Silver is now in position to advance. Although it appears to have “done nothing” price wise over the past month, moving sideways within a narrow range, its technical condition is believed to have improved considerably. In the last update we expected it to react back to the lower boundary of the channel that started from the June low, but instead it has completed a “time correction”, by drifting sideways in a narrow range, sandwiched between support and resistance, marking time until the channel boundary caught up, which it has now done. This action has had several positive technical effects. The first is that the short to medium-term overbought condition that had developed by early August has completely unwound. The second is that by not reacting, and instead moving sideways, it has soaked up more of the overhanging supply from the earlier top area, thus reducing the resistance to a future advance. Finally, the stalling for time has allowed the 50-day moving average to swing from sloping downwards to sloping upwards, putting silver in a much better position to advance.
A great advantage for traders opening long positions at this time is that, due to the proximity of important support, a highly advantageous risk/reward ratio can be defined. This is because, as we can see on the 6-month chart, the lower channel boundary of the intermediate uptrend is now not far beneath the price and currently at about $11.90, and at this juncture it coincides with a support level at the lower boundary of the last month’s trading range, which sits atop the July peak. Traders can therefore enter positions here, and exit for safety on a closing break below the channel line AND the low point of the recent range. While it can be argued that this approach makes the trader vulnerable to being whipsawed out, this is an acceptable risk, especially as positions can simply be re-entered in the event of the picture subsequently improving again.
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