In the previous article “Silver: A Correction or a Peak?”, the outlook for the exchange traded fund “SLV” was discussed as of Dec 9, 2009 (Posted on TFP 12/10/09). This article continues the technical analysis of SLV with reference to the original article. I recommend you first read the previous article.
Today… we find SLV “at the crossroads”. If current support does not hold, we should expect sharply lower prices. SLV violated support at trendline A prior to December 9th (Figure 1). It was not clear in the previous article if SLV would find support at trendline B …or… proceed downward to find support at trendline C. We previously suggested a bullish turn was likely at trendline C… which is where we are today… at the crossroads.
Figure 1. SLV – Analysis of Trendline Support – Dec 23, 2009
SLV did, in fact, find support near trendline C. The price action of Dec 22nd, however, clearly violated trendline C, but only for that day. Does the violation of trendline C mean SLV could drop further?
Figure 2. SLV – Detailed Analysis of Trendline Support – Dec 23, 2009
The close of Dec 21 is nearly on trendline C (Figure 2). The close of Dec 23 is essentially on trendline C. Why was there a clear break of trendline C (Point #3)…only to see prices return to trendline C the next day? There are often multiple factors to consider with regard to support, and trendline D just happens to be one of these factors. Prices have hit trendline D not once…not twice…but three times. In each case, there was a significant bounce upward. The bounce of Dec 23rd broke through the resistance of trendline E. So, there is not only clear support at point 3 of trendline D…there is also an upward breakthrough of trendline E resistance at the same time.
Figure 3. SLV – Trend and Cycles
The cyclic analysis of the previous article has been updated and refined to reflect recent price movement (Figure 3). The main cycle is now about 78 days in length. Price oscillations within a 78-day based price envelope reveal price at the edge of the price envelope. This represents another type of support as it is very statistically unlikely that price will extend substantially beyond the price envelope. Price proximity to the lower edge of the price envelope is also occurring within days of a projected cycle bottom.
A Confluence of Support
So, we now see price support at (1) trendline D, (2) near trendline C, and also (3) at the lower edge of a price envelope. All of this increases the odds that SLV will go higher in the immediate future…simply because it cannot go lower.
Putting it all together…
In addition to a confluence of support at trendlines C and D…prices have broken through resistance at trendline E – all at the same time of an expected cyclic bottom. Yes, it all sounds like the perfect storm for a sharp bullish move into January. Still, we sit at the crossroads today. Any substantial close below trendlines C/D will mean that the very strong support described here has failed – and a drop to $16, and possibly lower, will be expected. Good analysis assumes open, fair, and freely traded markets. Assuming no unnatural events…technical analysis (such as this) has a chance to be correct more than it is incorrect.
The previous analysis suggested a January peak in excess of $20. The recent “pause” (see Figure 2 – points #2 and #3) lowered the trajectory of the expected bullish move into January. Updated cycle and price envelope analysis now suggests a January cycle peak in the $19 or $19.50 region (Figure 3).
As with all technical analysis, it’s based on probabilities, so let’s see what happens.
Disclaimer: This analysis is provided for educational purposes only. Any reference to trading or investing is only for training purposes.
This entry was posted on December 24, 2009, 9:30 am and is filed under Guest Commentary. You can follow any responses to this entry through RSS 2.0.
Both comments and pings are currently closed.
Silver: At the Crossroads
In the previous article “Silver: A Correction or a Peak?”, the outlook for the exchange traded fund “SLV” was discussed as of Dec 9, 2009 (Posted on TFP 12/10/09). This article continues the technical analysis of SLV with reference to the original article. I recommend you first read the previous article.
Today… we find SLV “at the crossroads”. If current support does not hold, we should expect sharply lower prices. SLV violated support at trendline A prior to December 9th (Figure 1). It was not clear in the previous article if SLV would find support at trendline B …or… proceed downward to find support at trendline C. We previously suggested a bullish turn was likely at trendline C… which is where we are today… at the crossroads.
Figure 1. SLV – Analysis of Trendline Support – Dec 23, 2009
SLV did, in fact, find support near trendline C. The price action of Dec 22nd, however, clearly violated trendline C, but only for that day. Does the violation of trendline C mean SLV could drop further?
Figure 2. SLV – Detailed Analysis of Trendline Support – Dec 23, 2009
The close of Dec 21 is nearly on trendline C (Figure 2). The close of Dec 23 is essentially on trendline C. Why was there a clear break of trendline C (Point #3)…only to see prices return to trendline C the next day? There are often multiple factors to consider with regard to support, and trendline D just happens to be one of these factors. Prices have hit trendline D not once…not twice…but three times. In each case, there was a significant bounce upward. The bounce of Dec 23rd broke through the resistance of trendline E. So, there is not only clear support at point 3 of trendline D…there is also an upward breakthrough of trendline E resistance at the same time.
Figure 3. SLV – Trend and Cycles
The cyclic analysis of the previous article has been updated and refined to reflect recent price movement (Figure 3). The main cycle is now about 78 days in length. Price oscillations within a 78-day based price envelope reveal price at the edge of the price envelope. This represents another type of support as it is very statistically unlikely that price will extend substantially beyond the price envelope. Price proximity to the lower edge of the price envelope is also occurring within days of a projected cycle bottom.
A Confluence of Support
So, we now see price support at (1) trendline D, (2) near trendline C, and also (3) at the lower edge of a price envelope. All of this increases the odds that SLV will go higher in the immediate future…simply because it cannot go lower.
Putting it all together…
In addition to a confluence of support at trendlines C and D…prices have broken through resistance at trendline E – all at the same time of an expected cyclic bottom. Yes, it all sounds like the perfect storm for a sharp bullish move into January. Still, we sit at the crossroads today. Any substantial close below trendlines C/D will mean that the very strong support described here has failed – and a drop to $16, and possibly lower, will be expected. Good analysis assumes open, fair, and freely traded markets. Assuming no unnatural events…technical analysis (such as this) has a chance to be correct more than it is incorrect.
The previous analysis suggested a January peak in excess of $20. The recent “pause” (see Figure 2 – points #2 and #3) lowered the trajectory of the expected bullish move into January. Updated cycle and price envelope analysis now suggests a January cycle peak in the $19 or $19.50 region (Figure 3).
As with all technical analysis, it’s based on probabilities, so let’s see what happens.
Disclaimer: This analysis is provided for educational purposes only. Any reference to trading or investing is only for training purposes.
This entry was posted on December 24, 2009, 9:30 am and is filed under Guest Commentary. You can follow any responses to this entry through RSS 2.0. Both comments and pings are currently closed.