Three Bullish Charts for Silver

Today I want to take a look at a couple of charts for Silver ($SI_F) and discuss whether we may be seeing some signs of the commodity creating a bottom.

First up we have the weekly chart of the price action for the iShares Silver ETF ($SLV). In 2013 Silver got destroyed, with $SLV being knocked down over 30% for the year. While Silver didn’t finish out the year on a strong note, it did put in a low for 2013 on the weekly chart in July. At the same time we saw the Relative Strength Index (RSI) finish spending four months in ‘oversold’ territory.

After the initial pop to start out 2014 and hitting the 50-week Moving Average, Silver had once again weakened and fell back to last year’s low. However, with the retracement back to the low the RSI put in a higher low, creating a positive divergence. I’ll be watching to see if this creates a double bottom for Silver and pushes $SLV back up to its 50-week MA and the RSI momentum indicator back to its previous level of resistance just above 50.

SLVTaking a look at the seasonality of the price action for Silver, it has historically created an intermediate-low in late June. We can see that Silver has been following its seasonal pattern so far this year, with a bounce to start 2014 and a top in February, this helps provide a layer of confidence that Silver may in fact be creating a low point right now based on its seasonal pattern.

Silver SeasonalFinally, we have a chart of the Commitment of Traders (COT) report for Silver. I want to focus in on the red line which is the Commercial Traders. As of last Friday the Commercial Traders were nearing a point of becoming net-long Silver in futures/option contracts. This is the one of the closest periods of time Commercial Traders have  gotten net-long in the last nine years! Historically, when Commercial Traders have gotten close to net-long Silver, at least a short-term low was put in as price began to rise.

One last note about the COT data… Large Traders (blue line) is a group often made up of trend followers, which makes since as the blue line often tracks the movement in the underlying commodity. However, for the first time in at least three years the Large Traders have become net-short the Silver market. A possible sign that everyone is already in the pool, so to speak, and the bias has becoming swayed too far to the negative side.

Silver COT

So based on the price action we may have a double bottom forming on the weekly chart that’s being accompanied by a positive divergence in momentum, seasonality points to a possible low in June, the ‘smart money’ appears to be getting bullish on this beaten down commodity while Large Traders push their bets to a historical extreme. While Silver is still clearly in a down trend, the winds may be shifting for this precious metal. Now it’s just a matter if price begins to confirm these bullish signs. We’ll see.

 

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

About Andrew Thrasher

Andrew Thrasher, CMT is an Investment Analyst for an asset management firm in Central Indiana. He specializes and writes about technical analysis as well as macro economic developments.