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Silver rally expected to peak in the near term for a possible shorting opportunity

Commodities / Forecasts & Technical Analysis Jan 19, 2007 - 11:05 AM GMT

By: Clive_Maund

Commodities

This Silver Market update will be truncated relative to the Gold Market update, as many of the arguments set out in that update apply equally well to silver. Silver suffered a similar New Year smack down to gold, broke down from a similar intermediate Head-and-Shoulders top area, and broke back above the "neckline" of the pattern on Friday, which is as a result also close to aborting.

The strength of the move on Friday indicates that we should see follow through next week, but that the advance will stall out either at the resistance in the $13.25 area, or possibly at the resistance zone in the $13.75 - $15.20 area. At this point, depending on conditions prevailing at the time, we will consider shorting it with a fairly close overhead stop.


Silver 6 month chart

Having considered the overall picture for gold by means of a 6-year chart, it is only fair to do the same for silver. On this chart we will use the customary 200-day moving average, as unlike in the case of gold, a 300-day moving average does not provide a close fit. Like gold, silver has been stuck in a large trading range since it peaked last April - May after a near vertical ascent. This trading range looks more like a top area than the one in gold, with the December peak looking like Double-topping action with the highs of last April - May.

While a break above $15.20 would signal the probable start of another major upleg and would be taken as a signal to go long, with close stops, the odds are thought to favor retreat here, especially given the deterioration across the commodities sector and the breakouts by T-bills and T-bonds in recent days from their intermediate downtrends in force from last July, which indicate that continuing strength in the US dollar is to be expected. The formation that has developed from last April - May looks like a top area that could project the price back to the long-term uptrend line, currently approaching $9. If this line holds, the long-term bullmarket in silver will remain intact.

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silver 6 year forecast chart

Conclusion: the current short-term rally is expected to continue at least to the $13.25 area, and possibly higher to the $13.75 - $15.20 area, where we would be looking to short it with close stops. A break above $15.20 will be viewed as the probable start of a major uptrend and will be taken as a buy signal, but again with quite close stops. On the downside, key support levels are not so clearly defined as they are with gold. After the current short-term rally has run its course, there is a considerable risk of silver turning lower and ending up back near its long-term uptrend line, currently approaching $9.

By 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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