Our last week’s comments on the possible rally in gold (January 13th, 2012) are still up to day, so we
will begin this essay with a quote from the aforementioned essay and then we
will move to the silver market.
(…) we see that gold is about to reach the upper
border of the declining trend channel and its 50-day moving average. We could
see a pause and possible consolidation around this $163 price level. The
outlook will remain bullish here unless a top forms and a decline is seen on
significant volume. On the other hand, if the decline takes place above the
$163 level and takes gold no lower than to this particular level, it would be
a very bullish development and we would likely consider adding to long
Because both the silver and gold short-term charts
have similar implications regarding a short pause (however based on different
factors; these factors are discussed in more detail in our full analysis), it
is more probable that we will see just that.
As mentioned earlier, today’s technical part
is devoted to silver. We’ll start with the analysis of the very
long-term chart (charts courtesy by http://stockcharts.com.)
In the very long-term chart for silver, we begin by
reemphasizing the importance of a recent development. Silver
bottomed right at the very long-term cyclical turning point
and prices have moved higher since. The lack of any additional declines has
clearly confirmed that the bottom is in and greatly increases the odds of a
rally from here.
This appears to have been a major bottom, perhaps as
significant as the one seen late in 2008 which was followed but what could be
described as pretty much a two and one-half year rally with prices rising
more than 500% through early 2011.
In the second very long-term chart (if you’re
reading this essay at www.sunshineprofits.com, you may click on the above chart
to enlarge it), we see that the bottom appears to be in here as well, and
silver’s price is close to a resistance level which is indicated above
by the rising red line. This line also coincides with the 10-week moving
average (green line). The RSI level also suggests that the bottom is in, but
we prefer to see an additional move to the upside – above the
resistance levels - before calling the situation more bullish than it is
right now. It is bullish anyway, but at this point we see no reason for
increasing the size of the long position.
Looking at silver’s short-term chart, it seems
that a consolidation is possible here as we are fast approaching a cyclical
turning point. One possibility is that we could see a local top followed by a
correction, a bottom, and a subsequent rally. It might be similar to what
we’ve seen at the end of November 2011, only this time it would be a
pause during an upswing.
Summing up, silver’s medium- and long-term outlook is
bullish. From the short-term perspective, a consolidation or pause in the
rally appears likely.
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