Technical analyst Clive Maund explains what he believes silver's prolonged underperformance signals.
Like gold, silver now appears to be completing an intermediate
Head-and-Shoulders top that we can see on its latest chart below, within
a much larger and very bullish Head-and-Shoulders bottom pattern. Both
these Head-and-Shoulders tops are related to the Head-and-Shoulders
bottom that just completed in the dollar index, that we look at in the
parallel Gold Market update.
With the dollar index having just made a convincing breakout from its
Head-and-Shoulders bottom, and looking set to rally to the 97 area,
silver looks set to react back, probably to the $15.50-$16.00 area,
before reversing to the upside as the dollar turns lower again.
Unlike gold, silver's COT structure showed further deterioration last
week, and readings are now at levels that are construed as bearish.
There is plenty of room for improvement, which will come about if the
silver reacts back as expected on a continuation of the dollar rally.
Click on chart to popup a larger, clearer version.
Like gold, silver is marking out a giant Head-and-Shoulders bottom
pattern, but in silver's case it is downsloping as we can see on its
8-year chart below, which reflects the fact that silver tends to
underperform gold at the end of sector bear markets and during the early
stages of sector bull markets. Prolonged underperformance by silver is
therefore a sign of a bottom. This chart really does show how unloved
silver is right now, but although the price has drifted slightly lower
over the past several years, volume indicators have improved, especially
this year, a positive sign. A break above the neckline of the pattern,
the black line, will be a positive development, and more so a break
above the band of resistance approaching the 2016 highs. Once it gets
above this it will have to contend with a quite strong zone of
resistance roughly between $26 and $28. Over the short to medium term,
however, as discussed above, silver is likely to first react back to the
$15–$15.50 area on a dollar rally.
Disclosure:
1) Statements and opinions expressed are the opinions of Clive Maund and not of Streetwise Reports or its officers. Clive Maund is wholly responsible for the validity of the statements. Streetwise Reports was not involved in the content preparation. Clive Maund was not paid by Streetwise Reports LLC for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
2) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
Charts provided by the author.
