Silverbugs, where do we stand? There is a thick chop developing around the $23 mark in our favorite metal, and it would be wise to take a step back here to examine the current trade setup. As we all know with the metals, there is always tremendous incentive for them to move lower, never higher. So friends we find ourselves fighting an uphill battle.
Yesterday the metals and miners were having a rough time and silver was drifting lower, breaking the $23 level and unable to garner much enthusiasm to recover. The miners also tanked into the morning market, and inevitably finished the day just over 3% lower. At 2:00 pm eastern, traders began positioning themselves for the FOMC minutes. The minutes were released, painting a picture of a very helpless Fed unable to say or do much of anything in the face of a decaying economy and fickle market participants, and we had a huge rally in silver and the miners. This briefly rocketed silver to $23.28 and the miners to an intra-day high. However, as the stock market initially surged and began to fade, the metals followed and really took a hard beating into the close.
I have prepared a few charts for your viewing pleasure of the silver futures contract and GDX mining ETF, highlighting some of my favorite short-term indicators (namely, a 50-unit moving average over a 4 hour time-tick scale & the Fibonacci retracement lines) which I believe seem to indicate the longer-term viability of our current rally. However we aren’t out of the woods yet, as the last few sessions have witnessed stiff overhead resistance at $23.30 level, with miners coincidentally not giving much credence to the recent pop.
My hunch here is that we will see another ~3% retreat in the mining index back to the $28.30 level (the 23.6% fibonacci retracement level from the intra-day high on 12/12/12), as well as a pullback in silver to the $22.50 level, which corresponds to the 50-unit moving average. If the $22.50 level fails to hold it’ll be a quick ride down to $22.00 which I believe would represent a very good entry point.
Coincidentally the dollar index seems to have formed a short-term bottom at the 80.80 level, and could very well run to ~82.65 before taking a breather, which would also act as impetus for a near-term pullback in silver / miners. Especially if there are any rumors floated about tapering (yeah, right!).
Without further ado, check out these trading charts and good luck to all!