Silver Analysis March 2015 (D,W,M,Y)
Created on Sunday, 01 March 2015 02:10
Written by Austin Galt
Let’s take a top down approach to the analysis starting with the yearly chart.
SILVER YEARLY CHART
Just as with gold, I was not expecting such a bearish candle for 2014. That means my timing of a rally was off. And that means the picture changes for me which in turn changes my long term outlook. I was expecting a doji-like candle for 2014 but instead we got a fairly solid bearish candle. A candle like this really should see some continuation to the downside.
I have used two settings for the Parabolic Stop and Reverse (PSAR) indicator – one tight and one loose. Price has already busted the tight setting support so the bear alarm has sounded. There is often a rally after this occurrence but the early warning system indicates any rally will be suspect. The probability play is that the rally will terminate and price will come back down and bust the dots of the loose setting which stand at US$14.08. That would, in turn, increase the likelihood of even lower prices.
There is a “three strikes and you’re out” top formation in play with the 1980 high the first strike and the 2011 high the second strike. Now we just await a third strike and we might be waiting a while.
The Relative Strength Indicator (RSI) showed a bearish divergence at the 2011 high and perhaps the third strike high will set up a triple bearish divergence.
The Stochastic indicator already has a triple bearish divergence and perhaps a new all time high in the years to come will set up a massive quadruple bearish divergence on the yearly chart no less. It is currently trending down and looking bearish.
The Moving Average Convergence Divergence (MACD) indicator recently made a bearish crossover and lower prices look likely.
Where is the final low likely to be?
I have added Fibonacci retracement levels of the move up from the 1993 low to 2011 high. Price has already found support at the 76.4% level. Considering the analysis already undertaken, I believe this level will eventually give way. The next level is the 88.6% level which stands at US$8.79. This 2008 low at US$8.53 was right around this level.
So where I do I think price will make a low? I see three, yes three, potential scenarios playing out. What are they?
The first scenario is price does not break below the 2008 low but instead puts in a low in between the 76.4% and 88.6% levels. Let’s say $11.
The second scenario is price makes a double bottom with the 2008 low at US$8.53.
The third scenario is price makes a false break low marginally below the 2008 low.
Which scenario do I favour? I favour the third and most bearish scenario. The market often likes to take things to the limit and I suspect that will be the case here.
Now what exactly are the limits?
Price should certainly not trade below the 1993 low at US$3.51.
I have drawn an uptrend line connecting the 1971 and 1993 lows. I doubt price will trade below that trend line. Instead, I favour price putting in the final low just above that trend line and just below the 2008 low. The trend line is just below US$6 and rising slowly. So let’s plonk for a low around the US$7 mark.
Finally, I have drawn a Fibonacci Fan from the 1980 high to 2008 low and this has shown some nice symmetry with price. The 2008 high was at the 38.2% fan angle, the 2011 and 2012 lows were at support from the 61.8% angle while the 2012 high was at the 88.6% angle. The 2013 high was at resistance from the 76.4% angle while the 2014 top was at the 50% angle.
The poor old 23.6% angle has so far been left out but I think it will finally come to the party in providing support for the final low.
Once the low is in place then the next bull trend can commence.
SILVER MONTHLY CHART
The RSI has a bullish divergence in place while the Stochastic and MACD indicators have both made recent bullish crossovers. So there looks to be more upside in store however all indicators are in weak territory so caution must be heeded.
The Bollinger Bands show price moved away from the lower band and hit the middle band. Price may now be headed back to the lower band and if so I favour it bouncing off there and heading to the upper band to put in the rally high.
I have added a 100 period moving average, denoted by the red line, which has previously provided support to price, most notably at the 2008 low. I think it will now provide resistance to any move up.
I have drawn a downtrend channel and I favour the rally high being at the top trend line which also conveniently happens to be right around the 100ma and the upper Bollinger Band.
Once the rally high is in place, price can then head back down. I suspect price will find temporary support at the December 2014 low of US$14.10. This will see a short term rally but as double bottoms rarely end trends price should then resume southwards and break to new lows and eventually below the downtrend channel.
SILVER WEEKLY CHART
The RSI is generally trending up but still in weak territory while the Stochastic is still looking bearish. Some more downside looks likely before a more substantial rally.
The Bollinger Bands show some toing and froing going on between the upper and lower bands. Price now looks headed back to the lower band and I think it will bounce off there. The lower band is just above US$15.
I have added moving averages with time periods of 50 (blue), 100 (red) and 200 (black) and there can be no doubt that a solid downtrend is in play with the black 200ma above the 100ma which is in turn above the 50ma. I favour the rally high finding resistance around 100ma. Let’s see.
I have added Fibonacci retracement levels of the move down from the August 2013 high to December 2014 low and I think the rally high will be somewhere between the 50% level at US$19.76 and the 61.8% level at US$21.02.
SILVER DAILY CHART
The lower indicators, being the RSI, Stochastic and MACD, all appear to be trending down with a pattern of lower lows and lower highs. I can’t see this move down ending yet.
The PSAR indicator has a bearish bias with the dots above price.
I have added a Fibonacci Fan which shows the move down has found support at several angles. Price is now finding support at the 76.4% angle while I favour the final low to find support around the 88.6% level and possibly marginally below.
I have added Fibonacci retracement levels of the move up from December 2014 low to January 2015 high and I expect the final low will be between the 76.4% level at US$15.38 and the 88.6% level at US$14.89.
Finally, I have drawn a horizontal line denoting the November 2014 low at US$15.04 and this may provide support for price.
Summing up, the new outlook may be hard to swallow for some but this is how I see things from a purely technical point of view taking out the emotion which stems from the fundamentals.