Silver Breakout
Daryl Guppy | Jan 30, 2019 10:11
Originally published by guppytraders.com
The classic trading approach is to watch the movement in gold and then trade the same move in silver. There is a small lag, with gold moving first, so there’s ample time to take a favourable position in the silver trade.
The key features of the trend change are the relationships in the Guppy Multiple Moving Average (GMMA) indicator. This indicator has two groups of averages. The long-term group is used to infer the behaviour of investors. The short-term group provides insights into the way short term traders are thinking. Wide separation in and between the groups of averages shows disagreement about price and value.
Compression shows agreement about price and value and this is often followed by a surge of trading activity as traders outbid each other in anticipation of the trend change.
Silver created a double bottom pattern between September and December 2018. This is a more powerful trend reversal signal than that seen with gold.
Silver, currently trading near USD$15.80, is testing an historical resistance level. This makes it more difficult for silver to move upwards, but paradoxically, any successful breakout above resistance can move very rapidly towards the next resistance level. With silver the next resistance is near $US16.80. This offers a 6.3% return which can be expanded using derivative contract leverage offered by groups like Axi. On balance the analysis suggests that silver has more bullish features than the gold chart.
The GMMA breakout in silver is not as well developed as it is in gold. The short term GMMA has compressed and turned upwards but it has not yet broken above the upper edge of the long term GMMA. The long term GMMA is well separated, but it has begun to turn upwards. This suggests that investors are becoming buyers.
The Silver GMMA relationship is similar to the gold GMMA relationship in December 2018. This suggests that silver will continue to develop a breakout above the long term GMMA, replicating the behaviour of gold.
Rather than cry about missed opportunities with gold, many traders will buy into silver for a repeat of the gold trend breakout.
Axicorp . Guppy appears regularly on CNBC Asia and is known as "The Chart Man". Disclaimer: Daryl Guppy is not a financial advisor. These notes are for educational purposes only and provide an example of applied technical analysis.
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