Silver fell sharply on Friday after dropping on Wednesday and Thursday, and the reason it fell so sharply can be seen on its latest 6-month chart below which shows that it breached its parabolic uptrend, which had become too steep, this differed from gold whose similar parabolic uptrend held, for now. While the nearby support level shown held on Friday, bearish COTs suggest that it will drop further over the short to medium term, probably to the stronger support in the $14.80-$14.90 area, but possibly lower.
On the 15-month chart we can get a much clearer idea what is going on, and this chart enables us to see that the bigger picture is not bearish. Like gold, silver appears to have completed the Cup of a large Cup & Handle base, and now appears to beginning a period of consolidation/reaction that will form the Handle of the pattern. This action will be interpreted by many as much more bearish than it really is, and it will serve to cool the ardor of now feverishly bullish Large Specs, setting silver up to break higher again. A provisional Handle boundary has been drawn which will probably require to be adjusted later. Before leaving this chart observe how the rally was capped by the heavy resistance at the lower boundary of a large but tight trading range that developed from February through June last year.
Recent action has made little difference to the long-term 10-year chart on which we see that it still looks like a large Double Bottom is completing in silver, with the Cup & Handle base that has been forming since last June just visible.
On the latest COT chart we can see that the Large Specs have become very bullish in recent weeks, which is not a favorable development as they are always wrong, with the Commercials holding a heavy short position. They are likely to become fed up and frustrated as the Handle of the Cup & Handle base forms and eventually give up, which will set the stage for renewed advance.
Click on chart to pop-up a larger, clearer version.
Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.
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Charts provided by the author.
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The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.
