Looking into some short term indicators for
trading silver. Have been following PAASF and have
noticed that it has nearly always been ahead of the move in silver since silver bottomed in the 3rd week of July, while PAASF bottomed between the 1st and 2nd week of July. While silver and PAASF did reach their highs at approx. the same time (2/5), in the ensuing 6 trading days (2/6 to 2/13) as silver traded in a range around the $7 level (using March COMEX futures prices), PAASF headed down towards $10.
Now, following the open interest. One open interest theory states that in a healthy up move we should see progressively higher levels of open interest. The silver up move from mid July showed a healthy progressive increase in open interest (using COMEX figures) from about the 95,000 level to 108,700 on 2/5. A sideways, "consolidating" move with increasing open interest in an uptrending market indicates an imminent move to the downside, either a trend change or a short term corrective phase (the theory here is that the open interest is rising due to shorts opening new positions). A sideways "consolidating" move with a decrease in open interest indicates an imminent move to the upside, a reaffirmation of the up trend (the theory here is that the shorts are covering their positions ahead of the up move to come). The sideways move in silver from 2/6 ($7.06 close) to 2/13 ($7.09 close) saw an increase in open interest from 108,710 to 113,883, an increase of over 5000 contracts. This fact combined with PAASF moving to the downside during the 2/6 to 2/13 period (if my little paradigm is correct) should have foreshadowed a move to the downside, which occurred on 2/17 with silvers close at $6.77.
From 2/13 until today we have seen silver fall from the $7.00 level to todays March COMEX futures close near $6.00. The open interest theory states that following an up move a corrective down phase can be identified by a decrease in open interest. An increase in open interest in this down phase would most likely indicate a reversal of the trend. From 2/17 to 2/23 open interest has gone from 113,004 to 108,168, a decrease of 5700 contracts, indicating we are most likely in just a corrective down phase.But where's the bottom of the correction?
Looking at PAASF, we see that it has followed silver down in the move from 2/17 to 2/24. However, where silver trended down today, closing near its lows (30 cents worth), PAASF started the day on a downtrend, but managed to turn around and close unchanged on the day. Toronto actually closed up on the day (its market closes later than Nasdaq). Is this a bottom confirmation for this move and are these valid short term trading tools? We shall see.
Go ahead Mr. Market, prove me wrong.
PR |
