Market Strategy

Dissector: Silver in a short-term downtrend

Yoganand D. | Updated on November 11, 2019 Published on October 27, 2012

Last week, silver spot was volatile and closed at $32.1/ ounce. Since marking a high at $34.5 on October 1, silver has been trending downwards. However, the stock’s long-term structural bull-run is still in place. After registering a trough at $8.4 in late 2008, the metal resumed its long-term uptrend. This long-term trend will remain up as long as silver trades above $24. Further, it has important long-term support at $26, from which it has rebounded consistently in the past, in September and December 2011.

In June this year, silver reversed higher taking support from the aforementioned long-term base level at $26. Following an up move, the white metal encountered long-term resistance at $35 in September. A conclusive breakthrough of this resistance will strengthen its bullish momentum and accelerate silver to $38. Strong rally above $38 will take it further higher to $40.5 and then to $43 in the long-term.

Conversely, a decisive fall below its key long-term support at $26 will pull the white metal down to $24 levels. A break below $24, the next important support, will mar its long-term uptrend and drag it lower to $23 and then to $21 in the long-term. Subsequent important long-term support is at $19.

Medium-term view

Silver has been on an intermediate-term downtrend since peaking out at its lifetime high at $49.5 in April 2011, forming lower peaks. An emphatic rally above $38 is required to alter this downtrend and take silver price higher to $40.5 and to $43 levels. Significant resistances above $43 are positioned at $45.5 and $48.

In September 2012, silver reversed downwards after encountering key resistance at $35. This reversal was also triggered by negative divergence in daily relative strength index and daily price rate of change indicator. It is in a short-term downtrend. While trending down, silver breached its 21- and 50-day moving averages and is hovering well below them. The daily RSI is featuring in the bearish zone and daily price rate of change indicator is hovering in the negative area implying downward momentum.

Its daily moving average convergence divergence indicator is on the brink of entering negative territory from the positive territory. It has key immediate support at $30 and a fall below this level will drag silver price down to $28 and then to $26 in the medium-term. A further decline below $24 can pull it down to $23 in the ensuing months.

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