For the second consecutive week, silver was the top performer in the precious metals complex as the market posted another gain of 2.5%. From the June 26th intraday low at $12.24 to the July 12th intraday high of $13.25, silver has jumped over 8% in 3½ weeks and the internal momentum oscillators suggest some additional gains could be had. But I think a little near-term softness could interrupt silver's upward progress, but only temporarily; the deeply oversold U.S. dollar is poised to stage a small recovery and silver, along with the rest of the precious complex, could be forced into a minor retreat. Good support should be found around $12.80 to $13.00 and clients should consider adding new positions in that area.

Although silver's recent rally was turned back at $13.25, I don't attach any particular significance to that level. I think the really important battle will come in the range of the mid-June highs at $13.40 and the Fibonacci 61.8% retracement at $13.47; it may take the bulls a couple of tries, but I believe they will eventually break through this cluster of resistance and then we could see a swift run to the $13.80 to $14.00 area as more and more "shorts" will be forced to cover.

The latest (June 10, 2007) Commitment of Traders report from the CFTC shows a total short interest in silver of 107,149 and total longs check in at 88,920. As silver goes higher, those shorts start to get "squeezed" and many are forced to exit the market by buying back their positions, which sends the market even higher. Thus, a classic "short-covering" rally is born; add the "hot money" momentum players and you sometimes get a vertical market. Don't be on the sidelines when that happens, buy the dips and get positioned now for the projected next leg to the upside...