Zak Mir on 1968, revolting students, full heads of hair and silver prices!

What a year 1968 was. Revolting students (as in they were “revolting”!) addled with drugs and the emergence of left wing politics – some things never change… There were anti Vietnam protests and immortality cementing events for Dr Martin Luther King and Robert F Kennedy. The good things included Hey Jude by The Beatles, and long hair being fashionable– even I had a full head of hair back then!!

Sticking with the positives and precious metal silver was rallying sharply in 1968, just like it is now following a 13 consecutive day rally up to yesterday’s retracement. Indeed, the last time it was in such sharp recovery mode was 46 years ago. Of course, bulls of the metal have quite some time since 2011 for the correction to end so they are no doubt enjoying their day in the sun.

Such has been the drubbing in the metals that even if we are witnessing the long awaited turnaround, it could be that they actually stay on the sidelines for fear of getting sucked into yet another false dawn bull trap manoeuvre. This is of course precisely how bull markets work – climbing the veritable wall of worry and scepticism so to speak.

From the perspective of a technical analyst, to me the interesting element is the is the way that even financial journalists – who obviously know nothing about the subject, start wheeling in a break of the 200 day moving average as a compelling part of the equation to get long once more. This may, amazingly, actually be the correct thing to do at the moment. However, for some reason, 99% of the time the technical’s are not only ignored – despite some great setups, they are regarded as being on a par with reading tea leaves.  Of course, from my perspective this omission is simply the edge that technical traders have over the “herd”!

Something which is noteworthy, which I do not think has been generally touched upon thus far, are the similarities between the latest recovery attempt for Silver and the one seen between June and August last year. You can see how similar both are, with the trick in both instances being the initial bear flags that were broken to the upside, rather than the downside. The reason I class them as bear flags is that resistance prior to the turnaround was actually well below former support.

An interesting rule regarding “wrong” moves out of bear flags is that having wrong footed most traders there can be sharp and extended move to the upside. This is clearly what the buyers are counting on now, and at least to some extent they have been well rewarded already as far as Silver is concerned with the extended multi day rally.

However, it does not require much imagination to note that the June – August pattern is so similar to November – February. If history repeated itself in terms of the pattern progression, we would be treated to a peak over the next couple of weeks towards say, $25, followed by a retest of the lows under $19.

In fact, if it were not for the factor of the 200 day moving average being involved I would venture to suggest that we are actually heading back to the main 2013 floor for Silver. But given the clearance of the 200 day line we are obliged to give the benefit of the doubt to the ongoing rebound. This is at least while there is no end of day close back below this feature currently standing at $20.99. On this basis the target here over the course of March is towards the August resistance zone at $25.

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