If you have been reading this column for some time, you may have noticed that technical analysis can often show us the “what” ahead of time. However, the exact “why” trigger typically remains to be seen. In this instance, let us turn to the silver market (here), which has continued, over the last three months, to behave more precisely on a technical pattern basis than gold.
Last week we noted that the swift decline from $18.50 back down to $16.75 over the previous seven trading days constituted a retest of the breakout seen during the first week of February. Additionally, the breakout occurred as prices exceeded the upper boundary of the price channel. This is defined the July 2016 to February 2017 decline. Subsequently, the fall seen through Wednesday of last week constituted a silver market retest of that broken channel. Please refer to the turquoise lines on the chart below, along with the annotations for the breakout and retest:
Again, the tables can often tell us “what” is likely to happen. The “why” usually remains to be seen.
In this case, it happened once again to be the Federal Reserve meeting on Wednesday. This provided the bounce from the silver market retest we anticipated on the charts. The 0.25% rate hike announced by the Fed on Wednesday was indeed met with weakness in the US dollar. Hence, strength in the precious metals complex — most clearly seen on the silver chart above.
In sum, for the week silver rose 2.9% or 0.49 cents to close at $17.41 as of the final trade on the New York COMEX futures market.
Silver’s Primary Downtrend – Broken
Our charts change periodically as new information becomes available. In the above silver market chart, we have further details as to where large buyers are showing up – now visible just above $16.75 in the spot market.
As mentioned, the declining primary channel from July 2016 through February 2017 has been changed to the turquoise color (see the color key, the chart above). In this system of silver market analysis, turquoise represents broken trendlines. Broken trendlines should be kept in our minds for at least several months following a successful breakout. Traders often retest some point in the future.
By changing the color of the trendlines from royal blue to turquoise (once broken), it allows a quick visual perspective. Hence it will recall the recent trend but does not distract from the newly emerging original pattern.
In the case of the silver market, we have a new primary trendline. The trendline is a December 2015 low at $13.65 per ounce. This is up to the December 2016 low at $15.75 per ounce. The numbers show by the new dashed royal blue line on the chart. With two significant higher lows occurring exactly one year apart, we can now begin to define the support and resistance levels. They will be necessary for silver for at least the remainder of 2017, and likely well beyond.
On Silver Market Trendline Retests
Note that silver market’s breakout from its primary down channel occurred in early February at $17.25 (red callout). The retest of the same down channel occurred five weeks later, at $16.75 (green callout).
It should be apparent now the value in monitoring these technological trends.
Those who were not following this first trend in such a manner since July most likely would have experienced more fear during the recent quick correction which ended last week.
As we instead saw the correction as a silver market retest of the broken trend channel. Therefore, avoiding potential fear.
For those interested in applying this form of technical analysis, note that retests of downward trends may indeed occur at lower price points than their initial breakouts. This type of lower retest can scare those investors who focus on the absolute price without regard to trend analysis.
We cannot get every single twist and turn correct every time. However, as any traveler who has found themselves lost in a new land without a map or compass will tell you: “Having some information is infinitely better than having none at all.” Our experience over many years of observing the precious metals – the charts are valuable maps that we have to guide us.
Silver Market Going Forward
For now, we reiterate that silver has successfully silver market retested its second-half 2016 primary declining trend. Labeled on the chart above, you’ll see between $16.75 – $17.25 of initial support. In a worst-case scenario, we could observe a second-retest of the aforementioned broken trend channel, in the price region of $16.50. This would correspond with the upcoming primary (blue) trendline from the December 2015 bottom.
Our highest probability scenario at this juncture is that silver will begin to advance to challenge the February highs near $18.50. The chart is, therefore, a label of Initial Resistance. Therefore at which point we will need to monitor related signals to gauge the possibility of a further advance toward the 2016 highs near $21.
Bullion Exchanges Market Analyst
Christopher Aaron has been trading in the commodity and financial markets since the early 2000s. He began his career as an intelligence analyst for the Central Intelligence Agency, where he specialized in the creation and interpretation of the pattern of- life mapping in Afghanistan and Iraq.
Technical analysis shares many similarities with mapping: both base themselves on the observations of repeating and embedded patterns in human nature.
His strategy of blending behavioral and technical analysis has helped him and his clients to identify both long-term market cycles and short-term opportunities for profit.
Bullion Exchanges does not necessarily match the views of this third party analysis. This article provides opinionated information only. It should not be financial advice in any way.