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Downside Targets for Silver

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Although the metal may be in a structural bull market, now might be the time to watch for a correction.

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Silver is in a structural bull market and will see significantly higher prices in the coming years. However, now is not the time to be buying. The market has spiked and a retracement is coming. Sentimentrader.com's public opinion as of last week was over 90% bulls. The daily sentiment index as of last week was 96% bulls. A correction is coming. My firm has two charts to help decipher a potential bottom.

Here is our first chart:


Click to enlarge

On top we plot silver's distance from its 200-day MA. Note that following previous spikes, the market always tested its 200-day MA and it didn't take long for it to happen. We also compare the current spike to the spikes in 2004 and 2006. Those spikes retraced a little bit more than 62%. The 62% retracement of this spike is nearly $30.

Here is the second chart:


Click to enlarge

We see two areas of strong support. The first is $34-$37 and the second is $30-$31. We also sketch the potential path of the 300-day MA. We think it hits $30 in July. The 200-day MA is likely to hit $32 before the end of July.

Last year we noted $32-$33 as a potential strong upside target based on the price action in 1980-1981 and various Fibonacci targets. The 38% retracement of the 2008 low to this top is roughly $34.

To conclude, our support points range from $30 to $37 with the strongest confluence at $33-$34.

Throughout 2010 we wrote about the key resistance in silver at $20-$25. We noted that the breakout would be very big and eventually take silver to $50. We didn't expect it to happen immediately. Gold reached its now former all time high in 2008. Three years later, gold is nearly 80% higher (than $850). The point is, a market that makes a new all time high for the first time in decades is a market that moves even faster in the future. If Silver follows the same path as gold then we could be looking at $90 silver in 2014. Yet, wouldn't you rather increase your positions in the $30s rather than at $45 or $50?

Editor's Note: Jordan Roy-Byrne, CMT (aka 'Trendsman') is the proprietor of Trendsman Research, which provides investment research to private clients and the general public. Trendsman Research authors several newsletters covering trends in stock markets, bonds, commodities, gold, and silver. See more of his content at The Daily Gold
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No positions in stocks mentioned.

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