Silver Market Update
Originally published April 11th, 2009.
The outlook for silver is viewed as very bullish, with a fine Cup and Handle base now approaching completion, that is shown on the accompanying 1-year silver chart.
There are a number of interesting observations that we can make looking at this chart. The first is that once silver broke below what was strong support at the $16 level back last August it went into a severe decline. After initially plunging the rate of decline eased off as it started to form a bowl shaped bottom area that togethor with the recent reaction we can define as a Cup and Handle base. Notice how it accelerated up the right side of the Cup in February, only to come to an abrupt stop and then reverse to break down from from the Cup, an event called for not only by the unsustainably steep rate of ascent of the Cup at that point, but by the price - moving average configuration, for the price had run way ahead of its rising 50-day moving average and also risen some considerable distance through a still falling 200-day, a classic setup for a substantial reaction. Now we have had a most satisfactory reaction in terms of price and time that has brought the price down close to an important support level and resulted in a proportionate Handle to complement the Cup. An important event to observe is the appearance of a large strongly bullish hammer in mid-March when the price spiked down intraday towards support but ended up closing near the day's high. Normally, when the price subsequently drops down near to the hammer low, as it has just done, it presents a favorable buying opoportunity. Observe also how despite the reaction of the past several weeks, the 50-day moving average has made a bullish cross above the 200-day. Finally we can add into the mix that Stochastics are close to their normal oversold limit calling for a probable imminent reversal to the upside.
In addition to what we can see on the silver chart, there are other synchronistic circumstantial factors that are creating an environment supportive of a new uptrend in silver, which have been discussed in the parallel Gold Market update. Briefly these are the fact that gold appears to have completed a 3-wave zig zag correction, copper and oil have picked up recently suggesting an improving outlook for commodities generally, and the Canadian CDNX index, which is the best barometer of gold and silver juniors, has been firming up nicely and is close to breaking out upside from a Head-and-Shoulders bottom, a development that is expected to lead to vigorous appreciation in quality junior mining stock prices.