Technical Analysis of the Silver Market

Portfolio Rebalancing for start of 2013

Silver closed Friday`s trading session at $28.46 an ounce, capping off what has been an auspicious start to 2013. On January 23^rd Silver was trading at $32 and has been in a downtrend ever since trying to find a support level that will hold. 

There is some real minor support at the $28 level, but nothing to hang your hat upon. The real 2-year support is the $26 level, where it has bounced four times from the level in the last three years.

If it breaks the $26 level, then there is pure air all the way down to $20 an ounce, which we last saw in August of 2010. The next level of support would be the $17.50 - $15.00 area which used to be upward resistance prior to 2008. 

Technical Uptrend Levels

If $28 or $26 holds and silver bounces off these levels a break above $30 would be a start, but an uptrend to be confirmed needs to close above the downtrend upper channel line around $32 with conviction, which will attract new buyers in the metal. 

If Silver can close above $32, then $34-$35 is in the cards. The $35 level of resistance has been tested four times during the last two years, and silver has been unable to break out above this area. 

$35 Resistance Level

However, a close above the $35 level brings the $40 resistance level into play. The next upward resistance level is around the $45 an ounce area, and expect a downward rejection of this level for the first test - if historic patterns are our guide. 

The final level of resistance is the $50 an ounce level which has never really been tested since the April 2011 period, needless to say, this level should also provide substantial selling pressure the first attempt at breaking through the barrier, depending upon the reasons silver is up there in the first place.

Unchartered Territory

If Silver breaks out above the $50 an ounce level, then the market is in new territory, and you want to be long until some resistance level is rejected. Whenever a market gets into unchartered territory, the rules are being made up on the fly so to speak from a technical standpoint. This is an area that shorts can really get hurt because moves can explode around these types of historical technical breakouts. 

Value Trading vs. Major Trending Market

I anticipate the Silver market being used more as a value trading market like it has been basically for the last two years with buyers coming in looking to buy low and sell for a trade, and at the high end of the range, sellers coming in for a range trade, anticipating selling at the high end of the two year range, and closing out their positions at the bottom end of the trading range. 

The Silver market has been unable to go on a sustained trend in either direction during the better part of two years after what I refer to as the liquidation drop in September of 2011.  Ergo, it will be interesting to watch when the next definable trend will take hold in the Silver market, and the related market events that play out as the catalysts for such a move.