Breakout Calls From The Bleacher Seats Is Premature - Silver Technical Analysis

The seasonality pattern for gold has been spot-on this year and silver is off by a week or so. Silver is currently in a window of opportunity where it might...

by TraderStef via CrushTheStreet (connect with TraderStef via Twitter or at TraderStef's website)

The seasonality pattern for gold has been spot-on this year and silver is off by a week or so. Silver is currently in a window of opportunity where it might break above the price consolidation that has taken place since early September.

There was no major change in the CFTC's Commitments of Traders (CoT) report published on Oct. 25, and a standoff of sorts over the last several weeks shows no significant shift in positioning vs. the price trend. To view a larger version of any chart, right-click on it and choose your "view image" option.

If you missed my recent analyses on silver, peruse the following articles and view the charts consecutively:

"Whether you are stacking silver or trading the paper markets, individual goals among investors vary and available capital certainly influences those decisions. It is important to differentiate which sides of the fence investors are sitting on. Are you a physical stacker, a paper trader, or both? When the silver price was basing for an extended period of time and below the primary silver miners' breakeven average price per ounce due to cost-of-production factors, silver appeared to be a screaming buy on the fundamental and technical side of the equation... For those who stack physical silver and trade the paper markets, entry points are not necessarily simultaneous. Most folks generally hold physical silver with a much longer time horizon in mind vs. capturing low-risk, high-reward entries for paper profits."

In my last silver analysis, I opined on the lack of retail investor participation during this year's gold and silver rally. I also looked at twenty years of silver bullion coin sales data at the U.S. Mint and compiled a few choice data points with corresponding highs and lows in the price of silver.

As of Oct. 25, the monthly total of silver bullion sold at the U.S. Mint remains weak, but gold experienced a modest increase. Note that due to seasonality demand and retail distributors stocking up, large numbers in January are business as usual.

As with gold, institutional money is cashing in by paper trading momo plays and building core positions. The retail physical stackers are not taking full advantage of a silver price that remains slightly above the miners' average cost of production. In the meantime, the top producers silver mine supply continues to decline.

"It is primarily institutional smart money pulling the strings during gold's primary bull phase and accumulating for the restart of the secular bull. Silver appears to be in the same boat." - TraderStef

As silver investment strengthens, will it out-perform gold?... "A clear negative for silver investment is relatively weak coin and bar demand." - CME, Sep. 3

If Silver Is the New Gold, Now Is a Good Time to Buy... "Silver prices are catching up to gold's rise this year, trading 14.6% higher versus gold's 17.4% climb... In the meantime, silver's fortunes continue to be tied to that of gold... Primary silver producers needed prices in the upper teens to lower $20s for their mines to break even... 'Now is an excellent period to build positions on weakness in silver, and buyers can watch the gold price and use it as a guide for hints on when to buy... If you are bullish on gold's future prospects, silver is going to provide you with upside leverage with relatively low risks at these price levels... If gold breaks the $1,550 area and heads to $1,600 to $1,700, silver is likely to run to $21 to $25 pretty quickly,' says Peter Spina as SilverSeek'" - Barron's, Oct. 25

My focus remains on the $21.49 Fibonacci, which is the breakout level in 2010 that launched a rocket shot to the 2011 high and is now a topside resistance level ever since the first Dead Cat Bounce that followed the 2013 plunge in price.

Silver Weekly Chart Fibonacci Study: November 2001 to October 2019:

Silver daily chart as of Oct. 25, 2019 close...

Excerpt from the Aug. 26 daily chart analysis:

"Volumes have been falling throughout the price rally since June. The divergence is not a good sign in the near-term... odds are high for a pullback and consolidation before a test of $21.49 can take place."

Excerpt from the Sep. 7 daily chart analysis:

"The price got way ahead of itself due to a parabolic $1 RYPO move through the topside trendline of the Up Channel... The next level of substantial support is where a stair step occurred... if the 50 EMA is breached, the next level of support is the $16.50 area at the next stair step. This pullback in price can be an opportunity to add physical and/or paper trading positions after a decisive upside pivot occurs."

Excerpt from the Sep. 30 daily and weekly chart analysis:

"The pattern dominating the breather in price is a Falling Wedge. Volume on the daily chart is not showing a significant rise along with the fall in price, but we cannot be sure what the weekly will print until Friday's close... The 50 Exponential Moving Average (EMA) and Simple Moving Average (SMA) were violated to the downside on the daily chart today but are not violated on the monthly and weekly chart... The positive on the charts is that Volume is not growing along with the fall in price... $16.50 area may be the sweet spot pivot where layering core positions and purchasing coin is in the cards.

After the $14.29 low in late May, the price action added a respectful $5.35 (+37.5%), with a $19.64 high on Sep. 4. The Plunger candlestick (aka Shooting Star) on the weekly chart for the first week of September telegraphed that a pullback was possible. There is a confluence of support on the weekly at the $16.50 Fibonacci level, which includes the 21 and 200 EMAs, 300 SMA, and the second stair step off the low in May.

On the daily chart above, note that a Plunger candle was printed on the Oct. 25 close, which may indicate a Throwback in price or period of sideways chop might develop. A breakaway from the Falling Wedge is clear, and a Flag would be a secondary development if the price immediately retreats below the Falling Wedge's topside trendline and the trendline drawn up from the $16.92 low on Sep. 30 or retreats further to the Falling Wedge's lower trendline. It is important to understand distinctions between the patterns, as the resulting price action and timespan going forward can vary significantly. Next week's chart will resolve the Plunger candle question.

All of the daily moving averages continue to align in a bullish stance and below the price action. Due to the spike in price over the last two days, the DMI-ADX and StochRSI suddenly shifted into positive territory, the Momentum and Money Flow turned upward, and Volume trended modestly to the upside.

The weekly Fibonacci study points out the falling Volume pattern since mid-June with a rally in price. When you combine that with Friday's Plunger candle, an extra emphasis must be placed on due diligence in pattern and candlestick confirmations before risking capital. The long-term outlook remains bullish.

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