I’ve covered gold & the mining sector quite extensively lately so I figured that with SLV breaking below it’s mid 2013 & mid 2014 double bottom lows today, I will focus on the “other” shiny metal. By all accounts, today’s price action in SLV (Silver ETF) is bearish… a breakdown below a well defined, uber-watched support level on above average volume. Sell signals don’t get much more clear than that. However, as with gold, I would not be the least bit surprised to see silver break down & even trade below that key support level for several days, possible even several weeks. Assuming that gold & silver are in the latter stages of the cyclical bear market that began in 2011, such a break of support could prove to be a very bullish longer-term event, serving as a wash-out move to shake out the last of the weak-handed longs & usher in a new wave of short selling, the latter of which could provide the fuel for a strong short-covering rally should silver manage to regain this broken support level. Ditto holds true for gold although the “shiny-er” metal is still trading somewhat above its comparable mid & late 2013 double bottom lows.
In this weekly chart of $SILVER (spot silver prices), I have outlined what I believe to be the three most probably scenarios for silver. The first & most likely scenario would be a reversal from at or very near current levels, with today’s break of support being reversed relative soon, by the end of next week latest. That allows for a little more downside in silver as well a gold, which would likely bring to gold to a test of the mid/late 2013 lows. The second most likely scenario (which I’d have to give nearly equal odds to the first now that support has been lost) would be for a half-decent washout move lower that could last as long as a few weeks, although probably not much more than a week or two, bringing $SILVER down as low as the 16 area. Such a move would still have very strong bullish divergences in place on the weekly PPO & RSI, as well as some other key indicators. The most bearish scenario would be that the recent consolidation in silver prices since the late June 2013 lows was simply a bearish consolidation pattern (a large descending triangle) in a much larger bear market, possibly even a new secular bear market. If so, prices are headed much lower over time and may work there way down within this large descending price (bounded by the blue & red downtrend lines). Note: $SILVER is an end-of-day (EOD) chart, with prices updated each evening. The live, annotated version of this chart is also available from the Live Charts page.
$SILVER weekly Sept 19th
Another reason for allowing a little more wiggle-room on gold, silver & the mining sector before throwing in the towel would be my take on the US Dollar. The inverse correlation between the $USD & gold, along with an analysis of the dollar, was recently covered in this Sept 10th update. The 10-year weekly chart of UUP (US Dollar Index ETF) is similar to the monthly chart of the $USD from that previous post and also shows UUP at the same multi-year downtrend line resistance as $USD. Besides the fact that the dollar has Continue reading »