading range for March is much smaller than the wider range when price rallied in January, second and fourth bars from the end. Ease of movement has been to the upside, since the December low, a small, but possibly important change of behavior.
The trading range has been framed between 26 and 36. The importance of the failed probe lower in December is that it was a confirming retest of the buyers taking control at the lows in September. We know buyers were present by the location of the close, just above mid-range the bar. Were sellers in control, which they had been up to the point, the close would have been in a lower location on that bar.
The fact that price has not been able to rally above the half-way point of the September/December decline, we can logically conclude that the effort of buyers to maintain and regain control from sellers is an ongoing battle. The slow progress lower, during the past few weeks, speaks to the lack of seller ability to press price down, again.
What is important to take away from this time frame is that there is no defined trend, up or down, and in a trading range, the level of knowledge is very low, so more time and patience is needed.
That means there is no defined trading range for the daily time frame, either. We know that previous resistance, once broken, become support, evidenced by the activity marked resistance on the left that became support in February, and has now become resistance, since price is trading below that area. What stands out, in the middle of the trading range as price moves further along the right hand side, [RHS], is that less and less downside progress is being made with each consecutive lower swing. In fact, the most recent low, last Wednesday/Thursday, was quite interesting.
There are two striking features concerning last Wednesday's sell-off: the wider range, as price slid lower with ease, and the increased volume, highest in the last four trading weeks. That should translate into a rout for the sellers. Watch out below!
But wait, there was no more below below the low? Why not?
We revert back to the observation of how the swing lows during March were making less and less progress. In fact, last Wednesday's low stopped at the same level as the low of 22 March. [Ignore
the close at the low. Silver closes are "selected" for the convenience of a certain large interest and so not necessarily reflect where price was actually trading AT THE CLOSE.]
Now we know there is not trend with which to be in harmony, but our interest is picqued at that Wednesday activity, going into Thursday. Remember danger points?!
Despite the wide range down on Wednesday, and the artificial poor close, all on sharply higher volume, expectations would be for lower prices to follow. However, looking at where the highest volume occurred, those expectations become suspect[ations?].
What do we know about smart money participants? They buy low and sell high. We also know that it is the smart money that generates market activity, [volume], when they enter a market. If the volume were highest at the low, who do you think is generating the activity, and why? [See the second sentence of this paragraph, if you missed the clue]. Weak-handed longs are selling as fast as they can to curb their [unwise] speculative long position losses. [See what happens when the trend is ignored?]
If we are right about the applied logic, there should be confirming activity on Thursday, and to Thursday we go...
The spike in volume stands out like a tsunami earthquake signal. Look how small that range is that accompanies the highest volume at the lows. There is a huge disparity between the two, and the
disparity sends a huge message from market activity, [the MOST RELIABLE source of information!], a huge red flag.
What the small range tells us, unequivocally, is that buyers were holding their arms open, taking all of the sell orders being offered, and THAT is why the range did not extend lower. Buyers took TOTAL control at the lows. That is an incredibly important piece of market information!
What happens next day? A lower swing high...bullish confirmation that buyers are in control. All we need now is a wide range up bar on increased volume to take a long position at what can best be
described as a danger point. The irony of a "danger point," as we see it, is that risks are pretty low, but we cannot really call it a "safe point."
Now, we are dealing with intra day time frames, not daily or weekly, so this is to be treated as a short-term long position for the reasons given. We do not "hope" this will turn into a larger move. It may,
ultimately, [or it may not], but the key is the time frame being traded, and ours was based upon lower, intra day time frames, and they will be used to exit the trade.
Long from 31.46 with a current stop at 31.33. Hard to find 13 cent risk trades in silver, these days. Time frames and simple logic led to the trade, noting else. We just followed the lead of the market.