Thursday, August 26, 2010

Basic Technical analysis Silver

Here is the chart of the World Silver Index (XSLV) since Oct of last year with a closing price of $18.98.    (Click on the chart for a larger view)

  • Since last year in Oct (09), Silver has been in a trading range between ~$17.40 to ~$19.50 with the exception of late Jan to Feb where it had dipped to a low of $14.65. Note
  • The price closed above all three key moving averages of 15, 50 and 100.  Bullish
  • The 15 day moving average is above the 50. The 100 day moving average is above the 50. Neutral
  • Stochastics K line is above 80, D is in the overbought area. Neutral to Bullish
  • Closed above the upper Bollinger Band. Bullish
  • The price is above the last rally highs. Bullish 
  • Intangible - Moving into September, highest price appreciation month for Gold/Silver on statistical basis. Bullish
Silver over the past 10 months has been in a trading range and most longs have not made any significant gains. This metal has made the most profit for swing traders and some day traders. I do expect that the Silver to Gold ratio to go down in the coming years from it's current 65/1 ratio. With that being said, I also expect Silver to break the 2008 high of $21.35 within a year if not sooner. When that happens, I would also expect new spike highs as there will be short covering along with new shorts coming into the market.

There are many large institutions that can manipulate the Silver Comex market and I do not believe things will change going forward. People will make allegations, but in the long run, nothing will happen and no one will get prosecuted. Based on that assumption, I am a believer that trading Silver is one of the best way to profit going forward. Just make sure your on the 'right' side of the trade.

If your a longer term investor, holding Silver bullion is great way to prevent your savings from loosing value due to the coming inflation (possible hyper inflation). Accumulating Silver bullion each month similar to dollar cost averaging is another good way to invest in the metal.

The overall trend is up and will trend with Gold. If you believe that Gold will appreciate in the coming years and the Silver/Gold ratio will start dropping, we should have significantly higher Silver prices.  See a prior post that suggests that Silver will hit $32 and ounce based on the Fibonacci algorithm from the lows in the early 2000 to the high in 2008.

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