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Significant Decline In Silver Futures Price

Significant Decline in Silver Futures Price

By Eric Hale, VP of Macro Trading, Redcape Futures

10-5-16

Futures and options trading can result in profits and/or losses. Invest risk capital only.

From a high of $19.33/ounce (oz) on Monday October 3rd to a low of $17.585/oz on Wednesday October 5th, the beginning of October has been marked by a large drop in the price of silver futures. This represents a 16.56% decline from the high of $21.25/oz on July 5th, 2016. This deterioration may be significant given that it has moved the price of silver through three good support lines, the 80-, 90-, and 100-day moving averages (DMAs).

Courtesy of Barchart.com, 10-5-16

Since February 2016, the 80-, 90-, and 100-DMAs have been fairly reliable indicators for silver price support. However, the silver futures price has fallen through all of them and is currently trading a full $1.00 below the 100-DMA which is at $18.809/oz. Now, the price of silver might be on track to test the 200-DMA which is currently at $17.154/oz.

Courtesy of Barchart.com, 10-5-16

As silver futures are trading back up at $17.82/oz at the time of the writing of this article, the price of silver appears to have bottomed at the $17.585/oz level for now, which also happens to correspond to the 750-DMA at $17.623/oz.

Courtesy of Barchart.com, 10-5-16

Having risen 29.41% from a low of $13.77/oz on December 14, 2015 to the current price of $17.82/oz, silver's technical bull market remains intact. Fundamentally, the case for higher silver prices is strong. There is still excess demand coupled with supply deficits. However, technically, this amount of chart damage may lead silver into a short-term bear market as the chart pattern now shows a series of lower highs and lower lows since the beginning of July. Silver futures traders should keep a watchful eye on the 200-DMA. If this downward trend continues, precious metal bulls will need to reconsider the apparent strength of the technical bull market move that the precious metals complex has demonstrated since the beginning of this year. If the 200-DMA stops this downward pressure, then this downside move may end up being nothing more than a healthy correction inside of an over-heated bull market.

Futures and options trading can result in profits and/or losses. Invest risk capital only.

UPDATE: 10-6-16

This morning, silver futures prices have fallen another $.56/oz and broken through the 200-DMA. The $17.14/oz price level has not been seen since June of this year. The decline from a high of $21.25/oz to a low of $17.14 represents a 19.34% correction. With a technical bear market near, the bears appear to be winning this battle. However, it is likely that the 200-DMA will show strong support.

Courtesy of Barchart.com, 10-6-16

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.