June 2011 Silver Chart Analysis

Monday, June 6th, 2011

Silver has recently had a substantial correction. On April 29th 2011 it began a trek downward that  lasted until May 5th  2011 when it found enough support to stop the slide. It went from being over $48 an ounce to $34.66. This correction was well overdue and was bound to take place at some point. It had risen from its supportive moving averages so much so that it became over extended. This created a bubble that was bound to pop. When it did pop, silver was once again pulled back closer to its supportive moving averages. Moving averages will only stretch apart from each other so far before they are eventually pulled back into closer proximity to one another.

The chart below is on a weekly time frame (every candle represents one week.) The nice thing about using a weekly chart is it gives the bigger picture of what is happening. Here you can see three weekly simple moving averages (SMA) the twenty SMA is blue, the thirty SMA is red and the fifty SMA is green. On this chart you can see how the moving averages spread apart from each other and then move back towards each other. You can also see how far the price of silver had moved away from these supportive moving averages.

On this chart, silver, at different points, bounced off of every one of these SMA at least once. We can see that silver is above all three of these moving averages, which is a positive sign. At present the twenty week SMA is acting as a support.

The RSI chart (which is above the main chart) is also above fifty, which is bullish. The fifty mark has acted as a support in the past and it seems that it is continuing to act as a support.

The MACD (below the main chart), however, is in negative territory and the distance between the two lines, at present, continues to increase. Two of the three indicators on this chart are more bullish then bearish on silver.

In the next chart we zoom in a bit more using a daily chart with a  Bollinger band.  Bollinger bands represent the general limit of a stock’s movement, or, in this case, the general boundary lines that the price of silver will stay within. The price can break through these outer lines and, at times, it does, but, for the most part, silver will stay somewhere within the upper and lower boundary lines. The middle dotted line is a twenty day moving average. As you can see, silver broke through the twenty day moving average and then retreated back to it. It did not break it. This is positive. Notice too that the Bollinger band is starting to narrow? This usually precedes a big move.

The RSI is below fifty which is more bearish than bullish.  Even though the RSI recently pulled back, it is still on an upward projection. So although it is still below the fifty mark, it may end up moving above fifty.

The MACD  is positive right now, but looks like it may be losing steam as the two lines are narrowing. If they cross, it will go into negative territory. They could also end up bouncing off each other, which would mean some renewed energy to push upward. It’s not good practice to assume a future scenario will happen. So the best bet is to read it as it is and not try and predict what could happen.

Conclusion: No one can say with a 100% certainty what will happen next.  A chart is open ended and open to multiple interpretations.  Two people can look at the same chart and see it very differently. Could silver be gearing up for another push upward? It could be. There is some evidence that could suggest that, especially with the narrowing Bollinger band and the overall bullishness of some of the indicators. It could also go flat and hug its moving averages closely for an unknown time period. This happens sometimes after a substantial correction. It could even take a turn for the worse and break through its moving averages and continue its trek downward. To do this though, something would have to happen that would give the bears enough force to break through this group of moving averages we saw on the weekly chart, which, so far, have had enough stopping power to halt the slide that just took place.

DISCLAIMER: This information is speculative and should ONLY be considered as SPECULATION. It should NOT be considered as investment advice.

In the next chart we

About Me

Welcome to my blog. My name is Justin Paone and this is where I express my thoughts, discoveries,views and the day-to-day happenings in my life.

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