Monday 3 January 2011
On 28 December, we stated the breakout in silver could be significant,
and it has rallied almost $2, since. This move reflects the power of a
trend, and there are always clues along the way that reinforces the
strength behind a move. Back on the week of 8 November 2010, silver
rallied to new highs, 29.34, but by week;s end, it closed at 25.94, near
the low of the week. Volume was sharply higher, the highest in over a
decade. New high, low close, very high volume are all symptoms of
sellers being in control, and in fact, it appears sellers overwhelmed
buyers on a rout.
Typically, price will sell off and keep buyers on the defensive. Note
a similar bar formation from the week of 17 March 2008. Price went
sideways, unable to garner much of a rally after the strong reversal,
and new lows followed for the next several months. In this most recent
example, the following week, there was some downside follow-through,
but price closed higher than the high volume week. With all of that
volume and an inability to maintain lower prices, it was the market's
way of ending a message. Just a few weeks later, price exceeded the
previous high, erasing all of the effort of the sellers. The message
was, this trend is strong, take heed.
We did not use this information when recommending a long position,
last week, [See Silver - The Shiny Metal Shines, click on
http://bit.ly/h6PJ6]. Instead, we relied upon the sideways formation
with upper end closes in a known up trend, and we cited several
factors, 4th paragraph in article. The point to be made is simply to
always respect the strength of a trend, trade in harmony WITH it,
and DO NOT go against it. It is for this reason why we keep saying
knowledge of the trend is the singlemost important piece of
information you can have.
The KISS principle at work.