Sunday, October 2, 2011

Technical analysis in a manipulated market

Can you use it and does it work?  Yes, but it depends on your time-frame, risk tolerance and objective.  Here is a year to date daily chart of the World Silver Index.  A fibonacci retracement is drawn from the August 2010 low to the high of late April 2011.

The Silver market is a good place for traders as it has volitility and some safety as the metal will never go to zero.  For traders to make money, they need movement either up or down, so they can either go long or short on their trades, either daily or a swing trade. They just follow the momentum and make money on the short term trends.

For the mid and longer term holders that are not using stops or are holding physical, technical analysis may not be a good tool to use as market manipulators can bring down the market within a few days as seen in May and Sept of this year. Because Silver as seen as both monetary and industrial metal, some may say that the outlook for the economy is weak so there is less industrial demand, justification for the sell-offs.

For long term physical holders of the bullion, you really do not need to look at the price and charts of the metals on a daily basis.  Once a week on a Sunday should be fine as this bull market looks like it will continue for years to come. (Unlike the 1970's PM bull market which lasted for 10 years). If divided into 3 phases, we are still in the 2nd phase.  Between 2013 and 2015 should be exciting times for both Gold and Silver.

I am holding physical metals for the long term and do not care about the price swings up or down. I have another account that I purchase PM ETF's and Gold/Silver miners that I trade.  When you know that this market is heavily manipulated, It's best to take the money are run when you are profitable.  I have a few miners that I have held for more than 1 year and are in the long term capital gains category, but I mostly swing trade as you never know when the cartel will bring down the markets.

As far as the current Silver market, it dropped from the $40 level down to $26.15 in 3 trading sessions.  It has since found support around the 38.2 fibonacci level which is around $30. Many technicians believe that there is support at the moving averages which would have been the 100 day in pink or the 200 day in orange, but you can throw all of that out the window when the manipulators want to bring down the market.

My projection now is for Silver to base and rise back to the $40+ level by the end of the year.  Can the cartel bring down the price even further? Anything is possible, especially when you need to cover large short positions.

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