Spotlight on Silver
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Following is a weekly chart for silver.
Here is a close look at the wedge on a daily basis.
Click on the chart for an enhanced view.
No doubt everyone is anxiously watching that wedge to see which way it breaks.
Here are the near term factors at play.
1) Seasonality - There is often a June/July sell off (affecting both silver and gold) before a major run-up in August/September, some retracement of that leg up, then another big run thru the end of the year
2) Will the FED pause, stay the course with measured hikes, change their bias, point strongly at the housing bubble while insisting that everything else is OK, or what? All eyes will be on the FED to see if they change their bias now, and/or pause in August or September.
3) Short term action. Once again the $HUI seems to be struggling at resistance. A healthy correction back to say 180 might be a good thing, not a bad thing.
4) COTs now seem neutral at best in gold and silver. Gold commercials are now almost 200,000 contracts short. This is a dramatic change from just a few weeks ago.
Here is a link to Gold and Silver COT positions.
If the FED maintains a tightening bias this week, I would expect silver to break down out of that wedge given the typical July weakness. The pertinent question is "how far down?" I wish I knew but a quick look at the chart will tell you that silver corrections are nasty and typically go much further than anyone expects.
The safest (not necessarily the most profitable) way to play this is to stay on the sidelines or hold smaller core positions, expecting a seasonal break and letting the technicals then take care of themselves. I am hard pressed thinking that silver falls all the way to the weekly 200MA, I am merely pointing out the possibility.
If we get a pullback headed into late July I will be looking to buy either silver and/or gold for the autumn run.
If the wedge breaks, and I think it will, there is a good possibility of a drop all the way to the 6.50-6.70 area. If that support breaks, and right now my feeling is that it will not break, we could see a drop to the weekly 200MA near 6.00. Ouch!
The strategy of waiting for a break does run the risk of having the market get away from you, but now does not seem to be the best risk/reward to be over-leveraged in primary metals, either silver or gold.
Mike Shedlock / Mish
http://globaleconomicanalysis.blogspot.com/
