Here is
the latest technical analysis on silver with the assistance of Eidetic Research, our institutional-level technician.
The lack of posts on Silveraxis during the past few months have been in
large part due to being busy
at Metal Augmentor
(new website design to launch
soon) and partly out
of deference for giving
the silver move some space to play out. We are now coming
back because this rally stage of the market may be in the very latter stages. More stuff will be
posted soon.
We’ve had
some recent discussions with our market
technician partner at Eidetic Research
in order to help us gauge the current
situation in precious metals
and other markets with an emphasis on silver given its notable recent behavior. While our own outlook
will always remain our own,
we are heavily influenced by Eidetic’s technical and market
observations. The reason is
simple: the analysis is
more useful, apt and accurate than any other technical
work out there. With the above understanding out of the way, we’ll paraphrase and embellish
Eidetic’s views below. Our own supplemental and dissenting thoughts will be presented in separate market updates to follow.
According to Eidetic
Research, there is not a huge amount of insight that can be gleaned
from near-term gold or silver at the present time that the charts don’t already make rather obvious. Tellingly, a $41 area swing target
for silver didn’t contribute much to the recent price action as the moon metal powered
through the low
40’s range and is now
within striking distance
of the January 1980 all-time spot market high of $50-something.
Last Monday’s top reversal from around $41.70 could have threatened the trend
but a lack of follow through and then an upside reversal into Thursday with a new bull market high on Friday revealed just how strong this market is
currently. Unsurprisingly,
the price action to end last week
has translated into aggressive buying of silver into early
this week.
Importantly, the recent
exuberant performance by silver
has not undermined the market.
Indeed, there are presently no specific nearby price levels below which silver would need to drop for there to be lasting technical damage. Overall, silver appears to be in an accelerated third wave of an even larger wave
three — what
Elliott wave theorists
call a “third of a third” (i.e., Wave 3 within larger Wave III of the sequence that began in
2001).
Silver should continue
to outperform gold until it no longer does
— in other words, there is no nearby
ratio of gold to silver that
has technical significance.
That said, there could always be a bounce
in the ratio if silver hits a meaningful
downdraft in the short term.
Even with the technically overextended
conditions, however, silver
is telling us in the
macro scheme of things that eventually it will narrow
its ratio to gold to the 15-17 area (around where the 1980 top was made).
On its
own merits, gold still looks good as well. The
gold market has put behind
it a huge amount of resistance in the
1420-1440 area during the range-bound
price action from last November to March and this fact should support further gains. Turning short-term neutral to negative might be warranted if spot Comex gold
were to close below 1410,
thus returning prices to the November to March
range.
A couple of thoughts by Eidetic Research on other markets: the Japanese yen blow-off the night
of March 17 to 129.57 on Globex — about 77 in the cash JPYUSD — appears to have been a “major, major” turn. How major? Possibly reversing the multi-decade
yen/dollar trend that has been ongoing
since a 1950 cash high at 620 yen to the dollar! U.S. Treasury
bonds still deserve a bearish outlook even though that view
now has a lot of company.
That market has an outside
chance for one last neck snapping runup to the 126 area basis spot month
Chicago T-Bond futures, but longer term, bonds likely have a date with destiny down in the 85 area — the level where they
traded in 1987!
Now for something a
bit more specific on silver
that could potentially have immediate
implications even if it
tells more about the past than
the future. The following chart
represents a method to target price levels that Eidetic
has used in the past to generate very long-term, high-probability market objectives. For example see the recent work on commodities and other markets
. Below
we see the method applied to the long-term chart for silver. The targets appear to line up with historical price activity quite well with the final
“E” target at
just under $45. And here we are at
this very moment with silver at
$44.50!
We’ll
let Eidetic explain the above chart in words dating from 2007 (the above chart has since been updated but it was unnecessary to update most of the explanation):
The majority of technical analysts will agree that uptrends
consist of 3 well defined advances. In
major bull moves we have observed
that those advances are often comparatively related.
Our experience is that the size of the initial advance
sets the standard for the subsequent 2 advances. We have found that typically,
when the initial advance is considered as a baseline of 1 then the second advance will reach to a level approximate to 1 and the final advance
will reach a level that approximates
2.
In the above silver chart, we have drawn a major uptrend line (A) below the lows of 1971 and 1993. Subsequent
intermediate term lows in 1997 and 2001 were in the general area of that trend line, thus validating it. We subsequently paralleled a line (B) from the 1974 high to define a long-term channel. Notice how many intermediate term price highs and lows, both backward
and forward in time, occur
in proximity to that mid-channel line. We
infer that line as corroborating the channel.
As the ongoing uptrend from the 2001 low matured, it underwent
an acceleration phase as prices
cleared the top of the A-B channel.
Typically an upside channel exit accompanied by increased momentum will carry to a distance equal to the vertical height of
the channel. In this
case, that potential was achieved when prices traded
at $15.11 in May 2006. Our interpretation is that $15.11 marked the top of
the first advance in what
is a long term uptrend series. Therefore, in our view, the distance from line A
to line C determines the baseline
of the series (A
–> C = 1). Observe the classic pullback to line B following the 2006 high as well as the failure of price weakness to carry back within the A – B channel.
That was written in
2007. Eidetic Research then went on to say that the next expectation for upside potential in the silver market was in the area of Line
D, which is drawn parallel to the underlying A and C lines and at a distance from C equal to the height of the A-C channel.
(C –> D = 1). That would put upside potential for the subsequent advancing phase in
the $26 area with some
consolidation around the halfway
distance from line C to line D, which
is around $21. This in fact appears to have been very close to target as well. Indeed, the last update on silver from Eidetic Research was made in early September 2010
as silver was staging for a move past this very level.
Eidetic Research finishes
by pointing out that ultimately the third advancing stage of the current
cycle should reach the
area of line E, presently just
under $45, which is drawn parallel
to line D and at a
distance equal to the height
of the A – D channel (D –> E = 2).
Notice how, if line E is extended
backward in time it
crosses near the top of the 1980 blow off phase ($50.36 on this chart which features
the inactive January 1980 COMEX futures versus the actual high of $41.50 basis the
active front month March 1980 silver
futures).
So what
does this all mean? For one, that silver has achieved this week a very
significant, long-term price objective even without having taken out its all-time-record-high nominal
price. Silver could hesitate here or perhaps even pull back in deference to
the technical pattern although
it could just as well power through on its way to a level that defies all attempts at prognostication.
There is certainly nothing at this
point to suggest that silver in the longer term will find it
hard to achieve further
gains.
Tom Szabo
Silveraxis.com
Metal
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