Silver – A Technical Perspective

All people in the futures markets are there to make money, [hedgers excepted], or they would not subject themselves so unnecessarily to the risks.  Even buyers of the physical, Stackers, want to get as low a price as they can.  More people are fundamentally inclined than are technically driven.  As a consequence, they like to read articles that provide a degree of psychological comfort in support of their own view of the market.

With the onslaught of bullish news/facts/figures about silver over the past year, one need only look at where the price of silver is and ask, “How is that bullish information working out for you?”  This applies less to buyers of the physical, but even they need an occasional reminder that even though price has declined, their end game is still in process.

It can be helpful to understand the market from a chart perspective because you will have a more accurate read for what to expect in the next week[s] or month[s], or until you see a change in the structure that signals an important move is underway.

While some of you may think it is difficult to read a chart, all that is required is a bit of common sense attached to the explanations we provided with each chart.

When will silver rise to higher values? Answer:  No one knows.  It has taken longer than most thought, and it will continue to take longer than most believe, but there is one thing for sure, the price of silver will retest the old high, and then proceed to exceed it, by at least a double. 

It takes time to turn a market around, and silver is in that process.  There is no degree of certainty that a bottom has been reached, but there exist at least a probability the recent lows may hold.  Whether the lows hold or not, one cannot lose sight of why accumulating silver has been so important.  When price finally accelerates higher, the trying of one’s patience will quickly be forgotten and all will be well.

The charts relate a story of the news/facts/figures, just in bar form.  This is what the market is saying, as of Friday.

Everyone in the world who follows silver knows the importance of $26 for silver.  Until price can rally and hold above it, do not expect higher levels.  It is that simple.

There is a small 8 week base that is currently being retested by another small trading range.  Whenever a trading range retests and holds above the previous one, it has a bullish connotation.  Because silver is in an overall down trend, upside strength is not a dominate factor, so expect additional time required to develop a more overtly bullish character.

The two bars at rally high “A” showed EDM, [Ease of Downward Movement] on high volume, as price declined.  At the current low of the decline, “B,” there is another high volume effort, but instead of showing EDM, the two bars overlap one another.  When you see overlapping bars, it is indicative of a balance between the efforts of buyers and sellers.  The fact that buyers  were more responsive at the low of the correction speaks well for the prospects that support may hold.

That answer will come next week.  If it is to be support, there will be the beginnings of another rally.  If support disappears, lower prices will result.  We do not have to guess which, but instead follow the market’s lead, either way.  For sure, if price declines, one would not want to be a buyer, based on the message of the market.

Two points worth considering from this 90 minute intra day chart.  There was a high volume rally on 15 October, left side of chart, that was retested three times at the 21.10 area, and that led to another strong rally.  From that kind of market development, we can expect buyers to defend that support area on a retest.  That retest is now at hand.

There was a wide range, high volume decline, last Thursday.  On Friday, there was another sell-off on the highest intra day volume in over a month.  Volume is a measure of effort.  The question to ask is, if the effort was the greatest in recent days, why was the net result so little?

Keep these last two bars in mind in relation to the daily chart, above, where the discussion centered on overlapping bars, a balance between buys and sellers.  So far, the increased effort failed to reach the support from the 21.10 area, when it was more than opportune to not only retest but even break it.  After all, silver is in a down trend.

Were the two bars reflecting a balance, or more of buyers overcoming sellers in preparation for a rally?

We cannot know the answer, [no one can], until next week, but it does raise the possibility of a trade potential should support hold.  It may be only short-term, if one develops, but what the charts show is how developing market activity can be used to advantage.

The same holds true for a larger time frame.  Stackers need to keep on stacking, and futures traders need to be select, if buying, while the trend remains down.  When and as a change in trend occurs, from down to up, making buy decisions will become easier, not that trading is easy, but knowing the trend and market context puts the odds of success in a much higher arena of probability.    One then has an edge.

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