Various factors are converging which suggest that the Precious Metals sector is about to break out into a major new uptrend and it looks like we have waited long enough.
One factor that has deterred us somewhat has been the lurking threat of a market crash or severe downturn in the market generally, but it looks like they are going to continue to stave this off with massive money creation with the latest madcap idea being to gift Iran US$300 million for reconstruction if it does what they want it to. Of course it doesn’t have to and won’t but it gives you an idea of how desperate they are to create money out of thin air.
We’ll now look at a range of silver charts to see why a breakout into a major new uptrend is a fast growing probability.
Starting with a 1-year chart we can see that the correction to the preceding parabolic blowoff looks like it has run far enough with it converging and thus being a bullish Falling Wedge and it having brought the price back to strong support at the upper boundary of the giant 45-year Cup & Handle holding pattern that we will look at later on its very long-term chart. With it now below a still rising 200-day moving average and momentum (MACD) improving, it looks like a good time for it to start higher again, especially given that we have entered a seasonally positive time of year for the Precious Metals.
Now we’ll look at the same 1-year chart but this time with Bollinger Bands and Stochastics appended. Notice how the Bollinger Bands are pinched very tightly together – the last time this happened during the life of this chart was a year ago, and look what happened after that. In addition the Stochastic is trending higher, increasing the chances of an upside breakout…
On the 5-year chart we can see that we are back in buying territory with the price having reacted back into a zone of very strong support underpinned by the lower parabolic uptrend coming into play beneath and an important point to note is that, given the strength of silver’s big breakout last Fall, it’s asking a bit much to expect it to dig deep into this support before it takes off higher again. It could take off very soon or even immediately – so we’d better not be backward in coming forward to buy the better PM stocks…
Now we come to our favorite chart of all time – the chart which makes clear in no uncertain terms the incredibly bullish case for silver from a technical standpoint. Last Fall silver had a powerful breakout from a gigantic 45-year Cup & Handle holding pattern and what we have seen since is a perfectly normal post-breakout reaction back to strong support at the upper boundary of the pattern that should birth a big 2nd upleg and because the next upleg should get it well clear of the pattern it is likely to be much bigger then what we saw last year. It would be almost unheard of for the price to slump back into this pattern after the sort of clear breakout from it that we witnessed last year.
For the sake of completeness we really ought to look at gold for the same time period, so here’s a chart for gold that also goes back to 1980 (made on the 4th and added the next day on the morning of 5th)…
And here is 20-month chart for GDX also (made on the 4th and added on the 5th) which also looks most propitious…
Lastly, the Gold Miners Bullish % index showing a low reading of 21.6% bullish means that there is certainly plenty of room for the sector to run from here…
In light of these observations we will of course be looking at a range of better gold and silver stocks going forward, but as it takes time to prepare such articles you don’t have to hang around waiting for me to post them. If you go back on the site you will be able to unearth the articles about the good ones we looked at in the past and most of them will still be good.
Posted at 9.30 am EDT on 4th August 26 on Clive Maund's site.
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