Silver had actually broken down from its uptrend at the time of last update, and well before the U.S. election. But it was thought to look positive going into the election because it was ascending off an important support level and from a rising 200-day moving average. The outcome may have been positive had Trump lost as expected, but he won, which triggered a sharp rally in the dollar and an about face and plunge in both gold and silver.
On silver’s 1-year chart, we can see how silver was on the point of battling its way back into its failed uptrend at the time of the election. But Trump won and it caved in, breaking below an important support level and well below its rising 200-day moving average, which had earlier supported the price and set off a doomed rally.
Now silver has arrived at the lower boundary of a newly delineated downtrend, and is closing on the next important support level at a time when the dollar has arrived at an upside target. All this, plus the fact that the price is now below a rising 200-day moving average suggests a high probability that it will turn up soon. This is made even more likely by extremely low sentiment readings toward mining stocks, with the Gold Miners Bullish Percent Index (shown in the companion gold market update), at a very low 7%, which is way below where it was before the big sector rally started back last January.
The advance by silver during the first half of the year is regarded as an impulse wave, or a move in the direction of the primary trend, because it broke the price clear out of a downtrend that had been in force from May 2011. As we can see on the 7-year chart below, it is in the process of swinging the direction of the long-term 200-day moving average from down to up, the classic signature of a change in the direction of the major trend, although this does not always work. It turned up in October 2012, at the time of a bull trap. But in this instance, we have a clear breakout from a long-term downtrend. Thus, the deep reaction of the past several months back to an important support level is viewed as throwing up a major sector buying opportunity.
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 Clive Maund
