The long-term outlook for silver is very positive indeed, but over the short to medium term it looks set to react, says technical analyst Clive Maund.
On its short-term 3-month chart (below), we can see that, after rising sharply late last month, a sizeable bearish “shooting star” appeared on the chart on heavy turnover at the start of this month, at a time when silver was critically overbought, which indicates a high probability that silver will react back soon.
On the 6-month chart we can see why silver might react back here—it has just arrived at the top of an expanding uptrend channel in a very overbought state. Thus, a reaction back looks likely, and this would be a healthy development that sets it up for the next up-leg. Given the current COT structure it would not be unreasonable for it to drop back to the support shown in the $18 area over the short- to medium term.
The long-term 10-year arithmetic chart gives us a much broader perspective. This is actually a very positive chart overall, for as we can see silver’s bear market phase from 2011 has definitely ended. However, it has risen quite sharply in recent months to arrive at a zone of significant resistance, so it would be quite normal for it to consolidate or react back here, before breaking above this resistance and continuing higher.
Silver has also broken out to start a new bull market on its 10-year log chart. . .
As with gold, Commercial short and Large Spec long positions in silver have built up to a very high record level, making a reaction back soon a high probability. . .
The COT chart shown above, which only goes back a year, probably doesn’t drive home just how extreme the current situation is. If not, …read more