Silver Correction Over and Gearing Up for Explosive Rally

By: Clive_Maund

Silver's corrective phase is believed to be complete, meaning that it is now in position to begin another major uptrend. In the last update, which was about 5 weeks ago, it was pointed out that silver was noticeably outperforming gold, and that this implied that if gold went on to drop to our target zone for its correction in the $830 - $850 area, silver might not react much further if at all, and this, as we now know, is exactly what has happened, for it has only dropped marginally below its late March lows, and has not broken below the zone of support that put a floor under it at that time - this is a sign of resilience.

The strength of silver relative to gold - and gold is not weak - is further emphasized by the strong convergence of the boundaries of the corrective downtrend channel from the March highs. Like gold the reaction has taken the form of a bullish Falling Wedge, and the stronger the convergence of the boundaries of this pattern, the more bullish it is - and as we can see on the 1-year chart the convergence is especially strong in silver.

Reactions within a larger uptrend frequently take the form of a 3-wave zigzag that brings the price back towards its 200-day moving average and unwinds the overbought condition. This is what has happened with silver, and we can see that the nearby support level, which is now not expected to fail, is underpinned by the 200-day moving average steadily approaching from beneath. The severely overbought condition that had existed in March has more than completely unwound, as silver is now significantly oversold in the context of its larger uptrend, meaning that upside potential has been fully restored. In short the conditions are now ripe for a powerful uptrend to commence.

By Clive Maund
CliveMaund.com

© 2008 Clive Maund - The above represents the opinion and analysis of Mr. Maund, based on data available to him, at the time of writing. Mr. Maunds opinions are his own, and are not a recommendation or an offer to buy or sell securities. No responsibility can be accepted for losses that may result as a consequence of trading on the basis of this analysis.

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