The iShares Silver Trust [SLV:NYSE], the world's largest silver-backed ETF, today, broke through below the uptrend on the logarithmic chart. As well, on the linear chart, the ETF closed right at the support level. Volume on SLV has increased substantially since peaking at $48.52, some days trading at three times normal volume. More than 200 million shares exchanged hands today, almost 9 times more than the 200-day average of under 29 million.
Increased volume can be used as a confirmation of a signal, validating that trader and investor mood's have changed. In this case, massive volume on down days suggests that buyers of silver and silver trusts have decided it was time to take profits, as the risk to reward ratio no longer favours longs.
Other technical patterns also indicate the rally is over, at least temporarily. The MACD and its Divergence moved into negative territory. The DMI has converged, a tool that is used to measure the directional movement of an asset. The positive DMI might possibly fall below the negative DMI tomorrow, a bearish sign. Its ADX has also peaked and is reversing as well.
Another telltale sign was that silver stocks had not participated in a rally. When the stocks of companies that mine or sell silver do not move up with their product, it is often a sign that the underlying commodity is mispriced for the short-term. Investors did not believe silver was worth $50 and would not push up the value of their stocks. This also holds true when an asset, such as silver plummets to serious lows, but silver stocks do not fall.
So, where is silver headed? Many bold predictions have been flaunted in the market. Some say $35 by June, others say $100 by December 2011. They could all be right or they could all be wrong. The only thing that is for certain is that silver is now at an impasse and a move in any direction will be chased by many. Expect massive volatility for the next few sessions.
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