The long-term outlook for silver is very positive indeed, but over the
short to medium term it looks set to react, says technical analyst Clive
Maund.
On its short-term 3-month chart (below), we can see that, after rising
sharply late last month, a sizeable bearish "shooting star"
appeared on the chart on heavy turnover at the start of this month, at a time
when silver was critically overbought, which indicates a high probability
that silver will react back soon.
On the 6-month chart we can see why silver might react back here-it has
just arrived at the top of an expanding uptrend channel in a very overbought
state. Thus, a reaction back looks likely, and this would be a healthy
development that sets it up for the next up-leg. Given the current COT
structure it would not be unreasonable for it to drop back to the support
shown in the $18 area over the short- to medium term.
The long-term 10-year arithmetic chart gives us a much broader
perspective. This is actually a very positive chart overall, for as we can
see silver's bear market phase from 2011 has definitely ended. However, it
has risen quite sharply in recent months to arrive at a zone of significant
resistance, so it would be quite normal for it to consolidate or react back
here, before breaking above this resistance and continuing higher.
Silver has also broken out to start a new bull market on its 10-year log
chart. . .
As with gold, Commercial short and Large Spec long positions in silver
have built up to a very high record level, making a reaction back soon a high
probability. . .
The COT chart shown above, which only goes back a year, probably doesn't
drive home just how extreme the current situation is. If not, then the
following chart should get the job done. The long-term Hedgers chart shown
below, which is a form of COT chart, shows that Hedgers positions are now at
frightening bearish extremes. When the reading reaches the red dotted line it
is at a normal bearish extreme, which often, but not always, leads to a drop
in the silver price. When the reading is way below it, as now to an
unprecedented extent, the situation is critical, and please note that I
didn't create this chart, sentimentrader did, and they are not known for
being anything other than totally objective.
Chart courtesy of www.sentimentrader.com
The silver optix or optimism chart shows that bullishness towards silver
is now at extreme levels, and while this doesn't always lead to an immediate
reversal, taken together with the other factors that we have observed, it
does suggest that caution is in order with respect to silver's immediate
prospects.
Chart courtesy of www.sentimentrader.com
Your reaction to all this depends first of all in whether you follow the
logic of it and agree with it or not, and second on what sort of investor or
trader you are. If you are a long-term investor, you may simply decide to
ride out any correction, but if on the other hand you are aggressive trader,
you may want to cash in longs and even consider opening some shorts in the
sector, but, whichever, it still looks like a good idea to take some money off
the table here if you are long the sector, taking advantage of the
comparatively high prices now prevailing.
Disclosures:
1) Statements and opinions expressed are the opinions of Clive Maund and not
of Streetwise Reports or its officers. Clive Maund is wholly responsible for
the validity of the statements. Streetwise Reports was not involved in any
aspect of the content preparation or editing so the author could speak
independently about the sector. Clive Maund was not paid by Streetwise
Reports LLC for this article. Streetwise Reports was not paid by the author
to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is
encouraged to consult with his or her individual financial professional and
any action a reader takes as a result of information presented here is his or
her own responsibility. By opening this page, each reader accepts and agrees
to Streetwise Reports' terms of use and full legal disclaimer.
This article is not a solicitation for investment. Streetwise Reports does
not render general or specific investment advice and the information on
Streetwise Reports should not be considered a recommendation to buy or sell
any security. Streetwise Reports does not endorse or recommend the business,
products, services or securities of any company mentioned on Streetwise
Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers,
employees or members of their families, as well as persons interviewed for
articles and interviews on the site, may have a long or short position in
securities mentioned. Directors, officers, employees or members of their
families are prohibited from making purchases and/or sales of those
securities in the open market or otherwise during the up-to-four-week
interval from the time of the interview until after it publishes.
All charts provided by Clive Maund
