A Deep Impact is Blunting Silver’s Upside Potential - Technical Analysis

The coronavirus (COVID-19) that originated in China is quickly crossing international borders at a pandemic pace and is threatening the economic health of the whole world for the first time since the Spanish flu in 1918. Concerns over contagion in the global economy have multiplied to such a degree that the Dow had its largest plunge in history today and the S&P 500 is experiencing one of its quickest sell-offs since the Great Depression. Guggenheim’s Scott Minerd appeared on BloombergTV today and candidly expressed his concerns.

“…If this really turns into an epidemic in the U.S., we have a lot more downside ahead… The Fed is fairly impotent in this environment… [There are] supply chain issues, hotels in New York are empty, airlines and people are not traveling… This is possibly the worst thing I have ever seen in my career, and I have been through a lot…”


As a recap from my Feb. 25 silver analyses, Scott opined about his views on monetary policy and the silver market on Jan. 22.

“Scott Minerd is the co-founder and Global CIO of Guggenheim Partners, with $213 billion in assets under management. He interviewed with Bloomberg at the Davos 2020 World Economic Forum last week and called the Fed’s bubble-to-bubble monetary policy “a Ponzi scheme.” His number-one conviction trade in 2020 is silver, as the current price is 65% below its prior peak while gold is fast approaching its previous high, and that signals a “high probability for silver to go exponential.”


Jim Rickards shared a few words of wisdom on silver earlier this month.

Jim Ricards on Twitter for Silver

To view a larger version of any chart, right-click on it and choose your “view image” option.

The seasonality pattern for silver futures is 2/3 of the way through 1Q20. The silver spot price at the Dec. 31, 2019 close was $17.85, a high of $18.92 printed on Feb. 24, and the price opened at $17.82 at 6 pm this evening after the New York trading session. Silver is flat to down for the year due to turmoil over COVID-19 and a violent pullback in the stock market this week. Silver pulled back this week primarily due to three variables: silver’s use is 50%+ due to industrial demand and the price faded from its high in step with the base metals taking a hit on expectations of a global economic slowdown; profit-taking in gold to meet cash requirements for margins calls in the financial markets; and book squaring for end-of-month futures and options expiry and settlements.

Silver Futures Seasonality as of Feb. 27, 2020


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Silver daily chart as of Feb. 27, 2020 at 6pm EST…

The daily chart highlights details of the Up Channel from last summer, then a breakout from the Falling Wedge in December, a subsequent Half Staff Flag and the price breakaway, the completion of an Inverse Head ‘n Shoulders with a neckline, and all of it wrapped within a larger Half Staff pattern. Note the decrease of sell volume during the Throwback in price this week.

Silver weekly chart as of Feb. 27, 2020 at 6pm EST…

Excerpt from the Oct. 25 weekly chart analysis:

“An extra emphasis must be placed on due diligence in pattern and candlestick confirmations before risking capital. The long-term outlook remains bullish.

Excerpt from the Dec. 20 weekly chart analysis:

“Gold and silver have had a mirrored breather within a Falling Wedge and appear to be poised for a break to the upside… The confluence of the $16.65 Fibonacci, Big W rim line, large buy volume during July and August, and the 200 Exponential Moving Average (EMA) and 300 Simple Moving Average (SMA) provided support at the $16.50 low in early December. The price has pivoted back to the topside trendline of the Falling Wedge and closed back above all the moving averages for the first time since mid-October… The DMI-ADX remains positive but is not set up for the preferred dynamic you want to see for an Alligator Tongue. The Money Flow indicator has not turned upward, and Volumes have no rhyme or reason in relation to price.”

Excerpt from the Jan. 24, 2020 weekly chart analysis:

“One new and important development is the 50/200 EMAs closing in on a bullish Golden Cross. All of the moving averages have lined up below the price action except for the 500 SMA hanging around the $21.49 Fibonacci. The $18.36 Fibonacci has acted as overhead resistance during the last four weeks… The volume spike during the run up to $18.86 was positive, but the chart really needs substantial buy volume to appear for the price to reach $21.49 without a choppy struggle. I am bullish long-term and neutral in the near-term until $18.36 and $19.58 are overrun with conviction.”

Silver is holding up very well despite the turmoil in markets this week, along with the variables noted in the seasonality comments. The trendline drawn up from the Jun. 2019 low has not been violated, the 50 EMA has crossed over the 200 EMA to begin the Golden Cross, all moving averages remain below the price action except for the 500 SMA floating above the $21.49 Fibonacci level, and a Inverse Head ‘n Shoulders has formed if the spiky wicks on candles are ignored. In a worst-case scenario for silver trending a bit lower, the 50/200 EMA and $16.60 Fibonacci level will provide a solid level of support. The DMI-ADX remains in a bullish Alligator Tongue trend, the StochRSI is flat with only a shallow dip thus far, the Momentum and Money Flow are flat, and Volumes are steady with a substantial pick-up on the hourly chart during the New York session today.

My concern is two-fold: the 50 EMA was pierced to the downside today on the daily chart, and despite a pick-up in buy volume on today’s hourly price action, it is not reflected on the final daily and weekly bars. I remain bullish long-term but cautious in the near-term until the neckline of the Inverse Head ‘n Shoulders is taken out along with the topside trendline drawn back to the 2016 high. That scenario will open the door to a challenge of $21.49 and the overhead 500 SMA.

“The $21.49 price point was important resistance in 2008, is where an exponential run to its 2011 peak found its legs, is the first Dead Cat Bounce resistance level during the 2013 price collapse, and is the resistance area where the price peaked in 2016 following the 2015 low.”

Building core positions in paper or physical is ideal while the price point remains low, and there are plenty of opportunities in the near-term to trade momo play sweet spots.

Deep Impact (1998)


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Website: https://traderstef.wordpress.com

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A Deep Impact is Blunting Silver’s Upside Potential - Technical Analysis

A Deep Impact is Blunting Silver’s Upside Potential – Technical Analysis