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Silver Reversal to the Upside About to Squeeze Shorts

Commodities / Gold and Silver 2011 Jan 30, 2011 - 11:15 AM GMT

By: Clive_Maund

Commodities

Best Financial Markets Analysis ArticleLast weekend`s Silver Market update turned out to be pretty much correct as while silver did drop to new lows for this correction it ended the week with a strong blast of upside energy that is believed to mark a reversal to the upside.


On our 8-month chart we can see that following failure of support at the $28 level, silver worked its way lower but certainly did not collapse and then, after making a new low in the early trade on Friday, it suddenly surged to close at the high for the week, leaving behind a pair of candlesticks on Thursday and Friday that are together known as a "Bullish Engulfing Pattern" and which noramlly signify an upside reversal.

During the week it became clear that there are a lot of buy orders clustered around the $25 level, which is kind of sad really, as Friday's action suggests that it won't drop back to that level and that therefore these would be buyers will be left on the station watching as the train pulls out without them. The breach of the $28 level just over a week ago is thought to have been the handiwork of The Cartel seeking to shake people out the better to cover their shorts - they didn't fool us though as we had this gambit flagged in last week's update. Before leaving this chart a final point to note is that silver is now quite heavily oversold as made clear by the MACD indicator at the bottom of the chart.

Another important development last week was a further significant reduction in the Commercial short and Large Spec long positions that we can see on our COT chart below, so that they are now well below the levels prevailing last July that preceded the massive Fall rally in silver. What does this mean? - first of all it makes further significant declines in the silver price highly unlikely and secondly it makes another thumping great rally very possible and it is likely to get underway very soon..

The conclusion to all this is that anyone with a sizeable silver short position is probably going to find themselves in a very unenviable predicament before much longer.

By Clive Maund
CliveMaund.com

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© 2011 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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