Silver 2003 - ????

I mentioned in my last post that I've been fitting a regression line to data points, then using its slope to create trend lines and channels. However, stockcharts.com has something called a "Raff regression tool" which creates regression lines using some other criteria than just minimizing distances of squares from the line, since the tool clearly seems to overvalue minimum and maximum points. So, I have two slightly different trend channels for you, both of which seem informative.

Chart #1

The blue trend channel captures silver's steady rate of growth from the time it passed $5/oz for good, in 2003, until 2008, when it collapsed. We then see silver try unsuccessfully to get back into the blue channel last November/December, before finally breaking through in February 2011, when it quickly hit the top blue line. Then, in an instant, silver fell in May to the bottom of the channel.



From the perspective of this chart, silver bulls only have cause to worry if that lower blue line is broken. It hasn't been broken yet, but it's currently being tested. If it continues as support, I could easily see silver making a move to the uppermost dotted grey line (~$75/oz) this winter. If the lower blue line is broken, however, it could very well wallow between the lower grey dotted lines for several months.

Chart #2

An alternate perspective. According to this chart (made using the Raff regression tool), silver could fall all the way to $30 in the weeks ahead, and still remain in the blue long-term trend channel.



Chart #3 (weekly)

The weekly silver chart, the trend channels of which resemble Chart #1's closely, might provide the most potential information of all. We see here the same pattern: a primary blue channel capturing a very long term trend, broken to the downside in 2008, re-entered in 2011, and now being tested. Here, though, I've added two informative moving averages. I tried fibonacci numbers (as 144 works for gold), and the 34-week (pink dotted) and 55-week (green) MAs seem significant since 2009.

The 34-week MA has been an effective lower bound since 2009; silver has bounced off of it 3 times, and is approaching it again right now. It has been broken on one occasion (Feb 2010), when silver quickly bounced off the the 55-week MA.



Note, when the 34-week and the 55-week MAs crossed paths in July 2009, silver hit both of them simultaneously.

Interestingly, in two or three weeks, it's looking like silver may test the 34-week MA and the lower blue line of the trend channel at the same time. That will be something to look out for.

Also, keep in mind that many relatively low prices currently averaged into the 55-week MA (i.e. from last summer) are dropping out, meaning it will start climbing faster than the 34-week MA. So, if the blue trend channel and 34-week MA are broken in the weeks ahead, the 55-day might very well be a very strong base of support, when it should be near 30.