Silver Set To Stun

Where to begin with silver? I guess there is no better place than the yearly chart. Let’s have a look.

What an absolute spanking silver has taken over the past few years! There’s no two ways about it. Silver bulls must be experiencing that horrid feeling of complete despair after seeing the price walloped more than 60% from the 2011 all-time high of US$49.51. After a shocking 2013, the price has done just about naught in 2014, not putting the bulls out of their misery by dropping further but keeping them on the leash with a faint glimmer of hope. It really is a sadistic picture!

YEARLY CHART

With such negativity abounding, it got me thinking. It is this type of negative sentiment that is commonly found at major low points. So taking out the emotion let’s look at the chart objectively. Despite the shellacking the price has taken, there have not been any major swing lows broken. A long term structural bull market remains in play.

Looking at the chart it really does appear to need some more downside but that seems too obvious. And when something appears too obvious I put on my contrarian hat. It’s hard to imagine that big bearish candle seen in 2013 will be the ultimate low to the correction. But having said that I’m not convinced there is much more downside. So that leaves me with the possibility of a marginal false break low before a reversal and commencement of the next major upleg. But this is mostly speculation on my part. More evidence is needed. So let’s take a look at the monthly chart.

MONTHLY CHART

This could well be the jackpot chart. There is some stunning evidence here to suggest that price may well be extremely close to its major correction low point.

Firstly, let’s start with the Fibonacci retracement levels I have drawn on the chart. These are the retracement levels of the upleg from the 2008 low to 2011 high. What is evidently clear is that price is currently rubbing up against the 76.4% level of US$18.10. This level was Fibonacci’s last stand so to speak. If this level is breached then price should head back to where it all began, in this case US$8.40. That just seems too extreme.

Now pay attention to the circled area. We can see it is in this area that price really started to explode out of its normal uptrend. Simply put, price went parabolic. Now one thing I have learnt is that when correcting, price eventually comes back to these levels where the explosion began. That is where price is right now.

Moving on, there appears to be a triple bottom in place as noted by the numbers. I have used the Relative Strength Indicator (RSI) which shows that each new triple bottom low coincides with a less weak RSI reading. Better said, the lows are losing strength. This is a bullish divergence. So this should give rise shortly to a rally that should last several months.

However, triple bottoms rarely end trends so what does that tell us? Well, I’d suggest the rally will be unlikely to surpass the August 2013 high of US$25.13 which occurred after the first bottom(1). Therefore, once the rally fails to take out that swing high level, price should head back down and break the triple bottom low price of US$18.16. But will that be a clear break or a false break? Gann taught that price usually cracks support and heads lower on the 4th attempt. However, if that 4th attempt is not successful then it is an extremely bullish sign.

So a marginal false break of the US$18.16 low means it stays close the 76.4% Fib level, it is the failed 4th attempt at a clean break of support and it is at the same level where price went parabolic. I’m telling you, technical evidence just doesn’t stack up much better than that!

But let’s press on a bit more and have a look at the weekly chart.

WEEKLY CHART

Now we know from the bullish divergence from the RSI indicator on the monthly chart that price can be expected to rally shortly. This would see price breakout above the diagonal resistance line I have drawn. There will be a lot of chartists looking at that break and calling the end of the bear market. But no, that would be too easy. After a brief period of optimism, price should fail to take out the resistance line and turn back down. After so much pessimism, and then some fleeting optimism, this development would be devastating for the permabulls.  And the straw to break the camel’s back will be the break to new lows. I would imagine there will be a lot of stop loss orders placed under the US$18.16 low. I, for one, will be looking to buy into that stop loss selling. And it is at that exact point in time, when the bulls are reaching for the trigger, that we will likely have our final correctional low in place.

As the old Colombian boss of bosses, Pablo Escobar, used to say, “la plata o el plomo”. The silver or the lead. Now clearly I won’t recommend the lead, but neither will I the silver. Not just yet anyway.

******** 

Bios

I have studied charts for over 20 years and currently am a private trader. Several years ago I worked as a licensed advisor with a well known Australian stock broker. While there was an abundance of fundamental analysts there seemed to be a dearth of technical analysts, at least ones that had a reasonable idea of things. So my aim here is to provide my view of technical analysis that is both intriguing and misunderstood by many. I like to refer to it as the black magic of stock market analysis.

Please register your interest in my website coming soon. Any questions or suggestions please contact austingalt@hotmail.com

© 2014 Copyright  Austin Galt - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.