Silver Continues to Advance, No New Highs Achieved Yet

Apr.16.07 | About: iShares Silver (SLV)

Here are the latest numbers on silver as of this weekend, with changes on the week in parentheses:

London Silver Fix Price: $13.88 (+$0.30 on week)
NYMEX Spot Price: $14.01 (+$0.33)

RSI (Relative Strength Index) : 64.88 (+5.76) (70 overbought/30 oversold - short term top-bottom indicator)
RMAR (Relative 200 day Moving Average (Refined)): 1.02 (+0.01) (1.30 overbought - monthly to yearly top indicator)
NYMEX SLI (Silver Leverage Indicator): 1.51 (-0.01) (1.80 overbought - multi-year top indicator)
GSR (Gold to Silver Ratio): 49.12 (-0.47) (15.00 silver overbought - multi-decade top indicator)

SLD (Silver Leverage to US Dollar on a four year rolling basis): 2.65 (-0.01)
GLD (Gold Leverage to US Dollar on a four year rolling basis): 1.67 (+0.02)

Silver continues to advance but, as yet, no new highs have been achieved. The RSI for silver is now beginning to overheat as it hits a value of 64.88 and should advance into overbought territory in the days and weeks ahead subject to minor corrections slowing it down. To me there does not seem enough strength in this current move to reach the old high of last February before it is pulled down.

I was neutral on that last week but am more inclined to the negative now. However, it could still take a couple of weeks to enter the overbought zone as old highs are challenged. Meanwhile, the gap between the 50 day and 200 day moving averages has widened slightly to 82 cents (78 cents last week) as we anticipate a pre-breakout meeting of the two.

That brings me to some observations on the vagaries of analyzing price trends. As some commentators have pointed out, silver has been advancing on a rising support level which can be drawn across the sequence of increasingly higher lows. That sounds bullish and it may yet prove to be but an analysis of the last good sized correction in silver between April 2004 and August 2005 suggests caution.

AG_USD 130407

Note how after the big drop in April 2004, silver also advanced in a similar fashion to our current moves on a rising trend line until the old highs of $8.50 were nearly taken out in December 2004. However, this trend broke to the downside to begin a channel movement for silver for some months before the true breakout occurred in September 2005.

Will our current rising trend line support the price of silver or will we see a temporary breakdown? That previous rising trend line lasted 8 months. This current one has lasted 10 months. Once again, a breaking of the previous high of late February is required to maintain the bullish sequence of higher highs and invalidate that analysis.