The silver mania continues. In line with a definition of an overbought market, this one has been rallying in an ever accelerating pace. Since I wrote about it last time, suggesting a possibility of a "silver bubble", the price has moved from $40 to almost $50, which represents 25% appreciation in 3 weeks. Staggering pace for a physical commodity.Incidentally, the press has been screaming about an all time high (last week extreme was at $49.81), but that may have been a little premature. The all time high in silver futures was set on January 18th 1980 at $50.36 for the nearest contract.
Of course, that does not change the fact that silver has been in a serious bull market and the level reached last week might as well be treated as the all time high. However, the dynamics have changed to some degree and for the first time in weeks silver did not close at a high for a period. Also, gold seems to become more popular now as if players are shunning silver. Has the money started to flow away from silver? Hard to tell, but the weekly chart suggests indecision, forming an almost perfect doji.
Given the size and duration of this rally, the weekly chart is probably the best for analysis of this market, at least it paints a relatively clear picture. We can see a parabolic price run, almost straight up, with MACD reading practically of the chart. Same with the ATR, which has not been at this level since 1980. At this stage of the trend this over-sized Doji is a warning flag for anybody still long silver, and an opportunity sign for those who want to short it. Like me.
Since a doji of this magnitude and that late in a trend is extremely rare on weekly charts, one might be very tempted to simply go short when the markets open. For me, however, a doji itself is not a reversal signal, in most case it should be confirmed by another bearish candlestick. Here the confirmation will be move under the low of last week, where I have a sell order at 44.45, giving the week about 15 cents breathing room. My objective is $32 level, or just above the most recent resistance, which could change into a support. Ultimately, silver might drop to $21,50, based solely on charts, but that is very ambitious, a trade which would take too long for me.
Should the market continue higher, it very well may, my sell order will be moved under the next week's low, but the objective will remain the same. At any rate, I think that the uptrend is about exhausted and expect a major sell off soon, with a good profit potential. Will discuss currencies tomorrow.
Mike K.
www.fxmadness.com
read more “Ready to Sell Silver.”
Of course, that does not change the fact that silver has been in a serious bull market and the level reached last week might as well be treated as the all time high. However, the dynamics have changed to some degree and for the first time in weeks silver did not close at a high for a period. Also, gold seems to become more popular now as if players are shunning silver. Has the money started to flow away from silver? Hard to tell, but the weekly chart suggests indecision, forming an almost perfect doji.
Given the size and duration of this rally, the weekly chart is probably the best for analysis of this market, at least it paints a relatively clear picture. We can see a parabolic price run, almost straight up, with MACD reading practically of the chart. Same with the ATR, which has not been at this level since 1980. At this stage of the trend this over-sized Doji is a warning flag for anybody still long silver, and an opportunity sign for those who want to short it. Like me.
Since a doji of this magnitude and that late in a trend is extremely rare on weekly charts, one might be very tempted to simply go short when the markets open. For me, however, a doji itself is not a reversal signal, in most case it should be confirmed by another bearish candlestick. Here the confirmation will be move under the low of last week, where I have a sell order at 44.45, giving the week about 15 cents breathing room. My objective is $32 level, or just above the most recent resistance, which could change into a support. Ultimately, silver might drop to $21,50, based solely on charts, but that is very ambitious, a trade which would take too long for me.
Should the market continue higher, it very well may, my sell order will be moved under the next week's low, but the objective will remain the same. At any rate, I think that the uptrend is about exhausted and expect a major sell off soon, with a good profit potential. Will discuss currencies tomorrow.
Mike K.
www.fxmadness.com
