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A Quick Look At The Technical Picture Surrounding Silver

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Published : May 16th, 2012
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Category : Gold and Silver

 

 

 

 

So far we are right on call as nothing seems to be able to prop up the gold and silver markets (because nothing has happened fundamentally that has given the markets reason to buy the two). We warned on April 25th that silver was ready to collapse of the neckline break of $31.09 occurred and it sure did, as the price of the white metal has continued to fall, putting in lower highs and lower lows since that time to sit at $27.72 (last I checked( which is a decline of roughly $3.50 an ounce or 10% since I wrote that piece.

In my view we are on the verge of a major liquidity event that will continue to suck out money from the stock markets and the commodity space. The other day I commented that we could see oil at $80.00 and I wrote an update on gold in which I was concerned about the lack of any real support level given that both the 50 and 200 day moving averages were significantly breached. I wrote, and still believe that unless we get a major fundamental shift, that is, official word of international easing we will struggle to see much immediate upside. Since then, gold has continued to bleed as has silver. The predicament for silver is slightly different however because as an industrial metal, we must remain cognizant of the fact that if we are affected by a global slowdown, and given silver’s industrial metal status, silver could fall, on a percentage basis, more than gold.





$26.15 remains crucial support for silver. The RSI is starting to dip into oversold territory but as we have learned in the past, stocks, commodities etc. can stay oversold and overbought for that matter, for extended periods of time. However, I want to point out to readers that $26.15 remains a very critical area for support and I think the market will test that area sooner rather than later.

If that critical support area is breached then in my view, it’s a clear path to $22.00 which would represent the lower line of the downward channel. As silver has shown during this past year, it has bounced off that bottom line of the channel twice, both at $26.15 however, $26.15 no longer represents the bottom end of the channel … $22.00 does. I would hate to see what would happen in the silver market if that $22.00 range is breached.

Believe or not by according to my analysis, the MACD has just had a negative divergence which implies that there may be more downside ahead, or that the real selling is just about to begin.

If course, this is just my interpretation but I remain ready at the switch to go short silver with a target of $22.00 if the aforementioned last line of immediate support is breached. Keep your eyes open because as with gold, silver is in deep trouble at these levels. There is a positive in all this technical analysis; if silver can bounce off $26.15 with some momentum, we could have formed a triple bottom which could work to propel silver higher. For the moment however, as I noted at the outset, put aside all the noise… the fact of the matter is that we are on the verge of a liquidity event that if not stemmed will result in all assets taking a tumble. It will take significant retail demand and material/significant central bank policy decisions to move the metals back in the short term.

I’ve also been watching the CRB commodity index which has usually proven a reliable indicator on the supply for industrial commodities. When the index rises it implies growth. The inverse is also true. The index’s top was in the first half of last year, not surprisingly near the same time that silver peaked. Remember that the market was fraught with all the fresh QE2 money. However, Europe is definitely slowing and the rosy headlines we saw in the United States to kick of the year have turned to grey. The index broke through support today as well indicating deflation is currently winning the battle. With increased deflationary pressures though does come the increased potential for more economic stimulus but notwithstanding the FED’s stated intent to beat the ready”, It would be foolish to trade on assumptions but rather wiser to wait for confirmation. What is clear is that the dollar, predicted by many to have been dead by now is seeing a lot of inflow. That run to the dollar has significantly impacted commodities and the markets on the whole providing further indication that for now, deflation is winning over inflation.

As always, this commentary is not recommended to be a buy or sell recommendation but is meant to point out my own technical observations on the silver market. Keep your heads up and eyes open. These markets and news can change on a dime.

 

 

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If the Gld and Slv markets are manipulated, what does graphical representation actually mean ? Do these charts include the paper contract market movement ? I'd like to see charts showing a separation between paper and physical.
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If the Gld and Slv markets are manipulated, what does graphical representation actually mean ? Do these charts include the paper contract market movement ? I'd like to see charts showing a separation between paper and physical.  Read more
Cameron Waugh - 5/18/2012 at 8:13 AM GMT
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