Silver Technical Analysis by

The following article is provided by Joshua Enomoto,

What a difference a day makes! After three weeks of significant downturn in the silver market, it appeared that the bears lost downside momentum, and that the bulls would regain control above critical support lines in order to launch a concerted assault on the revered $50 price point. Instead, Friday of November 2nd happened, taking whatever pretense of predictability the COMEX may have had, and shoved it way down the nearest drainage ditch. 38,400 contracts, or 191 million ounces of silver being sold off within the space of 10 minutes can have strange effects on people: Elation for those who received a “word of encouragement” and thus initiated massive short positions, but despair for most not privy to such advanced warning. After such devastating losses, is it wise to be in this market? Prominent commodities experts like David Morgan think so. In fact, there are many compelling technical arguments to suggest that the recent downswing has been overdone, both in the physical bullion itself, as well as the companies that mine it from the earth.

First, let’s start with a technical overview of spot-silver:

Friday’s sell-off puts silver bullion right on the 1st support line, which coincides with the current 200 day moving average. The single day drop was accompanied by immense bearish volume, which is rather peculiar (read suspicious) due to the fact that the overall volume trend was decidedly downwards and negative, as momentum traders, or the weak hands, began to exit the market after silver failed to rally beyond $35 since the announcement of QE3.

Is the technical implication as bad as it appears? There are two schools of thought here. Market participants may want to brace themselves for an attempted mauling of the $30 key psychological support barrier. If the bears can succeed in driving prices that low, it would violate the 38.2% Fibonacci retracement level of the August rally, and would suggest further downside towards $28, the last line of support before a nerve-wracking drop to 26. On the positive side, we can see that from October 5th until the 23rd of that month, the bears succeeded in taking the price down from the high-34’s to $31.50, which represents a 50% retracement. From $31.50, the bulls put on the brakes and mounted a slow climb right underneath the main trend line, or roughly where the 200 DMA is located. The fact that we saw a rising consolidation pattern develop off the 50% retracement level tells me that most of the weak hands did indeed exit the market.

So what about the Friday sell-off? It’s either conspiracy or lunacy…an act of collusion or a moment of panic. Which brings us to profitability, the art of cashing in on black swan events. Aside from investing in the physical bullion or ETF’s that track spot price performance, another avenue is through the mining industry. While investing in mining companies does have its fair share of critics due to the fact that there are several variables exclusive to the industry that often results in a lack of correlation between the company and the underlying asset, many top silver producers are technically poised for a breakout move.

Thanks Joshua from provided such an insightful technical analysis. Some investors might consider the above analysis is a little too complicated. I have discovered a simple yet practical and powerful formula for you to use to determine when is a good time to buy silver and when is a good time to sell silver to maximize your profit. The formula is available in Malaysia Silver Investor Membership.

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