In May 2011 we presented the following chart, displaying the key support levels for silver at $34, $27 and $23; representing retracements of 38%, 55% and 65% from the 2008 low. The April 2013 low has held around the 65% retracement. Our modeling calls for an interim low in precious metals now as ‘B’ of an A-B-C rally into mid-June, possibly stretching into July.
The most common reaction after giving back 65% of a major advance (i.e. $8 to $50) is a 38% retracement rally of the most recent decline. (Previous examples are 1969, 1983, 1998 and 2003.) The 38% retracement from October’s interim high of $35.44 produces a target of $27.10.
When looking for a catalyst for the potential rally one only needs to recognize that selling pressure has been unabated recently, with fifteen of the last sixteen weeks having made lower highs. This is similar to the pressure seen into the 2008 bottom and the inverse of the rallies into December 2010 and April 2011. Once the sellers have satisfied their needs there should be a reasonable vacuum permitting a breakout through $24.
A decisive weekly close exceeding $27.10 would then suggest a continuation to $35. However, a failure would suggest that the lower supports at $18.75 and $14.60 (75% and 85% from 2008) could be challenged.
CHARTWORKS – 2013/05/14
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