SILVER TODAY – Prices testing support but still consolidating

Oct 21, 2016 - 11:50 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 17.80 Top of flag
R2 18.04 20 DMA
R3 20.06 Sept 22 peak
R4 20.13 Sept 6 peak
R5 21.13 High so far
R6 21.60 July ’14 peak
Support:
S1 18.04 20 DMA
S2 18.39 August low
S3 18.00 May peak
S4 17.51 Bottom of flag
S5 17.46 UTL
S6 17.10 Low so far
S7 16.14 March peak
S8 15.82 May low
S9 13.64 Dec low
Stochastics:Bearish
Legend:

DMA = Daily moving average

RL = resistance line

UTL = uptrend line

H&S = head-and-shoulder pattern

Fibo = Fibonacci replacement line

Analysis

  • Silver prices have found support around the long-term UTL after their sell-off, although the line is being tested and has been breached in recent days on an intraday basis.
  • The stochastics have turned negative in mid-range, which looks weak.
  • We would expect support to be fairly strong around the UTL.
  • Should this be a half-way resting place, another down leg could follow, in which case a drop to $15.85 per oz would not be out of the question. But we will give the market the benefit of the doubt – at least for the short term – and assume support is in place.

Other factors

As with gold, silver prices had struggled to make headway on the upside. The market consolidated for a long time but it is not surprising that the lack of upside progress has led to stale long liquidation.

CFTC data for October 11 showed the net long fund position drop 12,910 contracts after it fell 9,059 contracts in the previous week. Longs cut exposure by 13,237 while shorts covered 327 contracts. The net long fund position is still quite high at 62,893 contracts; it has ranged between 21,626 contracts at the start of the year and a high of 96,077 contracts late in July. We wait to see what this evening’s data shows.

With the dollar index strengthening of late and some optimism building on better economic data, which has increased the chance of a Fed rate rise in December, it is not surprising that there has been some profit-taking in safe havens.

There are multiple reasons for being bullish that we think will remain in place – potential repercussions from the Brexit, global debt, negative interest rates, the fiat-ness of currencies and record highs in equities and bonds. 

Silver ETF holdings remain near recent highs despite the sell-off so we feel investors will see this as a buying opportunity.

Conclusion

We remain bullish on the big picture for gold and therefore for silver. We were expecting a sell-off; we will now wait to see if the weaker prices stimulate pent-up physical demand and further investment buying. We would not be in a hurry to get long in case there is another sell-off but we would buy into a rebound if one got going above $17.90 per oz.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.