Silver Market Update

By: Clive Maund | Sun, Jun 26, 2005
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Silver is pushing right into the apex of its 15-month triangle pattern, which means that wild and erratic action is to be expected once it breaks out, which it must now do within a month or two, maximum. Gold also pushed into the apex of its smaller triangle, before proceeding to break out and then whipsaw a lot of market players with wild swings.

The 2-year chart for silver shows the huge triangular pattern and its associated support and resistance levels. The lower line of the triangle is clearly a very important support line, especially as, when produced back, it can be seen to be a long-term trendline that provided support in the past. This pattern, which must resolve itself soon, is already getting "very long in the tooth". When prices remain stuck in such a pattern for more than two-thirds to three-quarters of the way from the point of origin of the triangle to the apex, as is certainly the case here, then the subsequent breakout cannot be trusted, and wild, erratic action, involving whipsaw swings is to be expected - and this is especially the case with silver, which is prone to such behaviour even without the benefit of a situation like this

Traders will therefore need to exercise more than the usual care and discipline once this breaks out, and it will probably be wise to lock in profits quickly whenever a significantly overbought or oversold condition develops.

On the 6-month chart, the recent reaction halted where it should, at support above the apex of the smaller triangle shown. Price action thus far is reasonably positive with the price finding support exactly at the 50-day moving average above the big triangle trendline and both moving averages being in bullish alignment. As we can see on this chart and the 2-year chart, there is a lot of support in the $.6.80 - $7 area, which means that if it fails, it is likely to dramatic, precisely because it is so important.

While price action thus far does look positive, apart from, as already mentioned, the very late breakout from the triangle, the latest COT chart continues to look bearish short-term. Although the Commercials' shorts fell slightly this past week, they still remain at a high level, which does not look good, especially as the Commercial short position in gold just ramped up. Another negative is the now high open interest, the green line on the COT chart shown, which means that there are a lot of chips on the table, and with the Commercials rather heavily short and the Large Specs with a fairly high long position, you can guess who's probably going to going to get the "short" end of the stick.


 

Clive Maund

Author: Clive Maund

Clive Maund,
CliveMaund.com

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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