Silver Market Update
Originally published November 14th, 2007.
"Thought I'd broken out didn't you? - GOTCHA!!" Actually, silver is in the process of breaking out, and a reaction back into pattern was inevitable if gold hit the skids. With the picture for silver now looking at least as bullish longer term the reaction of the past two days is viewed as providing a buying opportunity.
On the 6-month chart we can see how the price reacted sharply yesterday along with gold. In one day this plunge went a long way towards unwinding the short-term overbought condition that had developed as a result of the very bullish spike breakout move of a week or so ago, as can be seen from the RSI indicator at the top of the chart. The MACD indicator at the bottom of the chart is still at a high level, but this will quickly moderate if silver stays around current prices for a few days.
On the 3-year chart we can see how silver has still not completed its breakout away from the large consolidation pattern of the past 18 months, but as already mentioned the sharp advance about a week ago is viewed as signaling that it is in the process of doing so. This being so the current reaction is viewed as providing a buying opportunity. Even if the reactive phase continues for several more weeks, we are unlikely to see the price retreat much more.
An important factor supporting the view that silver is in the process of breaking out is the powerful high volume breakouts that occurred in big silver stocks about a week ago, a fine example being Coeur d'Alene which we bought several days before it broke out, having detected strong evidence of accumulation. The current reactions by these stocks back to test strong underlying support are a typical post breakout occurrence.