(Kitco News) - Mon April 25--Is it a blow off top? That is the question on the Street Monday in the wake of July Comex silver's surge to pennies below the psychologically significant $50.00 an ounce level, before it reversed and plummeted to the lower third of its daily trading range.
July silver futures have been soaring in recent months, climbing from a late January low at $26.45 to Monday's new high at $49.84. The large intraday plunge off the new high, however, has the potential to mark a near term top on the daily chart.
"What it [silver] did intraday today was phenomenal," said long-time Wall Street technical guru Ralph Acampora, now director of tactical investments at Altaira Wealth Management.
"On a very short-term basis it is a little over-extended, a little overbought. Now it needs to digest the move.  If it pulled back 2-3% I would not be surprised," he added.
Acampora highlighted the $41.00/40.00 as a technical congestion and support zone for the silver market. However, any pullback would be merely corrective and in fact healthy for the bull trend, he said. "The [bull] move is not over by any means," he said.
Paul Hare, executive vice president at the Linn Group agreed. "We saw a big spike high in July silver. If it were to close lower on the day it could be a possible key reversal. It is a fairly important close to watch today."
Technicians say when a market hits a new high for a recent rally move, but then reverses intraday and closes in negative territory that creates a so-called bearish "key reversal" day formation on the chart. If that were to unfold at Monday's close, Hare said "it would signal an interim top" in the silver market.
Hare's advice for traders right now? "Liquidate longs," he said.
Other market watchers say the metals have met or are nearing long-term upside targets. According to an April 25 HS Dent Forecast Update research note to clients, "We are looking at a major bottoming process for the dollar and a top forming for precious metals, but it is hard to judge exactly where that occurs," wrote analysts at HS Dent Publishing LLC.
"The dollar has hit our 74.00 target and the euro has hit our 146.00 target. Silver has hit over $48 at our higher target, but gold has not yet hit $1,550. Longer term analysis suggests gold could top as high as $1,620. Our recommendation is to sell precious metals and the euro in stages for investors who are holding these sectors, and conversely buy the U.S. dollar, which should rally for 4 to 5 years or more. Sell 50% of gold, silver and euro positions here to lock in profits. Then we will wait to give a second sell signal in the weeks or months ahead," HS Dent said.
Shifting over to the gold market, there have been recent impressive gains above the $1,500 price level, despite the metal lagging behind the silver rally in recent months. Technicians saw potential for similar type of short-term downside corrective action.
"For a long time we've had a target at $1,500 for gold," said Altaira's Acampora. "It is just like silver. It looks like you'll get a little reversal today. Short term, we could go back to $1,500 or slightly below."
"If it [June gold] pulled back $10, $20 or $30 I would not be surprised. But, the major trend is still up," Acampora concluded.
By Kitco News