Silver Market Update
Originally published December 22nd, 2013.
On silver's 14-year chart we can see that, despite the severe correction since the Spring 2011 peak, it has still not broken down from the large broadening uptrend shown, nor has it dropped below the nearby zone of strong support shown. In the last update, posted on 6th October, we looked for the next major uptrend to begin almost immediately, having observed a large potential Head-and-Shoulders bottom completing. That pattern aborted and we were stopped out (of both gold and silver) for a minor loss. Although that interpretation was invalidated, it still looks like silver is in a basing process, and it may be forming a Double Bottom with its June lows.
On the 14-year chart silver's retracement from the Spring 2011 peak looks like a normal healthy correction and it appears to be about to reverse to the upside in exactly the place you would expect it to, from the zone of strong support arising from extensive trading from early 2008 through mid-2010 in the $17.50 - $20 price range, and from the support line of its major uptrend channel, which is coming into play not far beneath. In recent months it looks like it has been marking out an intermediate base pattern at the support level. Volume indicators are positive, which is a positive sign, with the Accum-Distrib line holding up very well on the decline.
The much shorter-term 6-month chart looks grim, but then, on a chart with such limited history you "can't see the wood for the trees". It shows the price trending lower beneath falling and bearishly aligned moving averages. The weakening MACD indicator suggests that silver might react back further short-term perhaps to the nearby support level shown.
The latest silver COT chart is more modestly bullish than is the COT for gold, which is strongly bullish, but silver investors doubtless won't be upset if silver rides on gold's coattails for a bit.
Public Opinion is still quite heavily negative, which is a strong indication that a substantial rally is brewing in silver.
In conclusion the setup for silver looks strongly positive for the medium and longer-term. First we will want to see the price stay above its long-term supporting trendline and the support in the $18 - $20 area, although a brief panic move beneath both can't be ruled out. However, any such move would likely be followed by a violent reversal to the upside. Next we want to see the price break out above the downtrend shown on the 6-month chart. These developments will clear the way for the major uptrend that we are expecting next year.