Sentimentrader's public opinion as of last week was more than 90% bulls. The daily sentiment index as of last week was 96% bulls. A correction is coming. We have two charts to help decipher a potential bottom. Following is our first chart:
On top, we plot silver's distance from its 200-day moving average (MA). Note that following previous spikes, the market always tested its 200-day MA and it didn't take long for it to happen. We also compare the current spike to the spikes in 2004 and 2006. Those spikes retraced a little bit more than 62%. The 62% retracement of this spike is nearly $30. Following is the second chart:
We see two areas of strong support. The first is $34–$37 and the second is $30–$31. We also sketch the potential path of the 300-day MA. We think it hits $30 in July. The 200-day MA is likely to hit $32 before the end of July.
Last year, we noted $32–$33 as a potential strong upside target based on the price action in 1980–1981 and various Fibonacci targets. The 38% retracement of the 2008 low to this top is roughly $34.
To conclude, our support points range from $30–$37 with the strongest confluence at $33–$34. Throughout 2010 we wrote about the key resistance in silver at $20–$25. We noted that the breakout would be very big and eventually take silver to $50. We didn't expect it to happen immediately. Gold reached its now former all-time high in 2008. Three years later, gold is nearly 80% higher (than $850). The point is, a market that makes a new all-time high for the first time in decades is a market that moves even faster in the future. If silver follows the same path as gold, we could be looking at $90 silver in 2014. Yet, wouldn't you rather increase your positions in the $30s rather than at $45 or $50?
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Good Luck!
Jordan Roy-Byrne
[email protected]
The Daily Gold
