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Signs Are Silver Bull Market Is Consolidating

Commodities / Gold and Silver 2016 Aug 10, 2016 - 11:49 AM GMT

By: The_Gold_Report

Commodities

Having hit a target, silver has formed what is believed to be an intermediate top over the past five weeks or so, which it should soon start to descend from, says technical analyst Clive Maund.


On its three-month chart, we can see this presumed topping pattern started with the appearance of a prominent "Gravestone Doji" or "Shooting Star" candlestick early in July, with its negative implications being amplified by its having occurred on very high volume. While moving averages are in bullish alignment, the now yawning gap between the 50-day and 200-day makes a correction likely. After dipping back during August, the price rallied toward the highs early this month, and then failed, dropping hard on Friday, making it very likely that a Double Top is completing.

Silver 3-month chart

On the 8-month chart, we can clearly see why silver is likely to form an intermediate top here—it has risen up to become very overbought at the top of the expanding channel shown. A reasonable objective for a correction is the support level shown at and below $18 and the lower boundary of the channel not far beneath it, and it could drop farther. With the dollar turning higher and latest silver COTs at frightening extremes, it is not hard to see why it might drop soon. Normally such COT readings would lead to severe losses.

Silver 8-month chart

The long-term 10-year arithmetic chart gives us a much broader perspective. This is actually a very positive chart overall, for as we can see silver's bear market phase from 2011 has definitely ended. However, it has risen quite sharply in recent months to arrive at a zone of significant resistance, so it is quite normal for it to consolidate or react back here, before later breaking above this resistance and continuing higher.

Silver 10-year chart

The latest COT chart shows that Commercial short positions have achieved a new record extreme, which last week was due to the Small Specs pitching in in a big way. The Commercials appear to have been wrong up to now, but 9 times out of 10 things work out in their favor, so this looks like a truly menacing set up for longs. If you think the Large Specs are right, you ought to ask the question, "Where were they when silver was bottoming last December and January?"

Silver COT

If you think the last chart looks scary, then try this next one for size. On the long-term Hedgers chart, a form of COT chart, we can see the Hedgers short positions dropping off the edge of the chart. Could it really be different this time, so that they are forced into a short covering panic? Well, maybe, since we know some things are showing signs of unraveling, like the European banks, the trend toward helicopter money and the drift toward major wars, but these things like time, and the price charts we have looked at above suggest that now is a very risky time to bet against these big money players. The red dotted line on the Hedgers chart is a bearish extreme, and remember, that is not my determination, but that of sentimentrader.com.

Silver Hedgers Char

Chart courtesy of www.sentimentrader.com

Clive Maund has been president of www.clivemaund.com, a successful resource sector website, since its inception in 2003. He has 30 years' experience in technical analysis and has worked for banks, commodity brokers and stockbrokers in the City of London. He holds a Diploma in Technical Analysis from the UK Society of Technical Analysts.

Disclosures:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in any aspect of the content preparation or editing so the author could speak independently about the sector. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
3) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

Charts courtesy of Clive Maund


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