SILVER TODAY: Overdue correction under way

Short Term:
Medium Term:
Long Term:
Resistances:
R1 17.24 Dec highs
R2 17.35 H&S neckline (broken at)
R3 17.73 38.2% Fibo (Jul-Dec sell-off)
R4 17.98 20 DMA
R5 18.27 DTL
R6 19.00 Nov highs
R7 20.13 Sep 6 peak
R8 21.13 High so far
R9 21.60 Jul 2014 peak
Support:
S1 17.98 20 DMA
S2 17.56 UTL
S3 17.42 Neckline
S4 15.82 May low
S5 15.63 Low so far
S6 15.44 Long-term UTL
S7 13.64 Dec low
Stochastics:Bearish
Legend:

DMA – daily moving average

Fibo – Fibonacci retracement line

H&S – head-and-shoulder pattern

RL – resistance line

UTL – uptrend line

DTL – downtrend line

 

Analysis

  • We said in our previous report, February 28, prices had overcome the DTL but look over stretched – so we are not surprised prices have corrected.
  • We remain bullish in the medium term; the inverse H&S pattern has a target of $18.95 per oz.
  • The next likely target is the resistance around $19 per oz seen in early November last year.
  • The stochastics have plunged, as such we would not be surprised to see prices fall further. The UTL is at $17.56 per oz – this is likely to be a support level; failing that then prices may test the neckline of the inverse H&S pattern, which is at $17.42 per oz.

Other factors

The fact silver had managed to accelerate higher despite numerous headwinds was a sign of a robust market. But the ramp up of expectations about a US rate rise this month, which has leapt from 50% on February 28 to 77% today, appears to have been just too much of an onslaught. The timing of the correction no doubt happening ahead of today’s speech by Fed chair Janet Yellen, as the market seems to think she will not scupper the expectation. We are not so sure.  

Generally we feel the pullback in silver prices was overdue as the rally had been so strong for so long, but we see any pullback as likely to be short-lived. We still feel that bullion will remain sought-after as a safe haven in the days and weeks ahead. This is especially the case while geopolitical uncertainties are growing, with the UK getting closer to Brexit, Greece facing debt repayment issues, Europe facing elections and US President Donald Trump settling into his new role.

Conclusion

We would wait for the market to find support before looking to accumulate. The question is, will this dip be short-lived like the February one, or will prices need to build more of a base before tackling $19 per oz? If broader markets correct too, then risk off could drag all markets lower for a while, including safe havens as liquid assets are sold to free-up cash for margin calls on less liquid assets.

All trades or trading strategies mentioned in the report are hypothetical, for illustration only and do not constitute trading recommendations.
Kathleen Retourne

About Kathleen Retourne

Kathleen has been reporting on commodity markets since 2006. She joined FastMarkets in 2011 and has immersed herself into the metal industry, specialising in LME coverage. Follow her on twitter @kathretourne