Chuck Kowalski also covers Commodities for About.com at: http://commodities.about.com/od/researchcommodities/a/commodities.htm

Silver Futures Struggling to Regain Bull Market

Chuck Kowalski

November 10, 2011

It only took 3 days for silver to fall $14 in September and now the market is trying to crawl its way higher. The gains have been slow but somewhat steady throughout the last month and a half, as silver futures managed to retrace about 50 percent of the losses from the high set in August. Now, the question arises as to whether silver will resume the bull run or this is just a bear flag and the market will make another run to the downside.

Looking at the fundamental picture for silver, everything comes back to silver being a "safe haven" or "inflation hedge" investment. Investors are buying silver because there are some dangerous financial issues facing the world. The focus is on Europe, but these issues could pale in comparison to the U.S. It doesn’t take a genius to see the financial problems, although there are still many people and politicians who say we are just fine. Hey, you always have to have people on both sides of a trade!

My opinion is that nothing effective is being done to solve the issues in Europe or the U.S. The heat was taken off the U.S. shortly after the financial crisis and shifted to Europe. Eventually, the U.S. will become the focus again. That could lead to a spike higher in the precious metals and ultimately new highs. If we remain on the "status quo" course, I would expect silver to continue to move higher over the long run, albeit a slower move.

The main thing to remember is that silver has rallied because the monetary and fiscal policies implemented in the last few years are destructive to the dollar and ultimately inflationary. This will continue to be the case until politicians actually do something about it. It is sad to say, but I have little faith in politicians fixing this mess. The smart money has been betting against them and will continue to bet against them. Long story short…silver will continue to move higher until the politicians get their act together.

That would be considered the long term outlook, now we can focus more on the trading outlook for silver on the charts.

Silver futures were washed out in September and made a spike bottom near $26. That proved to be the low and the market has been forming a channel as it moved higher. Going forward, the trade is to buy near the bottom of the upward sloping channel and possibly try to sell the high end of the channel. The setup is even better if the channel coincides with another support or resistance level.

Eventually, the market will break out of the channel and other trading decisions need to be made. A break to the downside should attract a large amount of selling. The low around 26 could be challenged. A break above the upper channel line could lead to a sharp rally. However, those moves are often selling opportunities as the market moves too far, too fast. A sideways drift out of the channel could lead to a prolonged sideways trade until the end of the year.

I will look to trade support and resistance levels. There will probably be some nice opportunities to trade reversal bars. I would expect some fakeouts before a larger move develops. A fakeout move might actually lead to the larger move. Those looking long-term, could buy an ETF and hold if they believe in the long-term bull market in silver and other commodities.

You can also view more of my updated comments on the commodities markets at Commodities.About.com.


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