Silver Revisited

Source:

"Always respect the strength of a trend. . ."

On 28 December, we stated the breakout in silver could be significant, and it has rallied almost $2, since. This move reflects the power of a trend, and there are always clues along the way that reinforces the strength behind a move. Back on the week of 8 November 2010, silver rallied to new highs, 29.34, but by week's end, it closed at 25.94, near the low of the week. Volume was sharply higher, the highest in over a decade. New high, low close, very high volume are all symptoms of sellers being in control, and in fact, it appears sellers overwhelmed buyers on a rout.

Typically, price will sell off and keep buyers on the defensive. Note a similar bar formation from the week of 17 March 2008. Price went sideways, unable to garner much of a rally after the strong reversal, and new lows followed for the next several months. In this most recent example, the following week, there was some downside follow-through, but price closed higher than the high volume week. With all of that volume and an inability to maintain lower prices, it was the market's way of ending a message. Just a few weeks later, price exceeded the previous high, erasing all of the effort of the sellers. The message was, this trend is strong, take heed.

SI

We did not use this information when recommending a long position, last week; instead, we relied upon the sideways formation with upper end closes in a known uptrend and cited several factors. The point to be made is simply to always respect the strength of a trend—trade in harmony with it, and do not go against it. For this reason, knowledge of the trend is the single-most important piece of information you can have.

SIH11

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