Saturday, 25 June 2011

Silver Bubble Dead, Burial Beginning

The above chart tells a spectacular story.

Silver peaked on Monday April 25 at 49.83, just cents short of its all time high from 1980. 

Through to the end of April, gold, stocks, EUR/USD, GBP/USD & AUD/USD all marched higher, but silver did not. I considered this divergence significant enough to comment on it three times (herehere, and here).

In the first hour of the first trading day of May, Silver fell from a high of 47.18, to a low of 42.22, a decline of greater than 10% within one hour.

By May 12, silver had fallen to a low of  32.34, a decline of 35% from the April 25 peak, within the space of three weeks.

Silver now appears to be starting another move lower, after almost a month and a half of trading within a corrective trend channel. The chart shows that the market has broken the trend line drawn from the point the silver bubble began, in August last year.

A new move lower in silver is of itself interesting to me as a trader, but even more so given that silver's plunge in early May coincided with the turn lower in gold, stocks and the AUD/USD, GBP/USD, followed a few days later by the EUR/USD. More broadly, silver's plunge in early May coincided with a strengthening of the USD against almost everything that is not a USD.

Might the likely renewed move lower in silver imply a likely renewed move lower in the above markets, and more generally, a new move higher by the USD against everything that is not a USD? 

Gold Breaks Below Corrective Trend Channel

The hourly candlestick chart of gold since the start of May shows that it has broken below its corrective trend channel, indicating that a fresh trend lower has begun.

From the daily candlestick chart we can see that the latter days of the corrective move saw gold riding the underneath of its old up trend line, a common occurrence when a trend changes. If the expected down trend develops, an initial target would be a test of the top of the previous trend channel, ie the 1450 to 1460 zone. 

ASX 200 Grinds Lower

The ASX SPI 200 closed the week lower than it opened, and the trend is clearly down at the daily chart timeframe, shown above. The past week presented a mixed global picture for stocks, with Asia rallying, and the UK and US essentially unchanged, albeit ending the week on a weak note.  

AUD/USD Closes Right On Support

The AUD/USD closed the week's trading on support formed from the top trend line of the previous trading range. The trend at this timeframe is clearly down, so support will likely fail in coming days. Lending confidence to the bearish view is the current strengthening of the USD, illustrated by continued weakness in the EUR/USD, plus a completed Head and Shoulders top in the GBP/USD.

GBP/USD Head and Shoulders Top

Daily candlestick chart for the past year. The GBP/USD has formed a Head and Shoulders Top, with a measured target for that pattern of just below 1.54. The target neatly coincides with support from late 2010. Remember also that the market has broken the trend line formed from the 2010 lows, so the trend is now down, and the expectation is for lower prices in coming weeks and months.

EUR/USD Continues Lower

Hourly candlestick chart showing the past month.

Global Picture Mixed For Stocks

The past week saw Asia rally, with the UK and US essentially unchanged, albeit finishing the week on a weak note. Long term weekly candlestick charts follow.

The S&P 500 finished the week almost unchanged from the previous Friday's close.

Likewise the FTSE 100, although it is showing greater weakness, having broken the trend line formed from the 2009 low.

The Nikkei 225 rose this week, though the trend is down.

The China H-shares index also rallied this week.

The India Nifty 50 shows a long tail following the trend line test, rasining the odds for a rally.