“Woe to the land whose king is a child and whose leaders are already drunk in the morning. Happy the land whose king is a nobleman, and whose leaders work hard before they feast and drink, and then only to strengthen themselves for the tasks ahead”. (Eccl 10: 16-17)


"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat


Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput






Tuesday, May 10, 2011

Silver shedding open interest

Based on the reported open interest and volume numbers by the exchange, silver's rally yesterday was sparked by fresh shorts who sold the bottom last Thursday and Friday and are now having those sky high margins hit them for a change. Perhaps they have now learned that what is good for the goose is also good for the gander.

The market has had a nice pop off the low down near $33 but has yet to regain its footing above the 40 and 50 day moving averages. Until it does, its technical posture, while greatly improved, still remains bearish on the daily chart. You will note on the chart that unlike gold, which has retraced half of its recent losses, silver has not yet been able to recapture the 38.2% retracement level of its recent leg lower.



These steep sell offs followed by steep recoveries are always unsettling. What silver needs is a period of consolidation which will allow this excess volatility to get wrung out and let things calm down a bit. There has been way too much emotion in this market and that is being reflected by these wide price swings. 

I like the fact that it continues to move away from the $33 level but I would feel a bit more comfortable from a bullish standpoint if it could at the very least clear last Thursday's high which is near $39.40. That would also put it above that 38.2% retracement level referenced above.



We will have to watch and see what level the stronger-handed shorts begin to dig in. There does look to be some resistance entering in here above $38 as I write this.

Once again, as usual, the shares continue to weigh on the entire sector.

13 comments:

  1. Gold made a high today of 1519, could it be this resistance is also keeping silver down a little too? Meanwhile silver has pushed to 38.50. Would you comment on this post? http://market-ticker.org/post=185799 and what about the reports of ample physical silver for industrial, not just enough stock for mint?

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  2. Dan

    I'm not a trader, just a buy and holder and am confused by your analysis.

    "These steep sell offs followed by steep recoveries are always unsettling. What silver needs is a period of consolidation which will allow this excess volatility to get wrung out and let things calm down a bit. There has been way too much emotion in this market and that is being reflected by these wide price swings. "

    "I like the fact that it continues to move away from the $33 level but I would feel a bit more comfortable from a bullish standpoint if it could at the very least clear last Thursday's high which is near $39.40. That would also put it above that 38.2% retracement level referenced above."

    These two statements seem to be at odds with each other. Can you clarify for me?

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  3. HI Dan
    Thanks for this report. That is an interesting trend line you drew (the less steep one on the right). Silver looks kind of bored here today. Not really doing much. Almost seems like overnight trading in Asia or London is leading the market here and NYMEX is taking ques from them. IF so it's interesting to think about what might transpire tonight when that trend line gets passed.
    I have a hard time believing that there isn't a lot of players waiting for a pull back and if it doesn't come in a certain time a move back up to 50% retracement could happen quickly.
    Time will tell I guess. Thanks again.
    AO

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  4. Lester - I believe silver has bottomed out but that does not mean it is going to launch another leg higher immediately and run back to the recent high near $50. One could make the argument that it is tracing out what is referred to as a bearish flag formation on the daily chart. That is why I would like to see it clear both the 38.2% retracement level and that high of last Thursday. that would negate the potential flag formation.

    Maybe then the market would calm down a bit ( although I doubt it) and let this thing move sideways in a broad range instead of jerking us to the downside and then back to the upside followed by violent leg back to the downside only to reverse once again. Also, if the market were to consolidate, the exchange would slowly begin to lower margin requirements again.

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  5. Thank you Dan
    Is charting analysis made more difficult in light of the trade manipulations by the banks?

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  6. loneranger;

    I would say no in the sense that the manipulators cannot hide their footprints on the chart and thus leave themselves open to being discovered.
    Good manipulators can hide their tracks to a greater extent because of the manner in which they have learned to buy and sell but the banks are very clumsy. I think it is because they are used to operating with impunity and really do not care who knows what they are doing.

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  7. GDX/GLD ratio make yet another low this morning. Every hedge fund on the planet is shorting GLD and SLV on this bounce, and they are chain-shorting the HUI components hoping to score big on another 2008-style "Don Coxe Midnight Massacre" of the commodity complex.

    Same guys are also piling into UUP.

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  8. Hey Dan
    It would be very enjoyable to hear your thoughts regarding the relationship between physical and the paper markets.
    How does this 'COMEX with <30mil ounces) end?
    Thanks

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  9. Thank you, Trader Dan, for such great insight. It helps to know what the traders are doing as this has a direct effect on my physical. It is nice to hear someone speak of what is happening within the market as a "market" even though it sounds like you are fully aware of the manipulation. I always look forward to your Weekly Metals Wrap on KWN. I would have to give you a gold/silver star for the calls you made the last two weeks. I,too, would love to see some consolidation around $39.90 40.50 range. It would be nice to not have to ride a roller coaster. STEADY, uphill climbs after consolidating wouldn't hurt my feelings either!!

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  10. How can technical analysis mean anything in a manipulated market such as silver? Is it because the "boyz" use technical points to mount their attacks?

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  11. Dan, why did you use the 4/28 high instead of the 4/24 high for the retracement calculations?

    Thanks for all the analysis.

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