Silver's Relative Strength
The weekly chart below (courtesy stockcharts.com) shows a market that has been indecisive of the relative merits of silver vs gold as an investment target.
There are a couple of "straws in the wind" that this indecision may soon be resolved - with silver emerging as the preferred counter:
- The 13 week MA seems to be reaching the same level in early 2005 relative to the 52 week MA.
- If the 13 week MA moves up from here - as the MACD stochastic seems to be indicating is a possibility - then the accompanying result is likely to be a break-up out of the triangle of indecision that has been forming since April 2004.
It is emphasised that we are talking about possibilities - as opposed to probabilities.
That silver is likely to break up to new highs in absolute terms seems probable flowing from the following 3% X 3 box reversal Point and Figure Chart, which is anticipating an upside target of $8.80 based on a horizontal count target calculated following its buy signal on October 7th.
This bull move in silver is further corroborated by monthly chart of Macmin - which is showing an elegant symmetry in its the upside breaks from a series of bullish falling wedge formations (chart courtesy bigcharts.com)
Of interest is that the previous moves of the Macmin share price following the breakouts from the previous wedges were:
- +-4 cents to +-13 cents = 225% improvement
- +-7.5 cents to 25 cents = 233% improvement
- 12c - ?
If previous history repeats, Macmin's share price could rise to as high as 40 cents on the next move. Of course, there is no logical basis for assuming that history will repeat itself, but it does seem that this reasoning validates the logic that silver's next up-move will take its price per ounce to new highs.
By contrast, it seems from the following weekly chart that gold may be approaching an area of some short term upside resistance given that it is approaching the upside target of $484/ounce based on the horizontal upside count which resulted from its break-up above $430.
A somewhat worrying aspect of silver's behaviour flows from the following the following Commitment of Traders table as at October 28th (source:http://www.technicalindicators.com/silvcotreport.htm)
This table shows that the primary "driver" of the silver price's breakout has been speculative trading, which might still unwind if the breakout does not cause some short covering by the professional traders. As has been mentioned by several analysts, history shows that the speculators typically "blink first" as they attempt to outbluff the traders, but it is inevitable that the day will finally arrive when the traders will lose their nerve. That this day may arrive sooner rather than later flows from the fact that the "short" positions have flowed largely from the commercials, whose percentage of total has risen from 60% to 73% in the past 6 weeks.
By contrast, the open position of gold has been less speculative, and its price is likely to be less volatile in the immediate future:
The "conventional" view seems to be that because demand for coinage is waning in both gold and silver, therefore, neither the gold price nor the silver price will experience upside pressure from this quarter. This may well be the case. However, the silver charts are showing a market that is getting closer to an upside break to new highs which, in turn, could cause the speculative shorts to scramble for cover.
Taking a step back, the less sensitive (5% X 3 box reversal) P&F chart of silver shows an upside target based on horizontal count technique of around $9.72/ounce - which is close enough to confirm the upside target of $10.06/ounce as anticipated by the vertical count technique applied to the early P&F chart.
The technical evidence seems to favour a possible upside break of silver relative to gold - with $9.72/ounce to $10.06 per ounce being a reasonable expectation for the silver price at the culmination of the next bull move.
It is this analyst's view that a break up of the silver price above $8 per ounce will likely cause great consternation amongst the "short" constituency, which will start to focus on the "stupidity" of selling short a commodity that is in itself in short supply.