Wednesday Evening 12 January 2011
Continuing along in tracking a current silver trade, half the position
was liquidated, [See Silver - Turning Point Confirmed, click on
http://bit.ly/gvyfeE, first three paragraphs]. We are using the intra
day time frame as a trigger, but the daily chart remains the guide.
For now, although the trend remains up, as there are still higher
swing highs and higher swing lows, for the current trade, we are
viewing present tense market activity as a trading range, for
This updated 30 minute chart shows how the "Sell half-position at
29.82" recommendation fared. It was entered during Tuesday's
trade and was triggered in the overnight session. We saw this as
prudent, for even though silver has been one of the strongest trends
in the futures markets, it has been flagging a bit, of late. The last
three small trading range bars, look again at the daily chart, above,
indicate that demand, [buyers], is weak. However, each bar has a
higher high and higher low, so while demand can be construed as
weak, supply [sellers], is even weaker.
The protective trailing stop on the position was raised to 29.38,
also during the day on Tuesday, due to the two bars with arrows
underneath. Both show an attempt to go lower, but by the end of
the period, the close was on the high end of each bar. The
message, in both instances, was that buyers were present,
supporting the market and overwhelming the effort of the sellers.
Because that area had been defended, as a matter of an
observable fact, we placed the protective stop just under there,
at 29.38. The overnight session low was 29.395, confirming that
price level was being defended.
There are not a lot of helpful clues for maintaining the position
balance because price remains in the middle of the trading range,
seen on the daily chart, above. Remember, any time price is in the
middle of a trading range, the level of knowledge is at its lowest.
The market can trade back up to the high or back down to the low,
and still remain within the range. There is simply no edge. What
we did was take a look at gold to see if anything could be gleaned
from that market.
Even though silver has weakened, we will stay long until the market
price triggers the stop. The reason for that is, no one knows how a
market will develop going into the future. The one certain piece of
information about any market is that simple truth. Anything can
happen. We were reminded of that thought when looking at the gold
Gold has been in a trading range for the past three months. We
drew in a second support line to show a smaller trading range within
the larger one. The failed downside probe is more pronounced than
the one in silver. A small nuance may be worth mentioning. The
probe lower in gold exceeded the previous low in mid-December,
around 1360, and it found no more sellers and what sell-stops were
under that price level were also wiped out, getting rid of weak longs
and trapping new shorts.
The difference between the gold probe and the one in silver is that
the silver probe was higher and did not get as low as the previous
December price level. That speaks to silver being stronger than
gold. The last three trading days in gold have performed slightly
better than has the same trading days in the silver market. Gold
traded and closed above the high two days prior to the last swing
low, whereas silver as been unable to rally as well.
We do not know if this means anything. All we did was make a
comparative observation and noted the slight difference. Based
on all of the observable facts just considered, we see no reason
to change the sell stop, for recent support held above it. If price
were to come back down and through that price level, it may gain
more selling momentum, so better to be out of the market, at that
point. If it holds, then we are allowing for the market to move
higher and maybe take advantage of a higher price level at which
Because no one can know how the market will develop from here,
we are demonstrating through a reasoned analysis, using
observable facts generated from the market itself, that all one can
do is to be prepared for whichever way the market chooses to go.
If the protective sell stop is not triggered, then we will be able to see
the new market activity that will develop overnight and into tomorrow,
and we can use that new information to make adjustments, if any.
Letting the market lead...
Almost forgot! The high volume in gold, as it declined during the
first four trading days in January are most interesting. Look at
how high volume was running, and then look at the last three
closes from the swing low. They formed a cluster! This can
often mark a turning point, in which the price of gold did turn
and rally, but it also leaves another key point. For all of that
selling effort, there was no downside payoff. What this tells us
is that smart money was using that sell-off to buy all contracts
being offered by sellers. There is strong potential support there.