Silver Market Update
Originally published June 27th, 2010.
While silver is certainly in position to break out to new highs, which would be expected to lead to a substantial advance, its chart at this time should certainly give cause for concern to the more cautious and prudent investor.
Silver still stubbornly refuses to confirm gold's breakout to new highs, as do the major PM stock indices, and remains stuck in the zone of strong resistance beneath its highs of 2008. While it is in position to break out upside now, being as it is tantalizingly close to its highs, and with its moving averages correctly aligned for such a development, gold appears to be flagging and marking out a potential bearish Rising Wedge, and the broad market is believed to be topping out with the prospect of a severe decline once it breaks down. All this being so it is clear that silver may be marking out a sizeable Double Top area. However, most of the evidence that we are examining points to an imminent reversal and retreat - not a bearmarket though as the bullmarket in silver is thought to have much further to run and will probably end in a spectacular parabolic blow off with prices at dizzying heights compared to today, but this is still a long way ahead of us - over a shorter time horizon we may first have to deal with a significant correction.
As we know from experience silver has a nasty habit of dropping like a rock once it decides to go into retreat. Therefore anyone long silver or silver stocks here should consider protective measures. Although resistance is obvious and well defined on the silver chart, support levels and trendlines are not so clear. Traders and investors should therefore utilize proxies. Fortunately there are clearly uptrends in both gold and the HUI index which are shown in the Gold Market update, failure of which would be expected to lead not only to a substantial retreat by gold and PM stocks, but also of course a breakdown and severe drop in silver.
Due to the massive collateral damage that is likely to be inflicted on silver if the broad market breaks down, the section on the broad stock market included in the Gold Market update is reproduced here for convenience.
While the Commercial short position in silver shown on its COT chart is now on the bearish side, unlike gold it is not so close to the bearish levels it was at early last December.
Before anyone writes to inform me about market manipulation and J P Morgan etc - save your energy, I know about it.