Silver Market Update
Originally published April 18th, 2007.
The silver chart looks considerably less inspiring than the gold chart at this juncture, which is perhaps not so surprising as after outperforming gold last year, it has been underperforming it so far this year. On the 10-year chart the trading range that has followed the ramp from September 2005 through April last year does not look to be of sufficient duration to support another strong advance, and the uptrend channel drawn on this chart looks unsustainably steep and for these reasons the chances of a breakdown are considered to be quite high.
On the 2-year chart we can see that silver is now rapidly approaching decision time - it must either break above last year’s highs soon or break down below the uptrend line shown. Observe that if it does break down here and the strong support in the vicinity of the 200-day and 300-day moving averages holds, the pattern could morph into a rectangular consolidation that leads to an upside breakout later, but should it drop below $12 it will likely plunge rapidly back to the next key support zone in the $10 area. Such a development would be expected to at least result in the price “retiring” into a much more drawn out consolidation pattern, and at worst it would signify the completion of a top area.
Traders can remain long here for a possible upside breakout, but should bail immediately if it breaks below the trendline shown, as this may lead to a plunge, a routine event with silver, as it tends to go down a lot faster than it goes up. If the support in the $12.20 - $12.50 area holds, positions can be re-entered with a stop below $12.