Silver – Potential Scenarios on the Price Movement
Fig. 1.25(a) is a daily chart of silver for the past 20 months. If we study this chart it becomes immediately clear that the metal went through a strong bull phase between June 2010 and the end of April 2011. On 28th April last year it briefly touched 49.525, after starting off at below 19.000 at the end of June 2010.
This rapid growth was not sustainable and despite desperate attempts by the bulls to revive the upward surge we have experienced a steady decline in the price of silver since then. Right now it is trading at 32.225, which is about 33% off the highest level we saw in April 2011.
Turning to Fig. 1.25(b) we see that 22nd and 23rd September 2011 were particularly bad days for silver. During those two days the price dropped from a high of 39.825 to a low of 29.845. It subsequently recovered somewhat, but has never really risen significantly above the Ichimoku Kinko Hyo cloud, which would have been an indication that the bull run was about to resume.
The current price is marginally above the cloud, which means that, from a purely technical point of view, we are experiencing something of a bull run. The green Chinkou Span line is also above the price of 26 periods ago, highlighting that there is some upward pressure in the market. This view is further strengthened by the fact that the price is above the red Tenkan Sen line, as well as the blue Kijun Sen. The Tenkan Sen has also recently broke through the Kijun Sen in an upwards direction, which further confirms a bull market, at least in the short term.
Whether this trend is sustainable remains to be seen. The price has not yet reached the recent high of 35.305 it briefly touched on 31st October 2011. At least two consecutive closes above this level could be an indication that the previous bull run is about to resume.
Fundamental factors will, in the long run, support a continuation of the bull market in silver. As with gold, silver is seen as a store of value and while the current uncertainty in the European and American markets continue it is very likely that the metal will eventually resume its strong growth.
Short Term Scenario
Fig 1.25( c) is a four-hour chart of the silver price. Here we can clearly see that, over the short term, we are indeed experiencing a mini bull run; the price is well above the cloud and the green Chinkou Span line sits well above the price of 26 periods ago.
If the price should rise above the level of 32.745 it briefly touched on 23rd January, a short-term long trade might well turn out to be profitable. This could turn into a longer term trade if the price should continue to the level of 35.305 we discussed above.
Alternatively, should the price drop below the cloud in Fig. 1.25(c), we can accept that January’s bull run is over.