SILVER TODAY – Prices consolidate after severe sell-off

Nov 17, 2016 - 11:36 AM GMT
by
Short Term:
Medium Term:
Long Term:
Resistances:
R1 17.09 Former support
R2 17.82 20 DMA
R3 19.00
R4 20.06 Sept 22 peak
R5 20.13 Sept 6 peak
R6 21.13 High so far
R7 21.60 July ’14 peak
Support:
S1 18.39 August low
S2 17.82 20 DMA
S3 17.95 Bottom of flag
S4 17.81 UTL
S5 16.65 Low so far
S6 16.14 March peak
S7 15.82 May low
S8 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 initially found support around the long-term UTL after the sell-off and a base seemed to have been built, with prices recovering to $19 per oz. But that changed on Friday November 11, with prices collapsing to  17.20 per oz, which was followed on November 14 by a drop to $16.65 per oz. Prices are now looking for a support level that holds.
  • The stochastics remain negative.
  • The 61.8% Fibo of this year’s rally lies at $16.50 per oz; we would look for support around that level and would get more bullish again once the stochastics turn higher.

Other factors

Silver prices have fallen 21% from the high at $21.13 per oz seen in July. This compares with an 11.9% fall in gold prices over the same period. The gold/silver ratio has climbed to around 72 from around 66.

The strong dollar seems to be weighing on prices. Given a better economic outlook, combined with the uncertainty in the political arena, we would have thought silver prices would be holding up better than gold prices.

The CFTC fund position showed 3,006 contracts of short-covering in the week up to November 8. The recent trends have been long liquidation and short-covering. The gross short position is now at a low level of 24,091 contracts – its range this year has been 18,533-48,772 contracts. The gross long position stands at 89,360 contracts – it has ranged from 68,196 to 123,737 contracts. The recent trends in the fund positions suggest the market is not bearish but that the longs has started to get disappointed. We now wait to see if the funds get bearish into the sell-off or whether the longs get bullish again now prices have corrected.

Conclusion

The sell-off has been severe. We wait to see if the weaker prices attract bargain-hunting from investors and the trade alike.

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