The silver market is on the upswing but consolidation could be in the offing, according technical analyst Clive Maund.
Some weeks back we had correctly surmised that gold's gathering strength would rub off on silver and cause it to start catching up, so we bought a range of silver ETFs and stocks, a move which has paid off well as they have spiked quite dramatically in the recent past.
Starting with silver's 10-year chart, we can see that its presumed giant double bottom is starting to look more and more like the genuine article, with the price starting to advance away from the second low of the pattern.
Silver has a marked tendency to "drag its feet" when a new sector bull market starts, which is why it has been so laggardly for much of this year. When we look at the latest four-year chart we can see another big reason why it could now get bogged down again for a while, for there is a wall of resistance just above the current price centered on the $16–17.50 zone. This, given the short-term toppy look of gold, could cause it to consolidate or react back now for a while. This is a big reason why we took profits in a number of our silver ETFs and stocks at the top on Friday morning, which had done very well last week.
Another reason for taking profits in some silver investments last Friday morning can be seen on the latest eight-month chart, for silver had arrived at the top of an expanding uptrend channel after a steep ascent that resulted in its becoming very overbought.
Silver's latest COTs do not look as extreme as gold's, but they show that last week there was a big rise in Commercial short and Large Spec long positions. Since this data is for the close of trade last Tuesday, we can presume that by Friday's close they were more extreme. Although they are not at levels that preclude further gains, it certainly wouldn't do any harm if they eased as a result of a correction.
Finally, here are the charts of a couple of silver investments that we sold, or at least partially sold, into strength after the opening on Friday. Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), where we made 50% in a month, having bought it on June 14 at about $2.53:
And VelocityShares 3X Long Silver ETN, where we made about 30% in less than two weeks on our last purchase:
The conclusion is that while the medium- and long-term outlook for silver is excellent, a period of consolidation or reaction looks likely over the short to medium term.
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.
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Charts provided by the author.
CliveMaund.com Disclosure:
The above represents the opinion and analysis of Mr Maund, based on data available to him, at the time of writing. Mr. Maund's opinions are his own, and are not a recommendation or an offer to buy or sell securities. Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications. Although a qualified and experienced stock market analyst, Clive Maund is not a Registered Securities Advisor. Therefore Mr. Maund's opinions on the market and stocks can only be construed as a solicitation to buy and sell securities when they are subject to the prior approval and endorsement of a Registered Securities Advisor operating in accordance with the appropriate regulations in your area of jurisdiction.