Submitted by Tyler Durden
While most traders’ attention has been glued to the daily gyrations in oil, it is another commodity that has gained 21% this year and is the best performing asset in the Bloomberg Commodity Index. Silver.
As we reported earlier, the buying accelerated this morning, when ongoing demand for the precious metal pushed it to fresh 10 month highs above $17/ounce. One reason suggested for the buying came from Reuters, which said “that there is heavy buying in silver in Shanghai, and that has triggered buying in gold as well,” said Ronald Leung, chief dealer at Lee Cheong Gold Dealers in Hong Kong.
This may just be the beginning as technicians are finally starting to pay attention.
Here is the just released report from BofA technical strategist Paul Ciana, who highlights the key chart observations:
Silver breaks through neckline of head and shoulders bottom
The price breakout up through the Ichimoku cloud and horizontal neckline at $16.10 points silver back to a historically important area of about $18.59. The Ichimoku cloud is also nearing a bullish cross while MACD just turned more bullish by crossing above zero. Momentum as defined by RSI broke out to its highest level in years suggesting momentum supports this trend.
He does have a warning, however, for those who wish to jump on today’s rally:
Today’s large silver rally led to a TD Setup sell signal. Of the past 16 signals where RSI was overbought, 11 times or 69% of the time silver prices declined the next day. Of all the 55 sell signals since 2000, price declined 35 times or 64% of the time one day later. Tomorrow, price may retrace some of the recent move providing a better opportunity to go long silver. Looking forward four and five days after the TD Setup sell signal with RSI overbought, price tends to continue higher.
Odd how being overbought is never a factor for stocks dropping shortly thereafter.
So is a continuation of the breakout imminent or will silver suffer its traditional intraday slamdown as “someone” dumps enough paper silver (and/or gold) to take out the entire bidstack and reprice the commodity lower? It all depends on what the patriotic Chinese, now in possession of a brand new gold fixing mechanism, do next.