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Silver Correction – ABC Pattern Downmove Price Target

by OLIVIER on MAY 18, 2011

The bullish sentiment after the Silver volume climax top is still very high. In my book way too many traders are trying to anticipate a bottom and are eager to buy into this downward move. Eventually there will be one lucky guy who doesn’t get his fingers cut off trying to catch a falling knife. In any case, try to catch falling knives on a regular basis and in the long run odds are extremely high for you to be taken to the cleaners.

That being said today was another day that infamous SLV vs. SLW divergence could be observed. SLV is up 3.4%, the best big cap silver miner proxy SLW – Silver Wheaton is up a measly 0.4 %. As long as we see the Silver miners and also the Gold Miners underperform, the path of least resistance for Silver is down. Here is a chart of the price of Silver which clearly shows the technicals call for much further downside:

Up-to-date Daily Silver price chart on my public list. Click on the chart to maximize.

The red lines in the chart imply we are in the midst of an ABC correction. Technically speaking the price target for Silver should be in the 27-28$ USD area. The price target does make sense considering the above mentioned situation. Everybody thinks we have one of the greatest buying opportunities at hand. I saw people who said this correction will be over ‘within weeks’. I couldn’t disagree more. These guys are biased and are always talking their book, no matter what happens. Every technical trader worth his salt expects this will ‘take months’ for silver to rebuild pressure and make its next attempt at taking out the 50$ USD level in order to make new highs. What makes a target below 30$ attractive is the fact we would see a test of the moving average 200. The 27-28 target would allow for some overshooting to the downside. This would be similar to a move gunning stops and killing bullish sentiment.

Conclusion: There is still way too much hope and denial when it comes to the recent silver price correction. A further move to the downside would take care of that. Don’t be greedy. Don’t try to be a hero. Let the price come to you. Let’s see what happens.

On to a quick overview of various sectors and a few individual stocks:

• Solar: SOLR – GT Solar is still one of my favourites. The recent outperformance actually might imply the market is starting to price in the LED potential as the rest of the solar stocks are still seriously underperforming.
• Uranium: First signs some of the Uranium stocks might not want to go down more. CCJ – Cameco is now pulling back to the downside of the descending triangle pattern. It’s do or die time. If price gets rejected we will see another downmove, if price can move ‘back into the pattern’ it will be a sign selling pressure is waning and sellers are starting to get exhausted.
• Natural Gas: I’ve recently mentioned this sector will most likely be the biggest beneficiary of the Fukushima incident. I am also monitoring WPRT – Westport Innovations very closely as it is trading near its all time high as opposed to let’s say CLNE – Clean Energy Fuels.
• Mobile Internet Theme: I will soon add a second sector overview chart as the theme is starting to garner a lot of attraction. Additional components that will most likely be part of the new chart are:MITK – Mitek Systems, AUGT – Augme Technologies, NXPI – NXP Semiconductorsto name but a few.
• Gold: Much stronger than Silver and less extended. CNL.TO – Continental Gold one of my favourites for this year is still far from acting well though. Unless the miners and especially the one’s like CNL.TO I am watching very closely are not displaying any kind of strength it is best to stand aside. BAT.V – Batero Gold is a good example for a gold miner getting killed. It has given back almost all of its gains after its huge break out a few months ago.
• Agriculture: ANDE – Andersons is still one of my favourites. It is now bouncing off support but I am typically more interested in buying breakouts as opposed to buying on support. Regarding sectors flying ounder the radar, Sugar might be fitting that description. IPSU – Imperial Sugar is starting to display great buying interest. Suedzucker AG the biggest European sugar company is trading very close to its all time highs and is displaying a potentially very bullish multi year cup with handle pattern which could lead to substantial gains over the next few years. Stock is not listed in the US though.
• Lithium: PPO – Polypore is the picks and shovels approach stock for this sector and is most likely to benefit immensely if we move towards using more and more electric cars. In any case, so far it is outperforming the LIT – Lithium ETF.