Silver Price Forecast: Investors Should Be Bearish

Silver hasn’t given traders much to cheer about lately.  Following the peak in September it’s been a story of aborted pops and failed follow-through. But is the chart starting to say a different story now?  Let’s look at some common indicators and see what they’re saying.

(Source: Fidelity.com)

This is the chart of SLV for the past 6 months.  SLV is the most widely-traded unleveraged silver product on US markets.

First let’s look at the price candles themselves.  As you can see, for the past 2 months they have generally shrunk in height, which tells us silver has not been moving much during daily trading.  The few taller candles came on days when there was news that enticed traders to sell silver, driving the price down.

Overlaying the price candles are the Bollinger Band®s, indicated by the blue area. The top of the area is bounded by the upper Bollinger band, the lower by the bottom. Bollinger bands are interpreted by looking at the current direction of each band, the general direction of the opening, and where current trading is in relation to these.  Right now the Bollinger Band® read indicates weakness in silver price, with any short-term bounce likely to be small and not very sustained.

Two important points from the price candles: One, traders just aren’t that interested in silver right now.  Two, when a big move came it was down – so again, traders aren’t very interested in owning silver right now. That is a bearish sign.

Now let’s look at the first indicator below the price chart – this is the daily volume chart for SLV. What we see is a gradually-decreasing volume coming into the present.  So like the price chart, the volume chart says traders are looking elsewhere for action right now.

Next down is RSI. In simple terms, RSI represents the balance between traders buying and traders selling. A low RSI indicates more trades are initiated on the buy side than on the sell side, so once again this is a sign of selling sentiment in the silver market.  The standard interpretation says that when RSI falls below 30 the market is in “oversold” territory and one should look for signs of a bounce.  Right now RSI is 37 for SLV so we’re not quite to that point yet, but it may come soon.

Next is MACD. MACD is a more complex indicator requiring interpretation of the red and green lines crossing, the direction they’re going, and the distance between them.  Right now the simple interpretation is “MACD is low with a low spread”, which is common in sideways trending markets with little action, but with a downward bias.  So a weak “down” vote from MACD that could change at any time.

Finally we come to CCI. CCI, or Commodity Channel Index.  CCI gives an indication of where current price is with relation to “recent” prices, the duration of recent being adjustable by the user.  The 20-day CCI is commonly used as a starting point; right now the 20-day CCI indicates price is very low, possibly in oversold territory (like MACD).

So there are a lot of technical reasons to think silver is weak right now and not likely to go up any time soon. Prudence would dictate waiting until signs of an upturn emerge before committing (more) capital to silver.

Signed,

The Gold Enthusiast

(DISCLAIMER: The author holds no position in any mentioned security.  The author is long the silver sector via small positions in USLV, PAAS and SVBL. He may daytrade around these positions but has no intentions of trading out of these core positions in the next 48 hours.)

The iShares Silver Trust (SLV) was trading at $15.54 per share on Tuesday morning, up $0.04 (+0.26%). Year-to-date, SLV has declined -2.81%, versus a 18.03% rise in the benchmark S&P 500 index during the same period.

SLV currently has an ETF Daily News SMART Grade of C (Neutral), and is ranked #9 of 33 ETFs in the Precious Metals ETFs category.