Tuesday Morning 25 January 2011
Here is a broader picture on the silver market to include different
time frames. It is absolutely critical to know the time frame in which
you are considering or actually trading. Also be aware of the next
higher time frame to make sure there is no conflict with the lower
time frame. For example, you could be bearish on silver, using a
daily chart, but the price level is showing support on a weekly chart.
This would limit the potential downside seen on the daily.
We are starting with a monthly. Silver made a marginal new high
in January, and price has since fallen steadily, forming what looks
to be an OKR month. [OKR = Outside Key Reversal - higher high,
lower low, reversing the trend]. What we can take away from
observing how the month has developed is that silver will likely be
in a trading range bound by the January price parameters. Of
course, there is still another week to go before the final range and
close is painted, but at least we know silver is not about to run
away to the upside.
Anytime you consider any market, start with a weekly chart to
get a wider perspective, then go to the lower time frame for
trading purposes, for a weekly chart is not to be used for timing
an entry or exit. In a bull [or bear] market, a first degree
correction lasts one to four bars. Silver is currently in its fourth
week of correcting. We can see from a previous wide range bar
to the upside, two months ago, the low of that bar is 26.45, and
buyers will defend that price area. We can see that silver is
close to that area.
Think in terms of areas, not absolute prices. While the low of
the bar from 8 weeks ago was 26.45 and may act as potential
support, that support could be above or even slightly below that
price. This morning's low in silver has been 26.54, so far, and it
is in the area, so it is possible we have seen the low, as an
We get more detail as the next lower time frame is viewed.
While the 26.45 low from a wide range bar on 29 November may
be support, re the weekly chart, it does not show up on a daily
chart as a wide range bar. While price shows as a minor swing
low on this daily chart, the fact that it became a wide range
bar on the weekly gives it a little more credence.
One more note of interest. Back on 9 November, when Dec was
the lead month for futures, that day was a high volume rally bar.
As was mentioned in the weekly chart, those ranges tend to be
defended by the buyers, and those high volume, wide range bars
act as support, staring from the high, down to the low. This is just
a guide, and something of which to be aware. The low for that
day was 26.485.
A channel has also been drawn off the January high, connecting
the swing high on 19 January. This is now a supply trendline, TL,
that will act as resistance. A parallel line is drawn using the 5
January low and extending lower. This acts as a demand, or
support TL. As it turns out, the channel and potential support TL
intersect right about where silver is today.
All we are doing is extracting factual observations about price
behavior and locations from the past and using them to see HOW
present tense market activity RESPONDS to them. They can
provide important clues. Next is an intra day chart.
In a previous article, Silver - Still Bullish, [click http://bit.ly/dTiH6S],
we viewed last Friday, 21 January, as potential stopping action,
[see third paragraph]. You will see us use the words "potential"
and "possible" as qualifiers very often, and for a reason. No one
can know how a future market will develop, so until a stopping
action bar, or a support/resistance line gets tested, and it holds or
fails, THEN we can know how valid was the "potential" or "possible"
point being considered.
The closing paragraph of that article stated, "We will be watching
the lower time frame intra day charts for signs of a turnaround that
will translate into a turn for the higher time frame daily, and the
intra day activity may already be turning." You can see from the
60 minute chart, below, the hourly chart did not turn around and
start a new up trend. We do not have to worry about the daily
trend changing until we see evidence that the hourly trend has
This little observation is very important. Do not rush into any
position until there is a proven change in the trend under
consideration. This is why it is so critical to know your time
frame and to have a game plan. The pieces of the puzzle
become clearer, sometimes but not always, when traversing
between time frames and knowing certain price levels.
What we can say with certainty is that the price of silver, on the
higher time frames, is closer to the lower end of the channel
than the upper end, so it will take some time to see a turnaround.
It could be that the next best trade potential is a short, on a daily
time frame. That will depend on HOW the next rally develops as
price approaches the upper channel supply TL.