Using volume as a leader indicator for silver prices

Big slugs of volume after an advance are nearly always a sign of a top

Big volume that comes into a market after a run up in price means who things:

1. Speculators who were on the sidelines for most of the advance finally threw in the towel and chased the market — beliving the advance would be infinite.
2. Speculators who actually had positions during the run up as well as commercials wishing to hedge production or inventory obliged the late buyers

Thus, a big expansion of volume is a good indication that a top of some duration may be in the making.

The weekly chart of Silver futures below shows that big volume spikes put the top in the market in late April, late August and again in early March.

Huge volume during the breakout of a congestion area also can indicate the validity of the breakout. In other words, big volume spikes usually represent starting volume or stopping volume.

Just a word on Silver — the volume that accompanied the April high was historic. As my blog post in early May pointed out (see here), eight years of Silver supply was traded in one week. V0lume spikes such as we had in late April can cap a market for a very long time. To overcome this volume top, Silver must form an extensive bottoming pattern and breakout to the upside with greatly expanded volume. Until this happens, all rallies followed by volume spikes will represent a selling opportunity.

$SLV, $SI_F

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