On its 9-month chart below, we can see that silver broke down from an intermediate top -- as expected -- toward the important support shown. But Friday's rally suggests the metal may not drop that far and could again turn up. Overall, this is a positive looking chart and the main question is which uptrend channel will it adhere to. There has been a significant price-time correction since early July that has completely unwound the prior overbought condition. So Friday’s turnaround could mark the beginning of the next upleg. Even if silver heads down again, it probably won't fall below the support at and below $18.00 -- especially since is underpinned by an important channel support line. If it does drop that low, silver will still look attractive.
The long-term, 10-year arithmetic chart gives us a much broader perspective. This is actually a very positive chart overall as it reveals that silver’s bear-market phase from 2011 has definitely ended. However, silver has risen quite sharply in recent months to a zone of significant resistance, and the current reaction is quite normal and should set it up to break above that resistance and continue higher.
The silver optix, (optimism) readings have eased significantly from high levels that made further gains difficult. The current readings at about 56% make renewed advance much more plausible.
Chart courtesy of www.sentimentrader.com
COTs and hedged positions continue to run at a high level and may be cause for concern -- although they have eased a little in recent weeks. Such readings usually, but not always, lead to a substantial drop, so we should keep that in mind. On rare occasions such positions stay high as the uptrend continues. Therefore current readings won’t necessarily prevent a rally, here, but can be expected to act as a restraining influence, especially if they get even more extreme.
Chart courtesy of sentimentrader.com