Wednesday Evening 5 January 2011
Previous corrections in silver have led to buying opportunities. Will
this be another? We placed a bet on it for the following reasons.
Wednesday's volume on the sell-off continuation was about equal to
the declining volume from Tuesday. There is a qualitative difference
in the bar ranges, however. Notice on Tuesday that the close was on
the low end, third bar from the end. Increased volume, wider range,
low end close, all signaling that sellers were in control.
On Wednesday, same volume, similar range down, but the close
was mid-range. That kind of close tells us that there were buyers at
the lows. Notice how the low was also near previous support, from
mid-December and the 6 bars we identified as a buy, previously.
[See Silver - The Shiny Metal Shines, click on http://bit.ly/h6PJ6p,
see charts.] Initially, at least, that area should provide support.
These factors account for the qualitative difference in two high volume sell-off days.
An intra day chart will provide a closer look...
In a previous article, we mentioned how high volume bars can be
significant, indicating a transfer from weak to strong hands, or
strong hands to weak. [See Wheat - Potential Move In The Making,
click on http://bit.ly/e0obKM, 7th paragraph.] What we know about
smart money is that they buy low and sell high. Look at how much
volume was generated at the very lows of this current silver correction.
Do you think for a moment that the public was acting in unison and
deciding to buy at the lows, or would it make more sense that weak holders were jettisoning their long positions to get out before matters
get worse, [in their minds]?
We did not have access to a 60 minute intra day chart, but it would
show that the highest volume also had a mid-range close bar, which
you can see from where the next 30 minute bar closes. Clearly,
there was a high volume transfer from sellers to willing buyers,
scooping up what was available. Were that not the case, price
would have continued lower.
Once it was apparent that price was holding the lows, we stepped
in to recommend long positions at 29.22, following the lead of the
market near a danger point. How price activity develops from here
is anyone's guess. You can see from the daily chart that one
correction led to an immediate rally, whereas the last correction led
to a gradual recovery, leading to new highs.
The only caveat to this trade location is that the upward thrust has
been getting shorter between swing highs. Now we get to manage
the trade from the long side.