Silver Market Update
Originally published December 20th, 2009.
Get out or get reamed. Silver's failure to break out to new highs during gold's recent ramp was a clear non-confirmation with bearish implications. The underlying weakness is given added emphasis by the marked convergence of the major uptrend in force from October - December of last year. We can see this on silver's 2-year chart. If this were a healthy uptrend silver would be approaching or contacting the top return line of the channel, shown as a pale blue line on the chart, but it has got nowhere near it for many months. Thus the channel is a bearish Rising Wedge, failure of which can be expected to lead to a rapid and severe decline, probably similar to that which occurred last year.
The dollar's recent breakout to enter a major uptrend, discussed in the Gold Market update, was seriously bad news for commodities in general and gold and silver in particular. It is therefore a little surprising that silver has not broken down from its uptrend already - not that we are complaining as it gives us some more time to plot how we are going to capitalize on a forthcoming breakdown and plunge. Although silver has crept higher in recent months it has put in a pathetic performance relative to gold, having been capped by the overhanging supply from buyers during the 1st half of last year "getting out even". This supply should shortly overwhelm buying power, as bids are withdrawn in the face of deteriorating conditions for the sector, and as we can see a top congestion pattern appears to be completing now..
With gold now very oversold on a short-term basis opening up the possibility of a temporary rebound, we should not be surprised to see silver staging a minor short-term bounce in sympathy, which will be viewed as providing the perfect - and possibly final - opportunity to get out/short silver before the expected breakdown occurs.