Silver has been the victim of its industrial metal status this week as fears of a global slowdown in growth slammed the base or industrial metals complex. Copper, aluminum, lead, zinc, platinum and palladium, to name some of them, were all hammered sharply lower as traders were heading for the exits trying to snatch what little might have been left of their profits for this year.
Under those circumstances, silver was facing far too strong of a headwind to hope to rely on its status as a monetary metal. The resultant selling has done some serious damage to the chart.
We now want to look at the longer term monthly to see if we can spot any levels that might provide us a bottom in this market and to perhaps gauge how low it might fall before it attracts buying in sufficient size to halt the decline.
I am using two sets of Fibonacci retracement levels to do this. The first originates from the bottom in the silver market made back in late 2008 when QE1 was first announced. That is in blue. The second originates from the breakout point late last year when silver embarked on its stunning run from down near $20 all the way to $50 before it sold off. That is in red.
Note that if we use the latter set (in red), silver has violated all of the major Fibonacci retracement levels except for the last one, the 75% retracement level. That comes in near the $28.50 level.
It just so happens that this level is fairly close to the more significant 50% retracement level of the entire rally from 2008. That comes in near $29.22 (in blue).
Also note that there was a bit of a pause in the silver move higher over a two month interval in NOvember and December 2010 that hovered in that same general area. This is a potential support level for the metal. If silver can recapture $30 and then $32.50, today's low might be as low as we get. If it cannot and fails at today's low, then the band between $29.22 - $28.50 will come into play.
If the market were to fail there, it will then have potential to retrace the entire movement higher from last year with only the $24.30 region to prevent that.
Let's see what the next week brings us.
"When misguided public opinion honors what is despicable and despises what is honorable, punishes virtue and rewards vice, encourages what is harmful and discourages what is useful, applauds falsehood and smothers truth under indifference or insult, a nation turns its back on progress and can be restored only by the terrible lessons of catastrophe." … Frederic Bastiat
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