Silver - Letting The Market Speak
We are not a source for or fans of endless statistics, like the number of ounces purchased from one period over another, how many ounces are available at the Comex, how many ounces have been mined, the demand for v the production of silver, etc, etc, etc. Too boring.
It may satisfy many to know this information, but we are more interested in what translates into results, where can a market turn be determined, where price is likely to go, etc, etc, etc? This is where the challenge lies, for it comes down to timing in order to enter or exit a market, seeking profit opportunity in the process.
Knowing the exact number of ounces that stand for delivery says nothing about when to act on that information. The numbers have been low for some time, and bullish, as well, but if one went long on that concrete factual information, one could have sustained some hefty losses, at least in the futures market. Buying and holding the physical is a different matter and done for materially different reasons.
We prefer to follow what the market has to say about what all others are saying about the market, and opinions on the market are boundless. The actual number of participants who make an active buy or sell trade decision is what can be read from a chart, in the form of price and volume. It is the language of the market and how it speaks.
For all of the discontinuity between unprecedented demand and artificially suppressed "supply," the charts have been the most accurate barometer, as price rallied to the highs of $50, as well as back down to the $18 area.
Will silver lead gold in the next rally, or not? Which will bottom first? In some ways, it does not matter because the turnaround time factor will be very close. Here is how we read current price conditions in silver and what the market is saying about them.
The higher time frames are more controlling and take more effort to turn. The monthly is great for establishing a context, and it is the preferred chart for smart money movers. They are not interested in day-to-day, and especially intra day activity, where the public spends most time and effort. In fact, not many traders ever look at a monthly chart.
By adding what may be some of the most important lines to capture and define developing market activity helps formulate knowledge of the trend and even its character, strong or weak, trending or moving sideways. The objective is to find any existing synergy between different time frames, which does not always happen.
The horizontal line at 26 was important support, and once broken, it has now become important resistance, whenever price returns to it. The next step was to draw a channel to see how the decline is developing within the obvious down trend. Concurrent with price location in the down channel, we see it is also returned to what was a base from which price rallied to the high at $50.
Two factors stand out. 1. price is staying close to the upper channel line and not the lower channel one. In a weak market, expect price to be near or exceeding the lower line. 2. The lows of the decline are staying above the previous support area, denoted by the rectangular box. It is a relatively positive sign when support is found atop a previous trading range.
Looking at the bar activity alone, the strong rally bar, 5th from the right, is being corrected by 4 months to retrace what 1 month accomplished to the upside. Wide-range bars tend to offer support. In a weak market, support tends to be at the lower end of the bar, and that is where price is, as of the week just ended.
To get a better handle on what it may mean, we next look at a weekly chart. The month is still early, so no weight can be placed on it with 3 more weeks to go, although the last time price declined to this level, 6 months ago, the range was small and led to the rally just mentioned.
The focus is going to be current price activity, and not past. The first arrow, on the left, is the low for the month of August and the start of a strong 4 week rally. It has taken all of 14 weeks to retrace the 4 week gain. In a down market, you would expect the reverse, 4 weeks down and a labored 14 week rally, so this is a subtle message of which to be aware.
Last week being the 6th straight bar down, most of the closes were on the lower end of each bar. This last one has a close at mid-range. What that suggests is the presence of buyers overcoming sellers, at the low. A look at the daily will provide more confirmation or denial of that conclusion.
You can at least see a degree of harmony in activity between the two higher time frames.
The chart comments address how support did indeed come into the market, strongly from the lows, 3rd bar from right. The next two bars were inside bars. What we take away from Friday's activity, the last bar, is a lower open and lower low from Thursday, but an ability to rally and close above the opening and just above mid-range the bar, a sign that buyers were more in control than sellers. Otherwise, price would have closed lower.
The conclusion to be drawn is respect for the trend, clearly down. Where we have shown a positive "spin" on the character of price behavior at the current lows, that is still where price is, at the lows. One can not be bullish here by any stretch of the imagination.
If silver is to find a bottom, whether current levels hold or not, it will take months for a base to develop from which price can launch a sustained rally. The one exception would be a "V-Bottom" rally where price simply takes off without building a base and accelerates higher. That is always a possibility.
As for taking a position in the futures, it cannot be from the ling side, for it would be against the prevailing trend in all time frames. As to buying physical silver, we are likely looking at a price level that will not be revisited in the next few generations. Price may still go lower, to some degree, but what the Federal Reserve is doing to destroy the fiat currency and the economy makes asking the question of to buy physical or not a superfluous one.
We cannot state strongly enough to buy, and personally hold as much silver as you can. The stage is set. Do not be fooled by the suppressed price of silver. Common sense says it will not last. No one knows how long it will take to end. Be prepared, for it is likely to get uglier than most expect, but the rewards will be great. Silver buyers already know that.