Silver Market Update – October 30, 2016

by Clive Maund

Although at first glance a tricky call, because superficially a bear Flag appears to be completing in silver, on closer inspection it now looks like silver’s correction is done and an intermediate base pattern is completing, and if so we are at an excellent entry point for many silver stocks, which have been savagely beaten down over the past several months – a necessary correction following their outsized runup earlier in the year.

On its 1-year chart we can see that silver’s corrective action from early July has brought it all the way back to its steadily rising 200-day moving average, a classic buy spot, where a potential intermediate base has formed. This corrective action has more than completely unwound the earlier overbought condition. However, there are grounds for concern on two counts – one is that the steep drop early in October broke the price below the uptrend line shown and the other is that the pattern that has since formed looks very much like a bear Flag at first glance, and if it is another sharp drop will follow soon. Thus it is interesting to observe that the volume pattern is not consistent with this being a bear Flag, instead it is consistent with this being an intermediate base pattern. To properly examine the volume pattern in this sideways formation, we need to refer to a 3-month chart, which opens it out sufficiently to see what is going on in detail.

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