Originally published October 4th, 2009.
Although we were a shade early the reaction in silver predicted in the last update has now set in, and unfortunately the latest COT charts give little grounds for comfort concerning the immediate future. They suggest that silver will continue to react over the short to medium-term.
On the 3-year chart we can see that silver went into reverse where one would logically expect it to do so - at the top of the intermediate trend channel shown and in a zone of resistance that can be traced back to the 2008 congestion pattern. All moving averages are in bullish alignment although the silver price is still quite a way above its 200-day moving average.
On its year-to-date chart we can see that although silver has found support near its June peak, it is clearly in reactive mode and could easily retreat back towards its lower channel support line. A scenario considered likely is shown by the arrowed blue line. Note that as silver has a habit of dropping harder than gold, the reaction shown back towards the trendline should coincide with a reaction in gold back towards $960, and if gold then turns up and breaks out to new highs as expected, silver will obviously reverse sharply to the upside at the same time.
The silver COT chart shows that Commercial short and Large Spec long positions are still at a disturbingly high level, indicating a high probability of continued reaction over the short-term. Ideally these should moderate before a sustainable advance can get going.
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