A logical question after yesterdays performance by silver is to question the assumptions that underlie the entire thought process. In the background are the fundamentals, which have been hashed out many times previously and I wont spend time discussing today. The fundamentals are wildly bullish for silver from a big picture perspective.

From a technical perspective, how could I have missed such a big move in silver – over 5% in a single day? In the wrong direction.

The answer is that silver routinely does moves like this – to shake out those with weak hands. This time, the dollar rose above resistance levels, and there was a general flushing of all assets (some more than others). The dollar rose, not because of rosy economic conditions here at home, but, because the Euro is under such immense pressure. Since the Euro is such a predominant part of the basket that makes up the USDX, its moves are magnified in the dollar. This is all temporary, as the true fundamentals will be revealed in time – that the US is in much worse shape than Europe.

If you look at the daily chart for silver below, you will notice that price is holding above all solid support levels and has moved back down to retest the downtrend line it previously moved above. We are above the fibonacci retracement levels from the previous move (as drawn), and have good horizontal support not far below. The RSI has remained above 40 and looks to be leveling out.

Until proven otherwise, I am viewing this as a simple correction in silver that will lead to further gains in the near future. The mining stocks would tend to validate my view as they didnt sell off with nearly the magnitude they are capable of. In other circumstances, a 5% drop in silver will result in a 15 – 20% drop in the miners. That is telling.