Wednesday, July 13, 2011

Silver Chart - Potential Breakout

The silver chart looks poised for a breakout based on the 50-day SMA crossover, which has historically (over the past year) indicated a change in trend from consolidation to a fast move breakout. The last barrier to a 'trend change' is the current consolidation channel represented by cyan in Figure 1. The channels have typically lasted roughly 3-months, with the current cycle approaching the end of its consolidation period. Either a strong breakout is in order, or continued consolidation. If the mining shares are a leading indicator, a breakout seems more likely, especially with QE3 expectations fueling the fire. The conditions are similar to the breakout that began in August of 2010 when there were rumblings of QE2. Anyway, stay tuned, it may get interesting.
Figure 1: 1-year daily silver chart. Notice the crossover of the 50-day SMA and the consolidation channel periodicity. Overall, there is a strong potential for a fast move should the chart breach $39.50 (click image to enlarge).

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