SILVER TODAY: Waiting for support to be found

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 17.94 20 DMA
R5 18.20 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 17.94 20 DMA
S2 17.72 UTL
S3 17.43 Neckline
S4 17.05 50% Fibo
S5 16.72 61.8% fibo
S6 16.63 Jan 27 low
S7 15.63 Low so far
S8 15.44 Long-term UTL
S9 13.64 Dec low
Stochastics:Bearish
Legend:

DMA – daily moving average

Fibo – Fibonacci retracement line

H&S – head-and-shoulder pattern

RL – resistance line

U/DTL – up/downtrend line

 

Analysis

  • We said in our previous report, on February 28, that prices had overcome the DTL but look overstretched – so we are not surprised prices have corrected.
  • We remain bullish in the medium term; the inverse H&S pattern had a target of $18.95 per oz, but prices have now fallen back through the neckline of that H&S pattern, so the pattern has lost some of its influence.  
  • Overall though, we see this pullback as being a counter-trend move within an bull run.
  • We will now wait to see how much further prices fall before finding support.
  • The stochastics have plunged; as such we would not be surprised to see prices fall further. With the UTL, neckline and 38.2% Fibo level broken, we would now look for support around the 50% Fibo level at $17.05 per oz. The 61.8% Fibo level is at $16.72 and the bottom of the right hand shoulder of the H&S pattern is at $16.63 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 88.6% yesterday, appears to have been just too much of an onslaught. 

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 i.e. up until the FOMC meeting and rate decision. We still feel that bullion will remain sought-after as a safe haven in the 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’s infighting with government departments.

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? As broader markets are correcting too, the risk off could drag all markets, including safe havens, lower for a while, 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