I wanted to follow up my gold analysis from a couple days ago with a look at silver. So without further ado, let's get into what the charts are showing.
The daily chart shows the same inverted head and shoulders (IHS) pattern that we see on the gold chart, which I've marked on the graph above. Price broke out on January 16, and the resulting price target is around $20.50. You will notice that volume has picked up nicely during the recent breakout and the momentum indicators are confirming the move. Just like gold, silver is moving into overbought territory so don't be surprised if it takes a breather for a few days. Although the chart doesn't show it, silver is currently $18.43, which happens to be its 200 day moving average (dma). Which also happens to be previous support (now resistance) as noted by the horizontal green line. So, based on three data points (momentum indicators, 200 dma, and horizontal resistance), I suspect silver will pause for a while somewhere around current levels. It may trade down or it may trade sideways, but, in my opinions, odds favor some kind of a short term pullback. This would actually be healthy price action as it allows time to build a base of support. Ultimately, though, I suspect the $20.50 price target to be within reach sometime by mid-year.
Moving on the weekly, you can see that the recent surge has pushed silver right up against some longer term resistance. That descending trend going back to 2012 is now converging with the horizontal line of resistance (previous support) around the $18.50 level. There are a lot of investors out there who bought in the $18-$22 range that will be looking to get out at or near break even. They will certainly be providing supply, thus dampening prices, as silver tries to move up. But again, like I mentioned in the gold post, this is a very normal and healthy process. Once those sellers exhaust their supply, then silver will be free to continue its advance. And yes, I believe it will continue higher in the mid term. Both RSI and MACD (particularly MACD) are rising with plenty of room to run higher.
On the monthly chart, silver continues to trade within the four year declining channel shown on the chart. Its spike down to the low $14s essentially found support at the lower bound. As is the case on the daily and weekly chart, silver is making its way towards some serious resistance. The horizontal green line, approximately $20, represents long term support/resistance formed during the 2008-2011 time period. When price broke down in September 2014, this line flipped from being support to now being resistance. Coincidentally, it is now converging with the upper bound of the channel as can be seen on the chart. The true strength of this rally will depend on how it reacts if/when it reaches this point. Remember, the price target from the IHS on the daily is $20.50. That appears to be the Maginot Line for silver. If it can successfully broke up and over this area, then the bull market would officially kick into high gear. This is a monthly chart, so it's going to take some time, but the momentum indicators are pointing in the right direction. Time will tell, but for now, silver wants to go higher.