Double Silver Tops

|
 |  Includes: GDX, GLD, SLV
by: Przemyslaw Radomski, CFA
This week we will turn to silver as this market provides us with particularly interesting long-term calls. Consequently, let's begin with the very-long-term chart (charts courtesy of stockcharts.com.)

Click to enlarge

The above chart was featured in our updates several months ago when we discussed long-term targets for silver and gold.

Just as was the case back then, it seems that silver prices would need to correct their previous upswing twice before moving to new highs. Please note that once a new high is reached after a rally, there is a typical correction and then a move close to the previous high that does not take silver higher. It seems that this is what we have just seen.

Once this second trial fails, price corrects once again - at least 50% of the preceding upswing (as marked on the chart above) before moving much higher.

This means that if we have seen the second top for silver now (which is likely the case) then silver might need to move down to $14 - $15 level before it ignites a rally that takes it to new highs.

We realize that this is very discouraging news to silver and gold investors but it is our obligation to report what our analysis determines. Gold and mining stocks may also go substantially lower but confirmation from other techniques or signals is needed before validating this option as highly probable.


Click to enlarge

The above chart indicates that we might be close to a local bottom, as the price of silver is right at the 200-day moving average. The Stochastic Indicator points towards the bottom possibly being in. The RSI however does not confirm this. So what does all this mean? The signals are presently mixed and unclear and we do not feel this benefits entering with speculative capital at this time.

Click to enlarge

This final chart for silver points to the bottom being in and a technical turning point also at hand. The Stochastic Indicator also identifies the bottom and a probable move upwards to follow.

Summing up, even though precious metals will likely move upwards slightly in the coming days, this may be the beginning of a bigger downswing in silver, gold and mining stocks. We caution that these moves higher may only be temporary (particular caution is necessary if one wishes to trade this move), as they are driven to a great extent by possibility of a consolidation in the Euro Index. Please note that this is not the end of the bull market for silver.

Disclosure: No positions