Gold tends to be a safe-haven type of investment — something investors turn to when they don&r...
The Most Important Factor for Silver Prices
01/04/2011 12:06 am EST
There is one thing we consider above all other factors in our trades, including a recent call in silver. On December 28, 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.
During the week of November 8, 2010, silver rallied to new highs at $29.34, but by week's end, it closed at $25.94, which was near the low of the week. Volume was sharply higher, the highest in over a decade. New high, low close, and very high volume are all symptoms of sellers being in control, and in fact, it appears that 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 March 17, 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 in the high-volume week.
With all of that volume and an inability to maintain lower prices, it was the market's way of sending a message. Just a few weeks later, price exceeded the previous high, erasing all of the efforts of the sellers. The message was, that this trend is strong, and take heed.
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 we 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. It is for this reason why we keep saying knowledge of the trend is the single most important piece of information you can have.
The K.I.S.S (Keep It Simple, Stupid) principle at work.
By Michael Noonan of EdgeTraderPlus.com
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