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Downside Targets for Silver

Jordan Roy-Byrne, CMT
Posted Apr 29, 2011

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’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. I have two charts to help decipher a potential bottom.

Here is the first chart:

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. I 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:

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. I think it hits $30 in July. The 200-day MA is likely to hit $32 before the end of July.

Last year I 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 I wrote about the key resistance in silver at $20-$25. I noted that the breakout would be very big and eventually take silver to $50. I 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?

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Apr 27, 2011
Jordan Roy-Byrne, CMT
website: www.thedailygold.com
email: jordan@thedailygold.com

Jordan Roy-Byrne, CMT is the editor and publisher of The Daily Gold. Visit the newsletter page for information on his premium service.

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