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Technical Trading: Charts Don't Lie, No Sign Of A Bottom In Silver

By Kira McCaffrey Brecht of Kitco News
Friday October 03, 2014 10:30 AM

(Kitco News) - Charts don't lie. And, for now the technical trend points down for silver. December Comex silver prices tumbled below the $17.00 level this week, which marked a new 2014 low for the silver market and the lowest level for December futures prices since February 2010.

For now, there is no sign of a bottom on the silver chart. The bears are in control.

Looking at action in recent months, since marking out a summer high at $21.67 in early July, Comex December silver futures have been in a steady slide lower.

Silver slammed to a fresh 2014 low on Friday in knee-jerk reaction following a better-than-expected U.S. employment report. Silver futures jabbed lower hitting a low at $16.64 before rebounding off their early lows.

For now, there are no signs of a major low forming on the daily chart for silver, there are no basing or bottom patterns developing. In this case, the old market adage: "the trend is your friend" will be true until proven otherwise.

Let's take a look at some of the technical indicators for further clues on the silver market outlook. Trend following indicators, such as moving averages are all solidly bearish for the silver market. Dec silver is trading below its 10-day, 20-day, 40-day, 100-day and 200-day moving averages. That position tends to keep trend following traders negative on a market.

Daily momentum readings, such as the 14-day relative strength index, show the market is oversold. There is a potential "bullish divergence" at Friday's low. But, that has not been confirmed. The RSI would need to climb above the 30% zone to confirm a bullish momentum turn.

Shifting out to a longer timeframe, the silver market has broken out to the downside from a sloppy "triangle-like" pattern seen on the monthly continuation chart. Gold is forming a similar type of triangle pattern on its monthly continuation chart, but for now gold is holding above the lower support line around the $1,182 per ounce level. See Figure 2 below.

But, silver has already broken out of its triangle to the downside. It does beg the question: is silver leading gold? Only time will tell.

On the daily chart, the first line in the sand for the bulls is the 10-day moving average. The bears have been driving silver lower in recent weeks, hugging that moving average lower. Two consecutive settlements above the 10-day moving average at $17.39 would be a positive signal in the very short-term. Beyond there, the $17.99 high hit on September 23 is a minor swing high that will serve as resistance.

The market is falling in search of demand. There is no sign of a bottom, yet prices have been in an extended down move and are vulnerable to a counter-trend correction at any time.

On the downside, bearish targets lie at $17.50 (psychological) and then $17.08, the March 2010 monthly low for December future. Well below there, the Comex December silver contract low is seen at $15.425, hit in February 2010.

For now, the bears are in control of the trend. But, all trends must take a break, pause, rest and correct. Watch silver momentum. A rise above 30% on the RSI would be a positive near term signal and watch the 10-day moving average. A close above that zone would suggest the bulls are gaining a toehold and a counter-trend correction could be starting.

Until that occurs, don't stand in the way of the trend.

By Kira Brecht, Kitco.com
Follow her on Twitter @KiraBrecht



Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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