Resistance and Support

It's all about Resistance and support.

I called the top in silver back in my February 22 update at 14.50. The following week, March 2, I called the bottom at 12.50. In both cases I was wrong by 6 cents. I guess in the grand scheme that's not too bad, but what's next?

While no one can know with certainty, things are looking very nice right now. The current price action is encouraging in that, the markets seem to be consolidating nicely in preparation for a new run at the 14.50 resistance.

But lets talk about resistance and support as a concept for a minute. What are they?

Resistance is simply a technical analyst's term for an overbought condition, a condition where market psychology is such that the smart money gets nervous and takes some or all of their profits off the table. It's the "how and why" of the way to make money as a trader.

Support is the other end of the trade. When an asset hits a support level, it is simply another way of saying that the asset is at a fair value at that given time.

Are these indicators always right? of course not. But they are right a majority of the time.

Here is an important point to remember; Each time resistance or support holds, it gets stronger.

Another important point to remember is that, if you can break through resistance, say in this case 14.50, that resistance level becomes the new support level. And the reverse is true as well, if the support level, 12.50, is broken through on the downside, it, in turn becomes the new resistance level.

Important point #3; These concepts hold true in both bull and bear markets, the distinction that needs to be made is that in a bull market support is more likely to hold and resistance is more likely to be broken through. Conversely, in a bear market resistance is the strong one and support is more likely to be broken through.

Sometimes these things happen very quickly and are difficult to spot. But they do happen and whether or not the smart money is creating a self full filling prophecy is irrelevant. This is what they do, it's what they talk about over drinks and it's how they consistently make profits. As small players in an ocean of big fish, we can become big fish too, if we stay out of their way and feed off the scraps of their kills. Does this mean we are scavengers? no, it just means we are smaller smart money.

Here's where I see us right now, I think we will bounce around here for a very short time before moving higher. I will be surprised if we don't break through the 14.50 resistance level and have that in turn become support for a run at 16 bucks. After that we'll wet our finger and see which way the wind is blowing. If 14.50 does hold, it is simply another opportunity to add to our position down to the 12.50 level.

We are still in a bull market correction, but strength is building for a strong upward move.

James Turk is reporting of continuing backwardation in the silver futures market as well as rumors of physical bullion shortages. I'll save the definition of backwardation for another post, but suffice to say for now, this is a very bullish sign for silver.



Good luck and Godspeed



JT

Legal disclaimer: This post is for informational purposes only and is solely the opinion of the writer. Nothing in this post should be considered investment advice. Before investing in anything, the reader is encouraged to do his or her own research and consult with a certified financial advisor, which John Tompkins makes no claim to be. John Tompkins and Toro Creek Investments accept no liability for financial losses or damages incurred by the reader because of this post.