The U.S. Dollar index has rallied nearly 3.5% in September and approximately 7.25% since July 1.

The dollar’s strength along with an absence of inflation and flagging commodity markets has continued to push money into the equities’ sector however; deeper research suggests that we may be nearer a tipping point for a reversal than we are for these trends to continue unabated. Specifically, the silver market has seen some exceptional internal action that happens to correspond with spot on technical analysis suggesting this washout may have just ended.

Long-Term Set-Up

It’s rare that research for a current trading idea starts with a trendline more than three years old but, that is where we begin this morning’s setup. Silver peaked at $49.85 in April of 2011. We’ve fully annotated this chart that connects that high with November of 2012 highs and provided resistance to the March highs from this year. Finally, the second trend line had acted as support beginning with the June low near $18 from last year and continuing to provide support last December and this June before finally failing early this month.

Key Chart Pattern

The important bit here is the technical triangle formation built between the June rally through the downward trend line from the 2011 highs and the base trend line from the 2013 lows. Technically, the triangle formation alone has measured objective of $16.17. However, the market’s test of $17 came to rest upon the same trend line coming from the highs.  
The current setup appears to be a small spec and trend trader trap. The market’s downside objective appears oh so close yet commercial traders have been buying this market with exceptional ferocity, adding nearly 42,000 contracts in 10 straight weeks of buying. Generally speaking, this is the exact setup, especially in the extremely volatile silver market that could lead to a sharp short covering rally towards the old support at $19.  If you’ve been waiting for an opportunity to try and buy some silver, watch for a reversal and be ready to jump in.

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