Technically Speaking

"Hi-Yo, Silver! Away!"

By Darin Newsom , DTN Senior Analyst
Source: DTN ProphetX

Flying under the radar a bit, the silver market continues to hold to its technical signals relatively well. With most of the attention paid to gold, silver is putting together a solid uptrend, with the silver market posting strong gains again early Thursday morning. And as the weekly chart for the December contract shows, it has been closely following its technical patterns while doing so.

Going back just over a year, Dec 2013 silver poste a high of $35.535 (week of October 1, 2012) before closing at $34.785, just off its weekly low of $34.690. This coincided with a bearish crossover above the overbought level of 90% by weekly stochastics (bottom study). The next week saw the contract post a bearish gap, confirming the idea that the top was in the market and the trend had turned down.

By the week of June 24, 2013 the Dec silver contract hit a low of $18.215 with weekly stochastics well below the oversold level of 20%. The contract then consolidated before posting an initial bullish outside week (week of July 8) that led to a bullish crossover by stochastics, both indicating the trend was turning up. Four weeks later (week of August 5), the contract posted a secondary bullish outside week confirming an uptrend was in place.

The initial rally took Dec silver up to a high of $25.160 (week of August 26) and weekly stochastics just short of the 80% level. Note that this amounted to a test of the 38.2% retracement level of the previous downtrend from $35.535 through the low of $18.215. The rally then ran out of momentum, short-term, falling back to lows of $20.630 (week of September 30) and $20.495 (week of October 14). This established a double-bottom near support at $20.528, a price that marked the 67% retracement level of the initial uptrend.

This week has seen weekly stochastics turn bullish again as the Dec contract moved to a new four-week high of $22.870 early Thursday morning. By all indications, the secondary (intermediate-term) uptrend is back in place. Initial resistance remains at the previously mentioned 38.2% retracement level ($24.831), though realistically the contract could extend its rally to the 50% retracement level of $26.875. It is highly likely that at that time weekly stochastics will be back above the 80% level, setting up another possible bearish turn.

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Commodity trading is very complicated and the risk of loss is substantial. The author does not engage in any commodity trading activity for his own account or for others. The information provided is general, and is NOT a substitute for your own independent business judgment or the advice of a registered Commodity Trading Adviser.

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