Silver has just broken lower through its primary 18-month consolidation pattern. The result of the breakdown will be a lower target in time. It is important to examine the breakdown, what its ramifications are, and what the lower silver price targets may be over the intermediate future. What would a high-confidence buying zone be for the potential of an important subsequent low?

We should further examine some of the signals which would alert us that the breakdown may be negated. Since markets often try to fool the majority of participants at just the most critical moments. What would those signals be?

Let us turn to the charts.

Silver This Week

For the week, silver-finished lower by $0.06 cents or 0.4% to close at $15.49 on the New York COMEX futures market on Friday afternoon.

Silver has thus broken lower through its primary support zone between $15.70 – $16.10 (labeled below, black). This zone had held the price higher on no less than seven occasions since December 2016, with the one exception being the 48-hour flash crash of July 2017 (red callout).

The nature of the present decline does not resemble the flash crash in either extreme downward momentum nor speed of recovery, so we expect the present breakdown to be legitimate.

Silver’s target thus becomes $12.80, as illustrated below:

 

Silver target price explained graphically
Silver target price explained graphically

The target is calculated as the largest surge above the (black) horizontal support zone ($2.90, vertical blue line), subtracted from the lowest boundary of the support zone ($15.70).

In fundamental terms, this target represents a range of silver contract holders who are now underwater from the 2017 – 2018 descending consolidation.

Unless something were to dramatically shift in this market. The contract holders will be looking to sell to cut losses over the coming months. An equal number of sellers should exist below the $15.70 breakdown point as buyers existed above it. This would result in the $12.80 short-term target.

 

Longer-Term Ramifications

 The $12.80 target means that silver is set to make a new low, below its December 2015 bottom of $13.65.

The timing of this target is open to some variability. Swings of $2.90 in amplitude are common in silver within several months. Hence, we cannot rule out the $12.80 target before the end of 2018. However, breakdowns from slow, descending triangles (silver’s primary 2017 – 2018 consolidation pattern) can also feature subsequent declines. Likewise, that is slow and grinding in nature. It is possible that the pending selling may be just as slow as the consolidation was – and thus late-2018 through 2019 are our target dates for the achievement of silver’s $12.80 target.

 

A False Breakdown?

Every once in a while a market will give a “false” signal lower. The false signal is an attempt to deceive people that a more significant decline is set to emerge.

It is important to define the boundaries which would show us that silver has seen a false terminal flush of holders and that the market is set to reverse higher immediately.

From a technical basis, we would want to see:

  1. A recapture of the now-broken upper range of the former support zone at $16.10 (black).
  2. Even more importantly: a break above the primary (blue) declining trend which began in April 2017. The downward trend will remain a valid resistance until it is broken. The figure now comes in at $17.10 and falling.

 

Takeaway on Silver

 Silver has seen a break of its 18-month support, suggesting that a lower target is in store for the next year.

Even so, we already know that – in percentage terms – the largest portion of the silver decline from the 2011 peak near $49 per ounce has already occurred. When an asset class that cannot go to zero has already fallen by nearly 70%. We can assume that the significant portion of the risk has been removed.

We encourage physical silver accumulators to use the pending weakness to their advantage.

In a future article, we will examine the longer-term trends which are developing for this dual precious and industrial metal.

 


 

Christopher Aaron
Bullion Exchanges Market Analyst

Christopher Aaron has been trading in the commodity and financial markets since the early 2000’s. He began his career as an intelligence analyst for the Central Intelligence Agency. 

Christopher Aaron specializes in the creation and interpretation of pattern-of-life mapping in Afghanistan and Iraq. 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.

This article is a third party analysis and does not necessarily matches views of Bullion Exchanges. Do not consider Bullion Exchanges as financial advice in any way.

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