The following report was published for our subscribers April 11, 2011.

Silver and Silver/Gold Ratio into Exhaustion Mode

As noted last week, silver was in a position to enter the exponential phase on the upside. It is now there. Both silver and the silver/gold ratio generated upside Exhaustion Alerts as of April 8th. It would be normal for silver to now peak relative to gold within five trading days (April 15th), even though both metals should continue to step higher for up to three weeks.

The only Exhaustion Alerts that are concurrent with metals highs occur when the stocks (XAU, HUI & GDX) are failing to confirm the advance or there is an upside reversal in the US Dollar. (The US Dollar report of April 8th detailed the importance of monitoring any upside reversal through 75.75 this week.)

The ADX (strength of trend indicator) in silver is only at 34 and far from being excessive. Typically, a silver move that takes five months or more to build to a crescendo will produce an ADX reading that is much higher. If a correction were to occur from current levels it would likely be moderate, finding support around the 34-day moving average with an RSI(14) reading in the 40's. If the rally gains momentum with the ADX tacking on another 10 to 20 points then the ensuing correction will likely become much more severe with the 34-day average providing only temporary support.

The monthly chart is into exhaustion mode for its third month. Signals were also seen leading up to the highs in 1975, 1980, 2006 and 2008.

Monthly alerts in red