May 11, 2012

Silver Correction Ended?

Silver’s been one of the most punished commodities this year so far. Currently it is trading with 1-2% gain year to date and 22% lower than its March peak. However closer analysis of the technical indicators suggest that the trend is at the reverse point.

Silver has been traded in triangle consolidation since the beginning of 2011. After reaching historical high at $48 it sharply fell to $25.60 at year (2011) end. Since Oct 2011 silver has entered parallel channel determined by Nov 2011 and March 2012 peaks and Dec 2011 bottom. Now the precious metal is trading slightly above the support line of the mentioned channel. As seen on the chart this line proved to be strong support. In addition there is some similarity between current bottom and previous one which supports the trend reversal. Both bottoms breached the support line and both of them breached the 30’s (the oversold area) of RSI (relative strength index). Successful breakthrough above triangle resistance line at $32 could open the way to $39, some 40% from current levels.

Silver showing reversal signs
Silver showing reversal signs

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