Thoughts on Silver

Note: I published this post on my private journal on 1/6/12. I re-posted it here on 1/8/12.

Here are two charts of silver that I'd like to discuss. The first chart is a weekly view with the 144 and 89 weekly moving averages present. Additionally, I've shown 34 Bollinger bands and 34 period slow stochastics. RSI at the top is 5. I've drawn a channel and what could end up being a bullish falling wedge.

First the RSI could be setting up some positive divergence. If that trendline holds and silver can bounce off it, that would be bullish.

In early 2010 when silver sold off hard to start the year, it ended up bouncing right off that 144 weekly moving average. That MA is at $24.45 at this time.

Silver bounced right off the 89 weekly moving average this week, despite the solid advance in price.

Until silver re-takes the 89 weekly moving average, I favor the price action shown with the blue lines. I think silver will continue to grind lower within this wedge, setting up positive divergences in the RSI and MACD. Silver may, perhaps even intra-day and just briefly, break below the lower trendline of the wedge and below the bottom of the bollinger band at any time and touch $24.50. I believe ~$24.50 to be a logical area for the correction to run its course.

On the other hand, if silver can rally and break out of the wedge and clear the 89MA, then the scenario traced out in green would be the one I'd favor. A breakout followed by a re-test of the upper boundary of the wedge. It would be bullish if silver could rally off that.




This chart is courtesy of Trader Dan Norcini. I wanted to post it here because it shows a very long term view. Notice the 0.618 fib retracement at $24.48. There is a magnet on that price. I'd love to see it there at some point in the next two months.

That big support line in the chart would have to be lost in my scenario. I think this would be fantastic because it might freak out all the short time traders and weak hands -- right before a major bottom nonetheless. People will be scared and wondering: WHAT IS WRONG WITH SILVER?! IT IS GOING TO $16.00!!! ='( !!!!1

It has bottomed in early Jan/Feb in 2009, 2010 and bottomed there in 2011 right before the rocket launch up to ~$49.50.