| Visitors Now: | |
| Total Visits: | |
| Total Stories: |
| Story Views | |
| Now: | |
| Last Hour: | |
| Last 24 Hours: | |
| Total: | |
Silver Major Price Breakout and Manipulation Timeline
target=”_new”>stockcharts.com/h-sc/ui (Stockcharts.com)
The summer sell off was underway or so it seemed – but the rally became a very tight ranged affair with each side holding off the other. The 200 day average became support –and each move above the 50 day average would be contained.
Then something extraordinary happened to price at the early July bottom and lasted through August. It went into an even tighter price trading range. The tightest range in three full years as bull’s and bears became locked in the battle for control of the MARKET. (See yellow circled area on chart).
Silver went into a trading range of 17.50 – 18.50 and remained there through the summer. THIS WAS THE FINAL showdown area where the long term demand/supply dynamics met. The tight consolidation persisted and the short positions kept growing and growing — but the price would not break below 17. The underlying demand was like a brick wall. A last attempt to hold the market down resulted in this final tight price range.
By August the seasonal end to metal weakness had arrived on the calendar for metals. The stage was set. The transfer of control was complete. Was it the bulls or the bears who had gained control?
The final turning point for silver took place on September 1st. After a strong two week rally off the 17.25 area — and with silver at 18.90 — the internet waves hit with this story:
JP Morgan Chase to Close Proprietary Trading Unit, Rivals May Follow Suit
I cannot tell you exactly how big of a part this may have played, but when combined with the strongest seasonal month of the year for the metals, and the fact that JP Morgan was holding 40% of all silver shorts, and with price so compressed, that a flash point occurred in the market.
This brings us to the second part of the story.
After a review of the chart above and we can see how this scenario played out. Yes, it came as supplies where dwindling already and all the other fundamental bullish arguments. I am not downplaying that. But the point is no matter what the reasons are – the fundamental demand/supply equation has to come to a head at some point. Giving the shorts no ceiling position to short the market for the length of time it went on is like extending credit to a gambler in a poker match in when the cards are not going his way. At some point – his credit limit is reached. It seems the limit may have been reached by the shorts. It seems as we have seen the flash point. With every other asset in fraud or manipulation on earth – was it any wonder the metals weren’t?
There are two types of silver bulls. Those who bought and have been buying and those who have always planned to buy some – or add to existing positions but haven’t.
Part of the problem is that while we know about these fundamentals we are at times reluctant to take a position for one reason or another. After all, the chart time line above was constructed with HINDSIGHT. Had silver not rallied to $25 the chart would not have any significance.
One of the clue's analyst's look for to find the sweet spot of metal rallies is when silver takes the lead from gold. In this phase of the gold rally — (gold is now up 100% since the November 2008 lows) speculation increases as gold gets closer to front page news by making new highs and taking the lead in the financial world. As more and more speculators and the public begin to arrive, the tendency is that enough of them turn to silver as the lure of the fundamental picture, the lower price, diversification (if they already own gold) and the greed factor all come in to play. This overrides demand at a key time.
But how do we know when this sweet spot occurs? How can we better understand the timing of when the fundamentals of supply/demand meet? The answer is the same way we visualized this story so far –by use of the PRICE CHART as in the one above. Charts are where price DISCOVERY works for me. If a Doctor wants to medically see how healthy or sick a patient is – they look at the chart and the data– not just the person. We can say the same for commodity prices to a great extent. Charts are important.
One of the things we do a lot of in this fast paced, got to have it today world, is that we spend an awful lot of time on the short term fluctuations of price. We are so prone to this effect that we consider looking at a weekly chart for 3 or 4 years to be a long term look at price, and certainly it is a long term look. But I am talking about a LONGER TERM CHART.
If you have a little experience (or a lot) in charting – you know that price breakouts are certainly important. If they are important on a daily and weekly chart – they are also important on a monthly chart. In fact, if we think about it, wouldn’t the BIGGEST MOVES then come when a real long term breakout develops and a major price zone is violated? Isn’t that the definition of a bull market?
The chart below is one from a snapshot that was taken on August 20th. For posterity I left it on the home page at www.goldtrends.net since that time. The date and price is at the top right hand side.
I want to first explain the arrows. They’re constructed and begin from the peak price points of the crash of 1980 thru 1986. The arrows are carried over to right of the time lines and the chart. Chart below from: www.mrci.com/beta/ (Moore Research,Inc)
The top arrow begins at the $42 zone as recorded. The second (lower) arrow begins at the first bounce from the 1980 crash when price bounced back to the $25 dollar area in a brief spike. The third arrow begins at the reaction rally high after the 1982 low when price reached $15 in 1983. The lowest arrow begins at the secondary final spike in 1987 at the 10 dollar area. Silver remained below the last arrow (below $10 dollars) for twenty years! (1984-2004)
