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Clif Droke

Clif Droke

Clif Droke is the editor of the two times weekly Momentum Strategies Report newsletter, published since 1997, which covers U.S. equity markets and various stock…

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Silver Market Continues to Shine

In my article from May entitled "A silver bonanza in 2003?" it was noted that all the important technical and cyclical factors were coming into alignment for a bullish 2003 in the silver futures market. All indicators pointed to a fabulous year for the white metal beginning this summer and continuing into next year. I further noted that the dominant interim 40-week cycle for silver was bottoming and that once the market had recovered we should start seeing a series of higher highs and lower lows. So far this has been the case with silver, so the natural question everyone is asking is "How much upside potential remains for silver in coming months?" Lets see if we can answer this question from the charts.

Let's first examine the weekly silver chart. Note the newly defined parallel uptrend channel, which clearly shows the dominant direction silver futures have established since breaking out this past spring. Silver is now butting up against the upper boundary of this trend channel and is giving forewarning of wanting to break above it, perhaps to establish a new uptrend channel with a higher slope. Is this possible? To answer this let's turn to the monthly chart.

Here we see a well-defined parabolic bowl in the monthly chart, which portends far greater strides in silver prices in the coming months. Silver has been undergoing intense accumulation by insiders all the while the visible market was beating it up, calling it names, saying it would "never" be able to stage a meaningful rally in the near future because, after all, these days "silver is only an industrial metal." How wrong the naysayers were! This parabolic bowl answers to not only the accumulation near the lows that has been underway for the past few years but it also proves the dominant time cycles are bottoming and momentum is gradually shifting upward. As we've seen the past couple of years, whenever a nascent uptrend gets underway in the precious metals markets it doesn't take long for investors to capitalize on the new trend by jumping on the bandwagon, thereby sending prices soaring.

Turning our attention to the silver equities, what can we expect to see for the few months ahead? Back in July in an article entitled "Is the gold bull market dead?" I commented on the bullish appearance of Hecla Mining (HL), noting that the dominant feature of its weekly chart was the rising 90-week moving average. This particular moving average encompasses at least two dominant interim cycles and a few short-term cycles, so we did well to keep our eyes on the 90-week MA.

Led by Coeur d'Alene (CDE), which has had a fantastic performance in recent weeks, the silver equities still look surprisingly good heading into the autumn season. For instance, Silver Standard Resource (SSRI) still has a gradually upward-curving 90-week MA and is currently testing resistance around the $8 area. Pan American Silver (PAAS) is a little overextended from its 90-week MA but still looks good on an interim basis from the vantage point of the weekly chart.

All in all, silver still has upside potential in the coming months and will be a worthwhile sector to monitor for low-priced investment opportunities.

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