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In follow-up to today's
earlier post, I decided
to take some time out of my day to update the silver chart using the SLV which is the ETF that tracks silver. Its chart is
usually similar to that of spot silver but since this is
the tool that I use to
“trade” the metal,
this is the chart I decided to use.
First the chart and then some further
notations:
 
There’s a lot happening right now. First let’s try to dissect the implications for both
the bull and bear sides.
Bullish:
- The
SLV (and silver for that
matter) have experienced
a “golden cross” which is when the shorter (50 day) Moving Average crosses with the longer term (200 day) moving average. This does not always imply a moon-shot to new highs but
it does signify that the asset may have moved into a bullish cycle. Caution is warranted because although officially silver may have gone bullish in it’s
cycle after being in
a bear market since May of 2011, corrections are still possible and likely.
However, the 200 day
MA should prove as
formidable support.
- Additional
money printing will continue to propel the inflationary
pressures of such actions which
means that the more
countries around the world print
money, the higher these
commodities should
go theoretically. I say
this because each round of easing has had less impact on commodities.
Bearish
- I
want you to focus on
the descending bullish
wedge from June until August. When the point of that falling wedge was reached, you saw how the SLV reversed course, broke out
of that wedge and had a nice
run. The downside is that this has created a bearish rising wedge and we can see
that we have reached the end point of that
wedge. Making things a little more troublesome is that the SLV and silver
for that matter have
appeared to also make a double top on this move with the two tops in the SLV at
$34.05 and $34.08. Therefore we have to contend with two very bearish technical patterns; the break of the rising wedge and the
double top. The SLB will need
to rally beyond
$34.08 with significant
volume to negate the double top and both patterns. But why then hasn’t it already broken down? Note that
when the bullish falling wedge hit the
point we had a brief period of sideways action before the
break upward. It appears
as though the same is happening right now.
- We
also have the Daily Sentiment Index that reached 92% Bullish consensus on the last trading day of September. That is an extremely high number usually seen at interim tops. It was at that
level in April of 2011 and again
in the summer of 2011 before
silver had that other very sharp reversal off
the bounce. Usually when sentiment is one sided, the opposite occurs
resulting in sharp reversals as everyone
looks to get out before
the next guy.
- The
impact of additional easing
has been dampened with
smaller moves after every announcement of same;
- The
world appears to be slowing down again and silver, because of its industrial usage, is a commodity that like all other commodities will feel the impact of slowing economies.
- I’ve
probably missed a
few things but these
items, for me, are the most important ones that I am keeping my eye on.
The rally that
started last week when I advised everyone to close shorts was perhaps the last move that contributed to the formation of the double top. The bearish rising wedge is as present
as ever and with lower highs and lower lows starting
to form on the chart, the
SLV and silver for that matter look to be on the cusp of a significant
correction here. The positive is
though, that given the golden cross, we just see a correction within a new bull market.
I want to make
these final comments regarding the “golden cross” that occurred in both the gold and silver markets this week. You will hear a lot about how the last time these
chart patterns occurred
in the metals they went on to have significant
rallies. However, it is worth noting
that the last time gold had
a golden cross, it proceeded
to lose 20% BEFORE it started its climb
that ultimately resulted in a $1,000 gain.
Time will tell.
Disclosure: I am currently
short the SLV by virtue of going
long the SLV October-20-2012 $32.50 puts
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