-- Posted 27 February, 2007 | |
Silver looks like it may have topped yesterday. This article will be heavy on graphs and shorter on commentary as I am very pressed for time. If you bought around January 10, when I posted my last buy recommendation, you have gained over $2/ounce since then. I took profits today on my trading position because it looks like weíve topped out. Silverís RSI is over 70 again which is a good signal that we are close to a short term high. Goldís RSI also is near 70 and it does not typically exceed that level. The US Dollar is nearing oversold levels at an RSI of 33. This is usual near times of reversals. See charts below showing candlesticks and RSI for the past 12 months:
Another signal that weíve topped is the commercial tradersí short position. In gold, they have now sold more than they have since May 9, 2006, before the last major correction. In silver, the commercials are net short 64,390 contracts, equaling the level before the December sell off a few months ago. They are overall short 90,729 contracts, which equals levels not seen since last April. The chart below is one that Iíve been creating for several years and it is very accurate at determining buy points. For tops, it is more difficult to tell when the commercials will buy back their contracts (or when the trading funds will start selling, if you want to look at it that way). However, the RSI indicators are helpful to determine tops.
Additionally, the correlation between the commercial short position and the price of silver is back with a vengeance at 98% so far this year, as shown in the chart below. From 1997 to 2005 (excluding 2001), the correlation averaged near 83%. This was a fairly reliable indicator of when we were close to tops or bottoms in the silver price. In 2006, the correlation totally fell apart, to negative 41%. If you used the commercialsí short position to help you time trades last year, you got hurt. The jury is still out, but the correlation may be returning again this year. Weíll have to watch and see how it progresses.
Below is a trend chart of silver over since October 2005. We are nearing the top of the most recent trend channel. If we were to close above the $15 level, then a new breakout would be likely. However, with the large pullback in gold and silver in the aftermarket today, that does not seem probable. I would expect us to revisit levels closer to the middle or bottom of the channel before the silver takes out the $15 high of last year. We are making higher highs and lows in this trend channel, which shows a healthy bull market that will continue as long as the lower trend does not get broken significantly.
I anticipate that the dollar will find support and silver and gold will get sold off this week and next. The next buying opportunity should appear soon. Look for gold to find support between $620 and $640 and silver between $12.25 and $13. This will correspond to an RSI in the 30ís. If we get a bounce rally this week, then Iíll only reverse my opinion if gold takes out $700 and silver $15. Regardless, I would not be a buyer at these levels. Better to wait for a lower risk entry point. If we were to take out $700 and $15, then Iíd buy on the next correction that brings the RSI back to 50. Some readers have asked me to recommend how to buy silver. I am still planning to gather my recommendations into an article in the near future that Iíll post on my home page when I can make the time.
On a personal note, my wife and I are preparing to pursue our life dream to travel the world together. We leave next week. As a result, I am not sure how much silver analysis Iíll be able to publish during the next year. I will post on the website as I am able to find time and Internet access to upload to the site. We will be off the grid for much of our trip, and using unpredictable Internet cafes, so I will not be able to respond to your emails even though I wish I could. If I post a new article on the website, Iíll also submit it to some of the more popular silver and gold websites for publication. Thanks for your understanding. If youíd like to follow our world travel adventures, please check out our travel blog at http://travelingsilvers.blogspot.com.
You must be wondering how a silver analyst named Silvers can take off in the middle of this exciting bull market. Well, God has blessed us with the timing and means to do this trip and if we donít go now, the once in a lifetime opportunity will probably pass us by. Weíll miss out on some of the profits of this bull market, but there really is a lot more to life than money and gains. God willing, Iím looking forward to putting even more effort into my silver analysis in 2008. Best wishes on your investing and future.
Disclaimer: This article represents the opinions and personal views of Timothy Silvers and is not intended to be investment advice. If you choose to use this analysis for your personal trading, Timothy Silvers assumes no liability for the direct or indirect losses you may incur due to using this article to make your investment decisions. You are totally and completely responsible for your own investments. At any given time, Timothy Silvers or his friends and relatives may have positions in silver related investments that may or may not follow the recommendations contained in this article. The information in this article may not be completely correct and accurate. Even though Timothy Silvers has done his best to review the content and accuracy of this article, he is in no way liable or responsible for any mistakes or omissions.
-- Posted 27 February, 2007 | |