-- Posted 20 December, 2004 | Digg This Article

We have had several bearish developments in silver this month. It failed just beneath its April highs, then it plunged precipitously and in the process broke down from a long-term parabolic uptrend. That said, silver does have a habit of staging violent shakeouts and then going on to gather itself together before advancing again. What is very clear is that silver’s plunge halted exactly on the lower intermediate uptrend line in the vicinity of the rising 200-day moving average, shown on the 1-year chart. This very important trendline support must hold - if it doesn’t another rapid decline to the $6.10 area or even down as low as $5.50 will be the consequence.

 

There is no disputing that silver is a considerably weaker play than gold at this time, the recent reaction was far more severe than that of gold, and in marked contrast to gold, it reacted FROM its Spring highs whereas gold reacted TO its Spring highs. There is thus considerable risk that the current tight trading range is a “downflag” - if it is the price will break down from the channel and plunge again. Assuming no breakdown occurs it would likely take several weeks of trading above the lower channel line for sentiment to recover sufficiently to put silver in position to stage another significant rally. Traders wishing to go long will run less risk if they wait for the price to rise up through the 50-day moving average, which will drop back over the next several weeks. Traders who are considering going long with the price above the lower channel line, with the intention of placing a stop to effect a swift exit on a breakdown from the uptrend need to be aware that because this channel line is so clear and obvious, a large gap down is likely to occur should the price break down, rendering most stops useless. A tactic to avoid be caught like this would be to buy with the price comfortably inside the channel, but with an exit point/stop a little ABOVE the channel line, accepting the risk of being shaken out for a minor loss as the price of avoiding being caught up in another plunge.

-- Posted 20 December, 2004 | Digg This Article

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