Silver Analysis February 2015 (D,M)
Created on Sunday, 01 February 2015 06:11
Written by Austin Galt
Let’s look at both the big and small pictures using the monthly and daily charts.
SILVER MONTHLY CHART
We can see a “three strikes and you’re out” low formation playing out with the first and second lower lows already in place. After this current bear market rally peaks, price should come back down to put in the third and final low.
Where is the final low likely to be?
The second lower low was much lower than the first low so the third and final low should only be marginally lower. This is just something I have observed over the years. There is no real science behind this. But that is the art of it all isn’t it?!
I have drawn two black trend lines which form a downtrend channel. I am looking for this current rally to peak at the upper trend line before coming back down to put in the final low.
By the time price is coming back down this downtrend channel will be obvious so price putting in the final low at the lower trend line would be too easy. Considering I expect a marginal new low, I think price will pull up just above the lower trend line.
I have added Fibonacci retracement levels of the move up from 2008 low to 2011 high. Price has already surpassed the 76.4% retracement level at US$18.10. The next level is the 88.6% level at US$13.09 but I doubt price will trade that low. That doesn’t leave much room to work with considering the recent second lower low was at US$14.16. But there is sufficient room for price to make a marginal false break low. If I had to pinpoint a price, I will go with somewhere around US$13.70. Time will tell!
The Stochastic indicator is showing a recent bullish crossover while the Moving Average Convergence Divergence (MACD) indicator looks to be threatening one. Both indicators are in weak territory so the rally looks like it will be fleeting. That actually fits in perfectly with a bear market rally which I think this rally is.
The Parabolic Stop and Reverse (PSAR) indicator shows price busted the dots to the upside in January so a bullish bias is now in force. Price often then goes back to test the support given by the dots which are now on the downside. I suspect that is about to occur here. However, any test should hold before price heads back up to new rally highs.
The Bollinger Bands show price has moved away from the lower band and I’d like to see this rally reach the upper band. The upper band should be right around the upper trend line come the start of March which is when I’m looking for the rally to terminate.
Once the final low is in place, I expect a massive move up. Boom times again for silver don’t appear to be too far off.
SILVER DAILY CHART
The silver price recently broke above a previous major swing high set in October 2014 which is denoted by the horizontal line. So we have a higher high in place. Price now looks headed down and should put in a higher low.
The PSAR indicator now has a bearish bias after price busted the dots on the downside.
The Relative Strength Indicator (RSI) is looking quite weak while the Stochastic and MACD indicators are both trending down and looking bearish. Price has lower to go according to these indicators.
I have added Fibonacci retracement levels of the move up from December 2014 low to recent high. I’m looking for price to pull all the way back to the 76.4% level at US$15.17. Price may nudge a touch lower.
This would mean price trades below the January low of US$15.51. This level may provide support but, to my eye, a little false break of this level would look better. Let’s see.