Looking for a bottom in silver

What goes up...

Today's chart is, once again silver, specifically the SLV ETF, in weekly candles. You may recall that I called the top in silver last week and sold almost all of my SLV (now I wish I'd sold the last bit too, the one I was saving in case I was wrong). The price of SLV wobbled around my 46.50 sale price for a few more days, and then kaboom - the crash. Just look at this chart. Pretty amazing stuff, eh?

The thing is, is that just as there wasn't really any underlying reason for silver to go exponential as it did up to now (other than pure speculation), there is also no reason for it to just languish now that it has come back down to earth. Silver still has the same intrinsic uses it had before, and once the speculators have all gone on to play somewhere else, it might be worthwhile getting back in the game. But when and where might that be?

Fibonacci tells no fibs

That's where our old pal Fibonacci comes in. I drew in the weekly Fibonacci retracements from the recent high back to the long term resistance at 19.50, which is where silver stood until it started taking off just last August. Note how the giant drop in silver this week took us exactly to the 50% Fibonacci retracement, 33.85 (OK, SLV closed today at 33.72, but that's close enough).  BTW - that also happens to be the 20 week MA.

Depth sounding

So just as we had the blow-off top four days ago, we're now looking for the wash-out bottom. And today just might have provided it. Check out the enormous selling volume that accompanied today's gap down action (on the daily chart, not visible here). That, plus hitting the 50% retracement is always a good sign that a bottom is at hand.

So tomorrow we will watch for a confirmation of this. If SLV can hold its current level or reverse, then we're going to consider getting back in. On the other hand, failure to hold 33.72 means a trip down to the next level at 30.47 is likely. (Then the next stop down is the 40 week MA, at 30.13).  The 30.47 level also has support from the 2010 year end highs.

But the indicators are already starting to show oversold conditions.

Beware the falling knife

However, this is definitely a case where one does not want to be catching the falling knife. I still have the scars on my hands to prove it from earlier encounters with other technical train wrecks.. We are going to wait for clear signs of a reversal before coming back to this particular table.  I do think we're getting very close now.

And I guess I have to own up to the fact that I was wrong big time in my call for today. I really underestimated the strength of the commodity crash and the effects it had on the broader market. Also, I've had some personal issues to deal with this week that have prevented me from devoting as much time to my charts as I normally do. But things seem to be settling down so hopefully we can get back to making some money.

The Dow forecast

And as for the Dow, we're now is a downward swing trend.  The indisctors are still coming off overbought levels, so no sign of a turnaround there yet.  All three futures are lower too, though not by much at all.  However, the VIX today hit its upper Bollinger band to end with a doji.  This could be key.  As we've seen so often, once the VIX hits its upper BB, it tends to go back down within a day or two at the most.  Lower VIX -> higher stocks.  If we do go lower tomorrow (in stocks), I don't think it will be as bad as today.  And I would not be surprised to see a reversal by Monday.