SILVER TODAY: Rally looking tired in the short term

Short Term:
Medium Term:
Long Term:
Resistances:
R1 17.24 Dec highs
R2 17.35 H&S neckline (broken at)
R3 17.63 20 DMA
R4 17.73 38.2% Fibo (Jul-Dec sell-off)
R5 19.00 Nov highs
R6 20.13 Sep 6 peak
R7 21.13 High so far
R8 21.60 Jul 2014 peak
Support:
S1 17.63 20 DMA
S2 17.40 Neckline
S3 17.25 UTL
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

 

Analysis

  • The rebound that got going in mid-December has climbed $2.5 per oz in two main upwaves; the second wave may just be starting to end judging by today’s weakness and the drop in the stochastics. See the previous drop in the stochastics. That said, any reversal of today’s weakness could change the developing chart picture. 
  • We remain bullish in the medium term; the inverse H&S pattern has a target of $18.95 per oz and the 20 DMA is climbing steadily.
  • However, we would not be surprised to see a pullback to test support either at the 20 DMA, the neckline, or the UTL.

Other factors

The fact silver has managed to accelerate higher while the dollar has been strengthening is noteworthy. With base metals generally rallying too, it looks as though silver is attracting industrial buying.

Last week’s CFTC data, up to the close on February 14, showed the net long fund position (NLFP) climbed 6,535 contracts to 84,812 contracts. This was the seventh consecutive week where the funds have been net buyers. Shorts have been cutting exposure for six weeks and the longs have been adding positions for eight weeks. At 104,765 contracts, the gross long position is still some way below last year’s peak of 123,737 contracts and the short position at 19,953 contracts is in low ground, the lowest since 2014 has been 12,375, while the highest has been 63,993 contracts.

The fact gold prices are holding up well, almost regardless of the dollar, and that dips have been short-lived and shallow also portrays a robust market. Overall, 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 Trump settling into his new role.

That said, prices rarely travel in straight lines so we should expect pullbacks along the way.

Conclusion

The sell-off in the second half of last year was significant but the downtrend looks to be over. The rebound now looks more than merely another counter-trend move and is more likely to be the start of a bull market, although to-date prices have rallied 16% rather than the 20% required to call it a bull market officially. That said, in the short term the latest up-leg is looking tired, the stochastics have swung lower and another show of dollar strength may act as a headwind, so we would not be surprised to see prices consolidate at lower numbers; but we expect dips will be well supported.

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