Silver traded to historic highs Monday, taking out the $49.45 an ounce that held for more than 30 years when the infamous Hunt brothers tried to corner the market.
It has since fallen back several dollars , after touching $49.79 an ounce in the spot market. With London markets closed for Easter, early morning buying came into a market described as thin and illiquid.
"Textbook example of a buying climax," says Richard Ross, Auerbach Grayson Global Technical Strategist. A buying climax occurs when markets push to new highs, but fail to hold that level and are followed by a bearish intraday reversal.
Ross notes there is a also technical warning sign in the Relative Strength Indicator (RSI), a gauge of magnitude of advancing days versus declines on down days. The RSI, he says, reached 89 last week, a level not seen since 2006. But, Ross sees this pullback or "blow off top" as more of a short term correction, and the ultimate run is not over.
Taking out the old high was psychological. Silver is "not trading on any kind of intrinsic or fundamental value. It's no surprise that the rally petered out", says Ross.
Regardless, investment demand for physical silver continues with strong demand coming from India and other parts of the emerging world, says Jim Steel HSBC Chief Commodites Analyst. "Momentum is with the buyers," he says.
Traditional sellers such as miners and speculators have been largely absent from the market, and there has not been a lot of profit taking from investors that are long below the market. He also says there could be more room to run. "$125 is the price in real or inflation adjusted terms", he says.
Phillip Streible, Lind-Waldock Senior Market Analyst, says smaller investors getting in late to the silver run are getting stopped out as the metal tumbles off its highs.
The first major support below the market, he says is $45 an ounce, and $50 is the first major resistance.