Monday 10 January 2011
Last time, we recommended long silver at 29.22, based on the then
developing market activity. [See Silver - Correction Within a Trend,
click on http://bit.ly/e1wUep]. Silver did go on to make a lower swing
low, so the entry was a bit early. Friday was the fourth day of a
correction from the last swing high. In a strong trending market, one typically sees first degree corrections, lasting from 1 to 4 trading days.
The daily chart shows the most recent corrections. The top number
is the number of days correcting, the bottom number is the dollar
amount of the correction.
Just a note on the second swing low, starting from the left hand side
of the chart. We start counting corrections only when the low of the
previous day is exceeded to the downside. The first two days after
the swing high were inside days.
The caveat we noted is that the swing highs are making less upside
progress, and the last swing high was also more labored in time.
However, the trend remains up, for now, and until there is a change
in the highs and lows, we go with the trend.
If the trend is to retain its strength, then this fourth day of correction
on Friday should lead to a turning point for the intra day trend, and
that trend has been down since the 3 January high. The next chart
shows the detail of the supply trend line that must be broken, in order
to effect a change.
The 60 minute intra day chart has a supply trend line drawn from the
3 January swing high of 31.275, [not shown on the chart]. As of this
morning, if the first degree correction is to hold, we should start to see
this supply trend line broken and begin a resumption of the up trend.
Of course, that has not yet been confirmed. In early morning trade,
as we write, there has been a rally that has broken the supply trend
line to the upside. Whether it holds or not remains to be seen.
A few more observations on the developing market activity. Just as
there was a mention of a shortening of the swing high's progress, we
see the same to this intra day downside. The high volume low from
5 January was already addressed in the previous article. The lower
swing low, 28.325, did not go that much under the 28.58 low from the
5th. What stands out about that last low is the volume. The largest
bars are demand volume, and they created a rally from the low back
to supply trend line. Notice also that when that intra day rally
corrected, the volume on the correction decreased, indicating seller
pressure was less than the buying effort.
Hindsight being what it is, we acted too soon in buying the last swing
low only with regard to not giving more attention to the last swing high
making less upside progress. That was a market message saying
demand may be weakening. If price cannot hold the first degree
correction, silver may turn into a trading range, moving sideways.
The close at the end of the day may provide the answer.