03.29.2011

VOLATILITY

Update 352pm EDT - The volatility has remained low for the intermediate term trend as shown on this chart. The way this chart measures the volatility is by taking the percentage moves from top to bottom and conducting a series of averages. This particular one was done by taking the 30 period average and the 120 period average and adding those two numbers together while multiplying it by a number to give it an index number that looks good. The number 10 or 15 or any other number is not important, but what is important is the increase. A move from 10 to 20 is the same as one from 28 to 56 and thus the increase levels is what will give it the importance. Because of the low volatility this tells me that if we have a breakdown on this trend it will probably be a viscous one that can see a $1.50 drop in a few hours and thus bring this volatility chart up to 15 or higher. That is one scenario, as another way of looking at this is that because the volatility index seems to be dropping key support that we can have a low volatile rally that will bring us to $40 in a few days. Also this could signify that the market needs to correct more through time as the moving averages of twenty days and beyond for silver are still in need of a correction some time.

The reason for this indicator mainly is to see how this gauge works when the comex problems occur in big levels or anything else that is setting these markets wild to see how wild this will become. I have stated before that in 1980 the moves silver endured were very viscous and in extreme volatility. At the end of March the LBMA reported around a dozen closes of around 8% or 9% either up or down and many over a dozen percent. When we start to see more seven, eight percent days occur both for wild up and down moves, this indicator will pick up on it and we will be starting the next cycle and this should result in many days of this high volatility where a blow off top would seem likely. This could mean a move to $94 on a Sunday night might get crippled to $82 in a few hours and this would be the top. Your either a genius, lucky or on the inside if you can call tops this amazing and be right every time. For now this is an intro to this chart with an expectation for this chart to get out of control later this year.




Update 11:39am edt - This pattern is the descending triangle which is matched up with fibonacci support that was previous support and resistance. Watch out for the potential fake out causing either a bull or bear trap as I have noticed on many past occasions when a trend like this occurs you can often see a major break below support and then shake some people out and then have a major up move. Vice versa also when it breaks resistance and then falls back below which would follow a fast move lower. $36.64 area is the key number I'd like to see this hold any pullback from here. If we breakout the likely scenario is that it can find a way to correct on a breakout level by trading in that area for more than a couple of hours or a nice retracement back to support after it breaks. The next significant fibonacci level is $35.32 and thus the must hold for the short term to avoid any bearish sentiment for this time frame. The volatility however is low. This should change however as it finishes it's D-Day decision for either an up or down move that should happen very soon.