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February 15, 2009

Silver Market Update
by Clive Maund

Originally published February 15th, 2009.

Silver has advanced in a satisfactory manner to the first target given in the last update at the resistance in the $14 area and is now at a critical juncture, for there are several factors pointing to its breaking down into a reaction shortly. However, it could instead break above the resistance in the $14 area which would be expected to lead to a steep and rapid run at the strong resistance level in the $16 where exhaustion would set in.

The reason for this "it's probably going to break down, but it could instead rise steeply" interpretation, is readily apparent on the 1-year silver chart. For on this chart we can see 3 major factors that point to imminent reversal - it has arrived at an important resistance level around but mainly below the $14 level, and also at its falling 200-day moving average, which is a restraining influence, and its slow stochastic, shown at the bottom of the chart, is hovering at an extremely overbought level. On the other side of the coin it is still above the support of a parabolic bowl, which is rising more and more steeply and could "slingshot" silver at the strong resistance level in the $16 area, where it would arrive in an extremely overbought state and would be expected to rapidly burn out and react. We are going are going to have an answer to this one very soon now, for silver is being forced into a corner between the rising parabola and the upper return line of the uptrend channel - it must break one way or the other very soon. The major stock indices, as we have already observed, are looking set to break heavily lower, and if forced to take sides, we would have to go for silver breaking lower soon.

The long-term outlook for both gold and silver remains excellent, with global currency debasement being highly fashionable, and near zero interest rates thrown in for good measure - no wonder investors are buying physical gold and silver hand-over-fist. This being so, if silver breaks down from the parabola shown soon as expected, it is likely to react back across the uptrend channel towards its lower support line, where it is expected to stabilize and turn up again. It will therefore be a buy again on an approach to this support line. If instead it breaks above $14 and races towards $16, traders can reduce positions there in expectation of a reaction, and get back in again once the reaction has run its course.

Clive Maund,
CliveMaund.com

The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

Mr. Maund is an independent analyst who receives no compensation of any kind from any groups, individuals or corporations mentioned in his reports. As trading and investing in any financial markets may involve serious risk of loss, Mr. Maund recommends that you consult with a qualified investment advisor, one licensed by appropriate regulatory agencies in your legal jurisdiction and do your own due diligence and research when making any kind of a transaction with financial ramifications.

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