"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

Evil talks about tolerance only when it’s weak. When it gains the upper hand, its vanity always requires the destruction of the good and the innocent, because the example of good and innocent lives is an ongoing witness against it. So it always has been. So it always will be. And America has no special immunity to becoming an enemy of its own founding beliefs about human freedom, human dignity, the limited power of the state, and the sovereignty of God. – Archbishop Chaput


Friday, September 23, 2011

Detailing a monthly Silver chart

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.


  1. thanks Dan for your altruistic courage... I trust you didn't take a beating this week...ironically, thru my Satellite Oldies Radio, as I write this I am listening to Chubby Checker's Twist...in hindsight, it appears that "Operation Twist" broke the world's ankles...

    perhaps there is a God and He does have a sense of humor - albeit a little bit twisted...

    I have many deep pocket investors and I calmed them a long time ago by asking them: a) will the world eventually become Oceans saturated with worthless paper? and b) gold withstood over 6,000 years with everything thrown at it and it survived, still gleaming and still strong...you own gold and or gold shares and you will survive and very well...didn't get one phone call this week although we all got beat up...

    over the entire course of "civilization" it took mankind this long to screw up and irrevocably self-destruct with a self-inflicted deadly virus...we Au bugs should be patient because we will be OK when we inject the Golden antidote...

    have a nice weekend, friend...

  2. I used to love that song, but now it will forever be linked, at least in my mind to the worst beat down in silver I have ever witnessed and I didn't think it could get any worse than 2008. I'll never listen to that song the same way again. Chubby should sue the Fed for defamation of song. Silver. Reminds me of Jaws. The mayor. "Go on in..come on..the water is fine...go on in...there's nothing there" Not touching this baby, yet although I'd love to. Was lucky enough to cut bait at 36 on Thurs. night. Just had an ominous feeling. Thought I made a huge mistake. Deck is "stacked" against silver. Slowdown in West and China is too much for the market to bear. Margin hikes and shock fresh in people's minds. Did you hear anyone in the pit today, Dan saying that silver is a buy at 31? I didn't think so. Strange isn't it? This baby's going to get thrashed. This shark is angry. It has been teased and prodded for 3 years and it has busted out of it's cage. It's not sparing no one. Not dipping my toe in that until the bodies start floating to the top.

  3. Silver didn't lose 25% in two days because of it's use in industry. I am sick of this manipulation. I hope JPM crashes but they will not. They own the government just like they own the silver paper market.

  4. bruinjoe93
    silver will always outperform gold during periods in which "risk" trades are on and underperform gold when "risk aversion" trades are being put on.

    All of the base metals were slammed down this week. Silver, copper, platinum, lead, zinc, aluminum or palladium and then some. Where they all manipulated? The initial manipulation consists of starting the selling ball rolling downhill. Once that starts the hedge funds do this to themselves by using their mindless computer algorithms to do their trading for them.

    This week was all about fund long side liquidation resulting from three main factors that I address in this week's KWN MEtal Wrap.

  5. Hi Dan,

    I want first to say that I appreciate the content and the time you're spending now in the middle of this storm to feed your blog.
    Now when you say you're amused of hearing bearish point of views, I must say I'm also a bit amused to hear from most of the metal lovers community some eternal bullish arguments.
    Not one day do they warn you and recommend you to sell.
    No! The end of the world is for tomorrow, and everyday you should buy more.
    Now when you have a drop of 25% in silver in 2 days, then eventually AFTER it happened, you have a nice reminder of Rick Rule saying yeah, you'd better remember selling when you are at the top. Or selling high volatility and buying low volatility.
    Why, if I had to buy low volatility, I would've bought silver around 41$. And sold it at higher volatility at around 35$. What a profit.
    What amuses me is that people as Mr Turk recommended to buy even more silver when silver reached beyond 42$, claiming that now it would soon meet 50$.
    I'm one of the fools who listened and withdrew my initial decision to make some profit there.
    Now silver is down at 30$, which means it needs to make a +50% move upwards to see the 45$ range again!
    Some people aren't going to see these levels back before months. Many were trapped buying at the highest listening to the songs of the metal lovers.
    Many lost all their year's profits, as I just did.
    I only regret not to see a bit more advice for caution before accidents like this happen.
    But by the end of next week, all the nonsense of Mr Turk and his great advices of buying more silver at 42$ will be long forgotten.
    I have nothing personal on Mr Turk, I could cite so many websites which drove the same speech.
    Truth is, we are not in the summer doldrums anymore, yet the metal community didn't prepare for a drop of this magnitude, I'm pretty sure of this.
    Now silver looks like it made two highs lower, and two lows lower.
    Call me a pessimist, but it makes me doubt the forecasts of the eternal "buy some more!" advisors, and I'm sorry if it's amusing.
    Wishing you a nice weekend,

  6. Henri;

    You would have had to sit through the hundreds of emails I received back in 2008 to appreciate my amusement. Most of them were sarcastic,some were downright rude and ignorant while a few were actually disgusting for their tone. That is why I am amused - those same top callers sat on the sidelines and missed one of the greatest moves in the metals in history.

    Back to the point at hand. The reason I spend my time posting chart support and resistance levels is so that traders and students of the markets can let the markets actually speak to them and tell them what it wants to do. When a region is labelled "resistance" that means you can expect selling pressure to appear there. If the market blows through that level, then you know that the buying pressure overwhelmed the sellers and price is going to move higher until it encounters the next resistance level I have noted.

    The same holds true with support levels. The price will drop to that level where buying can be expected to appear. If the price continues falling through that level, then the market is telling you that there are insufficient buyers present at that point to keep price from dropping further and we can now expect it to move lower until another band of support on the chart emerges.

    Note that none on this instructs us to arbitrarily buy at some point. Professional traders such as myself do not buy or sell willy-nilly - we let the market inform us as to when to begin doing so. If a market takes out a support level on good volume, you do not plunge into it and buy because the odds favor a further move down. What you do is to wait and see some signs of bottoming action before stepping in front of that train

    I am sorry that you bought your metals up at those prices but hopefully you learned a valuable lesson. Never buy a market or sell a market on the recommendation of anyone, including me. Buy or sell only when the market tells you to.

  7. Thanks Dan for your feedback, and that's why I appreciate your blog and your action.
    Unfortunately, I got caught in the frenzy of other recommendations, thinking "this time, it's different".

    I can't agree more on what you just said.
    "Fortunately" I bought silver rather around 36$, and my critics were not against you, but rather about some "gurus" who are quite bullish and tell all the time : it goes up? Buy more. It drops? Buy some more.
    One of them seemed so sure of seing gold at 2000 by october, silver at 50 and posted again on KWN only a few days ago...trading is a solitary work, and decisions should be taken alone, as you reminded me.

    As you said, I've learnt the lesson this time.
    No matter the situation, the market is always right.

    Have a nice weekend and thanks for your work. I can tell, I've become quite a reader of many metal oriented sites, from Harvey Organ's daily analysis to KWN, Gata, and many more.
    And what I appreciate most here is that you always remind that what goes up can eventually go down!


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