Complete Analysis of Silver.

Here’s my complete analysis of the silver market right now (SLV to be more exact, since that is the silver ETF I use).

First, I’ll start off with some facts.

  • Silver is currently trading with low volume in a support/resistance range. For a whole month now silver is in a sideways trend. Why? I believe that it’s because there are a lot of support and resistance lines here. The $32 – $33 (SLV) is a key support line. In March of 2011, SLV hit this resistance level 4 times, each time bouncing back up. Also, $30 an ounce is key investor psychological barrier. SLV took two and a half months just to break this barrier. If prices do decline further, this should be a hard to break support level. $40 should also be a big psychological barrier for SLV to break. On the way up, SLV burst through $40 without any hesitation. But that was because the silver markets were in a crazy mood. People were dreaming about silver, talking about silver at Friday night dates, and your grandma was probably buying silver. However, the silver markets currently are in no crazy mood, so breaking this barrier will be pretty hard to do.

 

 


 


  • Silver is currently retracing 1980. In case you don’t know what happened in 1980, that was the end of the silver bull market. Here’s the chart. comparing 1980 and 2011 silver tops
  • There’s low volume right now. This, combined with a sideways trendline, indicates that the bulls and the bears are both chilling on the sidelines, waiting for an indicator to either buy or sell.
  • Food prices will likely go down by the end of this year. 2 reasons. I forget if I mentioned this earlier or not. This year’s weather in North America has been very good for crops. Lots of alternating sunshine and rain. North America is the world’s breadbasket. On the China side, growth is slowing down a lot. A lot of my Chinese business friends and relatives have confirmed this. Due to a foreseeable slowdown in China, many commodity prices will fall. All commodities move in one direction. This indicates that silver could fall below $30 by the end of this year.
  • The silver bull market isn’t over. It hasn’t significantly penetrated it’s 1980 peak. If this is the end of silver, then this isn’t a bull market (and I don’t believe that).
  • The technical investors are waiting for a signal or fundamental that can drive silver higher.
  • There is now increasing demand from a wide array of nations. China. They want to get rid of their USD holdings and transfer into precious metals. China’s inflation is also a big problem, so a lot of Chinese are buying into precious metals. A lot of other central banks around the world such as Australia and India are also buying silver.

Bull case

If you use the MACD indicator, a buy signal was generated a buy signal. But you know what the problem is with the MACD? It doesn’t work when prices are in a sideways trend. And problem is, I don’t really see any reason why silver (or SLV) should continue it’s ascension within the next 2 months.

Sideways case

There are some good reasons for silver to continue moving sideways for another few months. First of all, like I mentioned in the Facts section of this post, there are many resistance and support lines in the $30 – $40 range. Now that’s a pretty big range, and you might want to trade within that range. But you shouldn’t. It’s too dangerous (at least I believe so). It is also summer time. Ever heard of “sell in May and go away?” The traders are waiting for something that will provoke their buying or selling. That “something” probably won’t come in the summer.

Also, investors aren’t psychologically ready for the final advance. After that crash a month ago, investors are still spooked. You think they’re ready to go crazy again and buy silver like there’s no tomorrow? Yeah right. They know that the silver bull isn’t over, but aren’t ready to go into the crazy buying mentality that occurs at the end of all bull markets.

Bear case

It’s the end of the world! Dump all your silver and run with your lives! Just kidding. There’s only one factor that may cause silver to fall further. I mentioned it previously in the Facts section. Commodities in general will go down, and silver will be dragged down along with it.

What do I believe in? I’m like all the other traders. Waiting for a sign.

One thought on “Complete Analysis of Silver.”

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