Why it's not the time to be shorting silver
- Short sellers of silver have made good returns in recent weeks
- But going short at current levels would be hazardous
- Silver prices have fallen for 14 days in a row, today is shaping up to be No. 15
- "Rule of Nine" says never more than nine consecutive candles of the same colour
- Not ready to go long in silver yet at this stage
- One idea would be to sell silver and buy gold
Silver has now posted 14 down days in a row, and all of them have been red candles as well (sometimes the two don’t necessarily coincide, but in this case they do). Today is shaping up (so far) as being number 15 in a row.
Silver daily chart shows 14-day losing streak
The relative strength index is oversold on the daily chart as well, although this is NOT a buy signal, as the “classic” RSI buy signal occurs when the reading comes out of oversold or, in other words, when gets back above 25.
Another thing that suggests this cannot keep going is the candles. Between October 29 and November 10 silver posted some pretty large red candles. Since then, the real bodies have been getting smaller, indicating that the market is starting to find some balance or, at the very least, the selling is relenting. But silver is still dropping. And I’m not sure I can remember a run like this in my entire career.
Yet another thing that tells me not to go short at current levels is the monthly chart (below). As you can see, the silver price is reaching the support area. Not only has it bounced from these levels previously (in December 2014 and again this August), but it is also close to a 78.6% Fibonacci level (a favourite of the Elliott Wave heads) and an uptrend line (at $13.61/oz all month!).
Silver reaching support on the monthly chart
So there is plenty of evidence to suggest that silver might find support soon, and we know that selling INTO support is never a good idea. If the price did break this key area of support between $13.60 and $13.90/oz, the bears would likely be reinvigorated, and then we could look for $13.07 and $12.43/oz very quickly.
That’s not to say I would buy/get long at current levels, as I’ve always been advised (I’ve never tried it!) that catching falling knives is a hazardous pursuit.
One more variable is that this is priced in US dollars. And we’ve got the Fed minutes tonight to think about.
A trade that could take advantage of all of the above is to buy silver and sell gold. I’ll let Saxo Bank's head of commodities strategy Ole Hansen add some colour to that idea if he wishes.