Wednesday, 25 May 2011

Silver is rebounding off support.

Today, a fellow local blogger bought some 3,000 ounces of silver at US$36.70 an ounce! Yes, he is a very rich guy and he thought he had missed the silver boat when it hit a high of almost US$50.00 an ounce in the recent past. This is his maiden purchase and I am impressed.

Well, is it a good time to be back in silver? Technically, silver was hugging the 100dMA for a few sessions and formed multiple dojis. The long white candle in the last session which formed above the 100dMA confirmed the reversal signals.

The MACD seems ready to form a bullish crossover in negative territory. Silver has rebounded smartly but as the MACD is in negative territory, it could just be a rebound and nothing more. We want to stay cautious and not throw in the kitchen sink as well if we initiate a long position here. Of course, initiating a long position now is much safer compared to just three or four weeks ago.

Silver is currently at US$37.24 an ounce. I would look to the 50dMA which is at US$38.98 currently as the immediate resistance. If price is unable to move above the 50dMA convincingly, be prepared for more downside. A test of the 200dMA for support would be ideal for long only investors to add to their positions.

Saturday, 21 May 2011

Silver: Selling pressure eased.

The selling pressure experienced by silver has eased. Candlesticks in the last three sessions closed above the 100dMA with those in the last two sessions forming long legged spinning tops. These could act as reversal signals but they need confirmation.

The technicals are benign and encouraging. The MACD is closing the distance with the signal line in negative territory. We could see a bullish crossover in the near future which could signal a rebound. If this were to pan out, watch the resistance provided by the 50dMA which is now at US$38.98. That prevented price from moving higher as it rebounded from the recent rapid decline. Market participants are likely to remember that and, so, the 50dMA would be a significant and immediate resistance level.

Am I buying more silver at the current levels? Well, we could see a rebound in price and it might be a good idea to add to my position just in case it happens. This would be for a quick trade which means selling if the 50dMA should be retested. However, I am more a longer term holder and I am not convinced that the 100dMA is a strong support now. Why?

See how the 100dMA has been broken in so many recent sessions? It could be a matter of time and this could take months but we could see the 200dMA finally called upon as support. The 200dMA is a long term support and if it does not break, generally, it would provide a more secure entry point.

This strategy is a sound one for me because I already own silver bought at a much lower price. I am in no hurry to add to my position unless I get a firmer sign that things have stabilised for the longer haul.

Sunday, 15 May 2011

Silver is breaking the 100dMA support again.

(Something is wrong with Blogger. This blog post appeared on 12 May 2011, not 15 May 2011.)
Silver is now trading at US$33.37 an ounce. This is below the 100dMA which is at US$ 34.43 an ounce. This is the second time in the last one week to see the 100dMA broken.

Will price close above the 100dMA again this time round? If price were to close below the 100dMA, we could see lower prices in the sessions ahead. Could we see a test of the 200dMA at US$28.67 an ounce?

The MACD has declined into negative territory. Momentum is clearly negative. However, if the 200dMA were to be tested and if it were to hold up, buying more at that level is probably a good idea. Compared to the low of late January 2011, it would still be a higher low and the longer term uptrend would still be intact.

UOB is selling silver at S$ 41.67 an ounce today.

Saturday, 14 May 2011

Silver closed above support.

Silver, in the last session, closed above the 20wMA.  A long legged black spinning top was formed. A spinning top suggests indecision and fierce fighting between the bulls and bears. It is also a reversal signal but it might be less convincing as it is not white in color which suggests that the bears had a slight advantage.  The lower wick also broke support just as it did last week but it touched a lower low this week. There is little doubt that the 20wMA has weakened. We could see the 50wMA tested eventually. That is currently at US$27.18 an ounce.

What about the daily chart? The good news is that the RSI has formed a higher low while price formed a lower low. This is a positive divergence. The downward momentum in price has eased and could lead to a reprieve. It does not mean that price would rebound immediately as positive divergences could fail too or take some time to come to fruition.

With the MACD still declining in negative territory, the momentum is clearly to the downside. Any long position taken at this point in time should be a smallish hedge. Being mentally prepared that price could see more downside is also a must although any downside is definitely more limited at this time compared to a fortnight ago.

Wednesday, 11 May 2011

Silver: Watch the 50dMA.

Some of you might have bought into silver as its price tested the support provided by the 100dMA which is currently at US$34.36 an ounce. With silver now at US$38.82 an ounce, that means a nice 13% gain in just three days.

The 50dMA which seems to be going flatter is at US$39.07 an ounce. Silver traded at close to US$39.50 an ounce just a few hours ago before pulling back. It seems to me that the resistance provided by the 50dMA could be quite strong. I would keep an eye on this. If price were to break out, the next resistance is provided by a 20dMA which has turned down and is currently at US$ 42.62 an ounce. Consider taking some profit.

If, however, silver's price failed to move higher and if price were to close below US$38.00 an ounce, we could see it declining further. A retest of the rising 100dMA is possible and it would, in the process, erase all paper gains for anyone brave and lucky enough to initiate a long position three sessions ago. A little less greed could be a good thing.

Saturday, 7 May 2011

Silver: A white candle at last.

Waking up this morning, after going through my toilet, I turned on my PC to look at silver's chart. The fight between bulls and bears in the last session was clearly a tug of war as a candlestick with a short white body and long upper and lower wicks was formed. The bulls were slightly stronger.

The RSI has turned up from the boundaries of the oversold region while the MACD continued its decline. It is too early for the bulls to pop the champagne for sure. Of course, we could see the next few sessions turning into a relief rally as, after all, prices do not usually go down in a straight line but down a river of hope. Dust takes time to settle too.

What is most significant with the price action in the last session is that price has closed above the 100dMA and that is psychologically important. If price should continue to consolidate above the 100dMA, then, it could form a base for further upside.

I have people asking me whether it is now the time to buy silver, I can only say that this is a better time to buy silver than it was a few sessions ago. The risk premium is now lower and it is no longer overbought, not by a long shot. Could price go lower? Yes, it could but the downside is more limited than it was before. Know your own tolerance for risk and act accordingly. Good luck.

Friday, 6 May 2011

Silver: An eye on supports.

Silver's price has weakened by more than 30% since hitting a high of almost US$50.00 an ounce. Is the free fall going to continue?

It is now trading at US$33.75 an ounce and this is below the support provided by the 100dMA at US$34.12 an ounce. If we could see it closing the current session above the 100dMA, good news for the bulls although it could turn out to be a temporary respite. However, closing lower than the 100dMA, we could see more downside in the next session. Wait and see.

The RSI is bordering on oversold and the MACD, fast approaching zero, shows strong momentum to the downside. In case the 100dMA support fails, what is next? Look at the weekly chart and we get some clues. The 50wMA is at US$26.83 an ounce. Wow! That is some fall from US$50.00 an ounce. Well, if it should happen, yes, it is.

The thing to note is that the 50wMA will move higher in the next week and the value could be somewhat higher, perhaps, closer to US$27.50 an ounce. It is also interesting to note that this price would still be a higher low compared to the low touched in January 2011.

The 50wMA is one which was tested successfully many times in 2010 and, expecting it to be a stronger support, I plan on adding more to my long position in the precious metal closer to that level.

UOB was selling silver at S$43.76 an ounce today.

Thursday, 5 May 2011

Silver: Three Black Crows.

The price of silver is sinking fast and is currently at US$37.78 /oz. As price went parabolic and almost hit a high of US$50.00/oz, the tension which is akin to a rubber band being stretched to its limits was released a few sessions ago giving rise to a frenzied pace of correction. These rapid declines have a way of feeding themselves as speculators unwind their long positions to limit their exposure or losses. Could we see price moving lower?

Being where it is now, silver has broken the support provided by the 50dMA at US$38.80 /oz. Well, some may argue that it is quite possible for price to overshoot supports in certain instances before closing above the support in the same or the next session. This is a valid point.

However, looking at the three bearish candlesticks formed in sequence, it brings to mind a pattern known as the "three black crows". This is extremely bearish and more downside is probable. The RSI has further extended its decline but is still some distance from being oversold. The 100dMA is at US$34.06/oz.  Could this be tested next?

The 100dMA could well provide the next support. If this were to give way, it would be some way to fall to the next stronger support which I see provided by the 50wMA which is at US$26.92/oz currently. That would be an almost 50% decline from its recent high if it were to happen.

The correction is an opportunity to gain or increase exposure to the precious metals at supports which is what I like to do. Buying at resistance or chasing as price goes higher is not my cup of tea. However, investing in silver requires some strength of mind. This is surely some roller coaster ride.

Wednesday, 4 May 2011

Silver: Technicals of a correction.

Regular readers would know that I was going to sell some silver on Monday but it was a public holiday. With the steep decline in silver's price the following day, I had no inclination to sell more silver. Why? Well, the market is unpredictable and there is nothing to say that the correction could not be another shallow one.

I had divested my investment in silver partially on two occasions and, in the process, I  recovered about 80% of my capital. If I had been able to divest partially again last Monday, I would have recovered all my capital and more. At the moment, although I am still sitting on a nice paper gain, I could see the gain shrinking quite significantly but, again, there is not certainty in this.

Looking at the daily chart, price has formed two very long and bearish candlesticks in the last two sessions. Closing at US$41.51/oz in the last session, the short term 20dMA has been breached. The 50dMA is at US$38.67/oz. The MACD has completed a bearish crossover while the RSI has gone below 50% which often acts as a support in the momentum oscillator. Momentum has turned bearish but the MACD is still in positive territory and the downward movement in price is most probably just a correction and a much needed one at that.

In an earlier blog post, I said that the weekly chart shows silver's price going parabolic and that this is ultimately unsustainable. If we look at the weekly chart again, we see the 20wMA at US$34.95/oz. This was the same weekly MA that was tested earlier this year in January and it held up. The 20wMA would be a safer entry for anyone who would like to reduce the risk premium of investing in the precious metal.

So, is silver still a good longer term investment? Well, fundamentally, the case for silver (and gold) has been well argued. Technically, looking at the weekly chart, it is interesting to see that it is not as bearish as the daily chart. Shorter term daily gyrations of silver's price could provide good opportunities to go long on the metal for any investor with a longer term perspective.

UOB is selling silver at S$51.68 /oz today.

Monday, 2 May 2011

Silver retreats with Osama bin Laden's death.

I had planned to sell some silver today but it is a public holiday. Tomorrow then? Well, it seems that I have missed selling at a good price because today is a public holiday. News of Osama bin Laden's death sent silver plunging while the US$ firmed. Currently, silver is at US$45.00 an ounce or so.

A retracement to the US$42.00 to US$43.00 region could be a nice hedge for someone waiting to go long. I am hopeful that price could retrace further to the longer term 20wMA which is currently at US$35 or so. Buying more silver on weakness, are we? You bet.