So what's the chart telling us about silver? First, and most obvious, the trend is down. The old adage, "the trend is your friend until it's not" has been spot on for the last four years. Rallies have been sold and new monthly lows are being made regularly. Yes, silver has been in an uptrend since November, but does that mean it's turned around and a new bull market is upon us? Hardly. While the rally has been nice for the bulls, there is a lot of work to do before we can declare the bear as dead.
Silver rallied sharply off the November low and kissed the underside of the blue horizontal line which represents prior-support-turned-resistance. That blue line is a very important line on this chart. For over a year, it represented support around $18.50. Now, as resistance, it's going to put up a still fight on any rally attempts. You have 15 months worth of investors looking to sell as close to break-even as possible, representing a serious level of supply. If silver can rally up and over that blue line and actually stay there a while (the longer the better), the more of a chance it has to continue higher. From there, the next battle will be at the upper border of that downtrending channel - somewhere in the $20-$21 neighborhood.
Turning to the momentum indicators, I've decided to add Stochastics to this chart in additional to the usual culprits. Stockcharts.com does a pretty good job of summarizing what the Stochastic Oscillator does so I'll just go ahead and copy and paste a brief paragraph from their website:
Developed by George C. Lane in the late 1950s, the Stochastic Oscillator is a momentum indicator that shows the location of the close relative to the high-low range over a set number of periods. According to an interview with Lane, the Stochastic Oscillator “doesn't follow price, it doesn't follow volume or anything like that. It follows the speed or the momentum of price. As a rule, the momentum changes direction before price.” As such, bullish and bearish divergences in the Stochastic Oscillator can be used to foreshadow reversals. This was the first, and most important, signal that Lane identified. Lane also used this oscillator to identify bull and bear set-ups to anticipate a future reversal. Because the Stochastic Oscillator is range bound, is also useful for identifying overbought and oversold levels.
That all said, I would like to point out that silver's stochastics reached 10-year lows back in November, clocking in at around 4.50 (and that's on a scale of 0 to 100). This marked extreme downward momentum and therefore a contrary price indicator. Sure enough, the stochs quickly rebounded to their current level of 33.21 which, oddly enough, is a two year high. If momentum precedes price, then perhaps silver has some upside still to come?? Silver bulls need to see the stochs get back up to the 50 midline on the monthly chart at a minimum.
While it's hard to definitively say, it looks like MACD is trying oh so hard to make that positive cross I've posted about several times. At the current levels (-2.50), MACD is the lowest it's been in 30 years (ever?) so it would be hard to argue that there is significant downside ahead.
Volume and RSI have been "meh" for the last two years on a monthly basis so there's not much on which to comment. I will say that the rally over the past 4 months has been on noticeably light volume which suggests lack of buyer conviction. It would be nice to see elevated volume with any additional upside in price. As always, that remains to be seen.
So, to bottom-line it for you, silver remains mired in a downtrend and until I see more progress, I can't recommend that you go long. If you're a trader, then you can certainly play the ups and downs. I would look to short silver (with a tight stop) if and when it gets close to $18.50 again. Remember, all rallies have been sold for the last four years, so why fight it? If, god-willing, silver breaks over $18.50 and maybe even runs to $21, then you should consider going long.
On a long-term basis, using both fundamental and technical analysis, I'm a huge silver bull. So trust me when I say that I would love to see the metal move higher - A LOT higher. I also recognize that there are going to be short-term setbacks and there's nothing I can do about it. Dave Kranzler of InvestmentResearchDynamics.com is predicting silver to be the best performing asset of 2015. Let's hope he's right!