Silver Market Update

By: Clive Maund | Mon, Sep 12, 2005
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The fact that silver broke below important support nearly 2 weeks ago and then recovered is not regarded as much of a reason to celebrate. Like gold, silver broke down from a long-term uptrend some weeks back (and from a large Symmetrical Triangle pattern), although until the aforementioned break below $6.80, after months of "trench warfare" between bulls and bears during which the "front line" did not move much, the margin of the breakdown was not regarded as serious.

We are looking at a 5-year chart in this update to put the large triangular pattern of the past approx. 17 months into more perspective. Symmetrical triangles can be either consolidation patterns, that are followed by renewed advance, or reversals, that mark a top, and thus are not much help in deciding the direction of the next move, unless other factors are taken into consideration. To add to the complexity of the situation here, breakouts from these triangles cannot be trusted if the breakout occurs more than two-thirds to three-quarters of the way along the pattern, as is the case here. The situation with silver is extraordinary, as the state of indecision has dragged on for such an inordinate length of time that the moving averages have rolled over and turned down at a point in time close to the apex of the triangle. The breakout, when it finally came, was an indecisive move to the downside. The extent of manipulation of the silver price during this lengthy indecisive period is debatable, but the break below support at $6.80 nearly two weeks ago does look engineered, given the rapid subsequent recovery. That said, the silver chart looks increasingly weak, and the probable effect of a strong rally in the dollar on gold, discussed in the Gold Market update, would obviously in all probability impact seriously on silver. In the event that gold drops back to the $370 area, we would expect to see silver drop right back to the strong support in the $5 - $5.30 area. An important point to note here is that any further deterioration, such as a drop to the $6.50 area, will sour the sentiment of this market and create a massive wall of overhead supply from trapped buyers in the triangle pattern.

What will it take to turn this market firmly bullish? A clear break above last year's highs in the $8.40 area.

The COT figures for silver looked decidedly bullish for the previous week but the latest COTs show some deterioration, although not serious. However, we must remember that these figures are updated on Tuesdays, so we don't know what happened over the past 3 trading days.


 

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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