RSI of Euro Silver signalling this horsesh*t's likely almost done!..

Bill,
Some chart observations on this frustrating anomaly we are witnessing at present where even as the Euro appears to be breaking out ever higher, our Favourite Metals are being taking to the woodshed!

Below is the Chart of Euro Silver with it’s RSI (Relative Strength Index) below. Note how grossly oversold it is now on a daily basis! In fact as I write this, the Euro is up another 60 odd ticks and Hi-Ho’s down further, which has pushed the RSI down below 28 territory!

As you can see Since 2005 there have been some 13 other incidences when the RSI has been below 30.

Below I’ve taken this RSI Chart and applied it to the Standard (Dollar denominated) Silver Price.

Now for the clear facts:

1) Note on every other occasion such oversold conditions have almost immediately led to an arrest in the fall in the Price followed by a short term bounce, although on a couple of occasions, most notably 5 and 6 in 2008, the RSI plunged further to circa 20 before a fall in the Silver Price was arrested!

2) In the majority of incidences, with 2 main exceptions (5,6) the Price either

(i) Coincided directly with a spike multi-month low (1,3,7,8,9,11) and exceptional positive returns in the months directly thereafter

(ii) Coincided directly with the arrest of any Price Fall (2,10), enjoying a bounce of some 10-20% over the post ceding few weeks thereafter

(iii) Coincided close to a near term bottom in the Silver Price (4,12,13), ensuring a suitable positive return of 10-30% in 16 weeks or less

3) It must be remembered that the incidences of 5 and 6 coincided with the panic and chaos of the 2nd half of 2008. And even so, on each occasion there was a suitable near term bounce in the Price Of Silver before another collapse in prices ensued.

On the evidence above history would therefore suggest that this near term anomaly in Euro Terms and correction in Silver Price is likely to bottom out very shortly, and a reasonable bounce is highly likely in the very near term which may well coincide with a multi-month low for the Price. In fact it would be unprecedented if the bounce was not atleast of a 10% calibre, which puts Hi-Ho back up into the $34-35 range from here,

Of course we may be seeing the same technical breakdown (5,6) we witnessed in 2008 although further analysis suggests that this scenario is even more unlikely.

Below I’ve included the same graph as above, but adding the movement of the Euro (Xeu) beneath:

The incidents of 5 and 6 coincided with a collapse in the Euro, whilst on this occasion the Euro has been rallying strongly and appears to be on the cusp of breaking higher. In other words, the reason the Euro Silver Price is so over sold at present is not that Silver is collapsing in price faster than the Euro, but because the Euro is rallying whilst Silver is falling.

This is very significant in my book, because it would be truly unprecedented for a further collapse of the PM Sector to occur under a multi-month Dollar decline. We have witnessed a number of short term anomalies such as now within this Bull Run with the Euro and the PM’s, but never for more than a few weeks if memory serves me well.

In fact it’s better than that, If you study the chart again, any incidence when the RSI has dropped below 30, and has preceded a multi-month rally in the Euro, it has always shown startling returns on a 6-9 month basis (2,3,7,9).

I guess a large part of the question is whether we’re on the cusp of another multi-month run on the Dollar? In which case, should it really come as a surprise to any of us to see the PM Sector attacked just prior?!?

All Food for Thought,

Kind regards,
Rich (Live from 'The Bridge of the Silver Rocket Ship')

And if one thought that the charts below were setting off alarm bells on traders desks, Take a look at where we are on the Euro Gold RSI at present,

I haven’t the time to put the full research in like my correspondence earlier, but looking back through the longer term chart you can see this has if ever been more oversold on this basis!

Wouldn’t surprise me if we see the near term bottom in today on this basis,

In fact it would surprise me if we don’t within the next 48 hours!