Silver Market Update
Just as you don't stop a speeding 100 car train and set it going in the opposite direction at the same speed in a split second, it takes time to bring a powerful uptrend to a halt and turn it into a downtrend. A reversal pattern is believed to be forming in silver that looks set to generate a downtrend, although here it must be emphasised that this is an intermediate reversal, not a long-term reversal, and so the larger uptrend should eventually reassert itself, once the corrective phase is complete.
On the 6-month chart we can see how silver found support at its 50-day moving average for about a week, but that this support failed last week leading to further retreat to a strong and important support level above $11.50. We can further see how the action from May through to the present has marked out what looks like the left Shoulder and Head of a potential intermediate Head-and-Shoulders top - the break to new highs in mid-May turned out to be the top of the Head forming. The weak rally in late May might be the right shoulder forming, although it is not clear whether this is so because it is so small - if it is, a breakdown below $11.50 could happen almost immediately. However, given the situation in gold, where it looks likely that a B wave rally will occur, to be followed by a C wave decline to new lows to complete the corrective phase, it seems probable that silver will rally from here to mark out a larger right Shoulder, before retreating once more and breaking down below the key $11.50 support and plunging to complete its correction near its 200-day moving average, over a timeframe of perhaps 1 or 2 months, with silver bottoming, of course, at about the same time as gold.
If this scenario is correct, then the right way to play silver is for aggressive traders to be long here, but in any event exit immediately on any break below $11.50, and to sell on the next rally to the $14.00 - $14.50 area, should this occur within the next 2 or 3 weeks, and then be ready to swoop and scoop it up in quantity should silver go on to break below $11.50 and plunge back towards its 200-day moving average, which is what can be expected if the price breaks down from the potential Head-and-Shoulders top formation. At that point the speculative froth will have been skimmed from this market and the stage will be set for another sustained and substantial uptrend.