Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
UK House Building and Population Growth Analysis - 17th July 19
Financial Crisis Stocks Bear Market Is Scary Close - 17th July 19
Want to See What's Next for the US Economy? Try This. - 17th July 19
What to do if You Blow the Trading Account - 17th July 19
Bitcoin Is Far Too Risky for Most Investors - 17th July 19
Core Inflation Rises but Fed Is Going to Cut Rates. Will Gold Gain? - 17th July 19
Boost your Trading Results - FREE eBook - 17th July 19
This Needs To Happen Before Silver Really Takes Off - 17th July 19
NASDAQ Should Reach 8031 Before Topping - 17th July 19
US Housing Market Real Terms BUY / SELL Indicator - 16th July 19
Could Trump Really Win the 2020 US Presidential Election? - 16th July 19
Gold Stocks Forming Bullish Consolidation - 16th July 19
Will Fed Easing Turn Out Like 1995 or 2007? - 16th July 19
Red Rock Entertainment Investments: Around the world in a day with Supreme Jets - 16th July 19
Silver Has Already Gone from Weak to Strong Hands - 15th July 19
Top Equity Mutual Funds That Offer Best Returns - 15th July 19
Gold’s Breakout And The US Dollar - 15th July 19
Financial Markets, Iran, U.S. Global Hegemony - 15th July 19
U.S Bond Yields Point to a 40% Rise in SPX - 15th July 19
Corporate Earnings may Surprise the Stock Market – Watch Out! - 15th July 19
Stock Market Interest Rate Cut Prevails - 15th July 19
Dow Stock Market Trend Forecast Current State July 2019 Video - 15th July 19
Why Summer is the Best Time to be in the Entertainment Industry - 15th July 19
Mid-August Is A Critical Turning Point For US Stocks - 14th July 19
Fed’s Recessionary Indicators and Gold - 14th July 19
The Problem with Keynesian Economics - 14th July 19
Stocks Market Investors Worried About the Fed? Don't Be -- Here's Why - 13th July 19
Could Gold Launch Into A Parabolic Upside Rally? - 13th July 19
Stock Market SPX and Dow in BREAKOUT but this is the worrying part - 13th July 19
Key Stage 2 SATS Tests Results Grades and Scores GDS, EXS, WTS Explained - 13th July 19
INTEL Stock Investing in Qubits and AI Neural Network Processors - Video - 12th July 19
Gold Price Selloff Risk High - 12th July 19
State of the US Economy as Laffer Gets Laughable - 12th July 19
Dow Stock Market Trend Forecast Current State - 12th July 19
Stock Market Major Index Top In 3 to 5 Weeks? - 11th July 19
Platinum Price vs Gold Price - 11th July 19
What This Centi-Billionaire Fashion Magnate Can Teach You About Investing - 11th July 19
Stock Market Fundamentals are Weakening: 3000 on SPX Means Nothing - 11th July 19
This Tobacco Stock Is a Big Winner from E-Cigarette Bans - 11th July 19
Investing in Life Extending Pharma Stocks - 11th July 19
How to Pay for It All: An Option the Presidential Candidates Missed - 11th July 19
Mining Stocks Flash Powerful Signal for Gold and Silver Markets - 11th July 19
5 Surefire Ways to Get More Viewers for Your Video Series - 11th July 19

Market Oracle FREE Newsletter

Top AI Stocks Investing to Profit from the Machine Intelligence Mega-trend

Silver's Plunge, Last Chance to Sell or Buying Opportunity?

Commodities / Gold and Silver 2010 May 08, 2010 - 08:04 AM GMT

By: Przemyslaw_Radomski

Commodities

Best Financial Markets Analysis ArticleThursday saw a huge reversal in the general stock market accompanied by huge volume. There seemed to be a selling mood, which accelerated for several hours though the mid-day period. Is this a beginning of a severe plunge or are we likely to see at least a small move higher - and what does this mean for silver? These are the questions that we will deal with in the following part of this essay.


Let's begin with the long-term SPY ETF chart (chart courtesy by http://stockcharts.com), which serves as a proxy for the general stock market.

It seems that we have seen the end of the last rally in a big way. But all is not negative when we look a little deeper. Even though the market's close was significantly lower than the prior day, a look at the intra-day activity shows that there was actually a substantial recovery from today's low point and it is quite likely we will see this bounce continue at least in the short term.

Many factors point to this coming trend. Today's SPY chart yields three positive signs that support a bullish sentiment for the short term. The closing price around 113 is above the multi-year support/resistance level - the declining black line. It is also above the 200-day moving average and above the rising support line created by previous months' lows. The true confirmation comes from the volume levels which were profound. The RSI has not been this low in months and when we saw a similar level last year, it corresponded to the final low of a previous decline. An RSI level this low most likely signifies a buy zone. The negative momentum of the RSI index is also profound, especially given the fact that it was just above the 70 level.

Moreover, in 2009, the RSI rarely fell below 50 and this week's downturn indicates a strong possibility of this decline being over as well.

Please note that the RSI indicator on the above chart is based on daily closing prices and therefore it didn't take Thursday's huge intra-day reversal into account. Should that be the case, it would provide us with even more bullish reading.

The amount of capital which left and entered the market was huge. Support levels work or have merit because of people's beliefs, stop/loss orders, buy/orders and the like. The automatic buy/sell orders have already significantly come into play. The strong reversal late in the session indicates many of these orders have been triggered already. Those wishing to exit the market, in all likelihood have already done so, or will do so very soon. That is to say, there are not many sellers left, and the buying power was strong enough to push prices up several hundred points in the DJIA. All of these factors suggest that at least a small rally is likely in the following days/weeks.

Let's take a look at the correlation matrix to find out what does the above analysis mean for gold, silver and mining stocks.

The correlation matrix this week is very interesting. The 30-trading-day column indicates that the correlation between gold, silver and HUI with the USD is quite weak, which is a quantitative representation of the fact that precious metals held or even rose slightly in spite of the USD strength this week. PMs are still rather correlated with the general stock market, but the strength of the correlation appears to have weakened significantly. This reflects the fact that gold and gold stocks have held up relatively well when the main stock indices plunged. Silver's performance on Thursday also suggests that it may not follow main stock indices much lower.

The 750-trading-day- and 1500-trading-day columns explain why silver and precious metals have been a bit weak during the past few days. Their long term correlation with the general stock market is higher than that of gold. For the very long term, which can be seen in the 750 day and 1500 day columns, gold has a negative correlation with the general stock market while silver and mining stocks do not. In the long run gold generally moves in the opposite direction of the general stock market, but silver and precious metal stocks generally often move in the same direction as other stocks. The soft bounce seen late this week in stocks may lead to silver and precious metals moving much higher.

Speaking of silver, let's take a look how it performed recently.

Silver appears to have bottomed out this week. This is in line with what we have stated earlier with regards to gold and the general stock market. The reason behind silver's weakness this week is it's correlation with the general stock market due to multiple industrial uses. Being a precious metal, silver sometimes follows the trends set by gold. However, silver has more industrial uses than gold and therefore may, at times, more closely follow the trends set by the general stock market.

Supply and demand situation for silver is still favorable. Emerging economies such as China and India are likely to continue to positively impact the direction of silver's price. Still, this week silver moved sharply lower. In our May 4th alert, we stated the downside appeared to be $17.30 ($17 for the SLV ETF). This level was breached intra-day but the closing price was higher. Silver is now at its 50-day moving average level which should provide support as was the case many times in the past. Higher volume has accompanied bottoms in the past and we have seen such levels this week.

Silver did not plunge at all on Thursday, actually rising about 1%. This is in spite of a day where the general stock market was severely down in the range of 5%. Indicators which normally are useful have little benefit this week due to the huge impact felt from the general stock market. The RSI level and stochastic indicator point towards a period of sideways price movement or a slight downturn, but these signals don't seem to be reliable at this point.

Moving to the short-term chart, cyclical tendencies appear to be in place. These are valid to use in projecting future price levels. The indications are we are close to if not at a bottom today. Although silver has moved lower this week, it stopped at the multi-month support level, which is in tune with normal cyclical tendencies. Silver's price may move higher, especially if the general stock market rallies even slightly. In short, this is what we expect sooner rather than later given all of the above factors.

Summing up, silver has continued to show weakness but has probably reached its bottom, and higher prices are coming. The general stock market did not cause a severe downturn this week and for both these reasons we expect silver to move upwards fairly soon. More detailed analysis - including short-term targets / probable scenarios is available to our Subscribers.

To make sure that you are notified once the new features are implemented, and get immediate access to my free thoughts on the market, including information not available publicly, I urge you to sign up for my free e-mail list. Sign up today and you'll also get free, 7-day access to the Premium Sections on my website, including valuable tools and charts dedicated to serious PM Investors and Speculators. It's free and you may unsubscribe at any time.

Thank you for reading. Have a great and profitable week!

P. Radomski
Editor
Sunshine Profits

    Interested in increasing your profits in the PM sector? Want to know which stocks to buy? Would you like to improve your risk/reward ratio?

    Sunshine Profits provides professional support for precious metals Investors and Traders.

    Apart from weekly Premium Updates and quick Market Alerts, members of the Sunshine Profits’ Premium Service gain access to Charts, Tools and Key Principles sections. Click the following link to find out how many benefits this means to you. Naturally, you may browse the sample version and easily sing-up for a free trial to see if the Premium Service meets your expectations.

    All essays, research and information found above represent analyses and opinions of Mr. Radomski and Sunshine Profits' associates only. As such, it may prove wrong and be a subject to change without notice. Opinions and analyses were based on data available to authors of respective essays at the time of writing. Although the information provided above is based on careful research and sources that are believed to be accurate, Mr. Radomski and his associates do not guarantee the accuracy or thoroughness of the data or information reported. The opinions published above belong to Mr. Radomski or respective associates and are neither an offer nor a recommendation to purchase or sell securities. Mr. Radomski is not a Registered Securities Advisor. Mr. Radomski does not recommend services, products, business or investment in any company mentioned in any of his essays or reports. Materials published above have been prepared for your private use and their sole purpose is to educate readers about various investments.

    By reading Mr. Radomski's essays or reports you fully agree that he will not be held responsible or liable for any decisions you make regarding any information provided in these essays or reports. Investing, trading and speculation in any financial markets may involve high risk of loss. We strongly advise that you consult a certified investment advisor and we encourage you to do your own research before making any investment decision. Mr. Radomski, Sunshine Profits' employees and affiliates as well as members of their families may have a short or long position in any securities, including those mentioned in any of the reports or essays, and may make additional purchases and/or sales of those securities without notice.

Przemyslaw Radomski Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules