Silver Prices Poised for a Breakout – Overview of Key Trigger Levels

Long-Term View

  • Since 2003, silver has exhibited spectacular volatility, increasing by more than ten-fold by the 2011 peak, before declining by more than 72% by end of 2015. Despite the volatility over this 15-year period, the commodity has found support on several occasions at a key long-term trendline (green trendline; retests – green arrows in Figure 1). More specifically, silver bounced off the support in 2008, 2015, and most recently in 2017 (green trendline currently at $15.50).
  • For 2 years (2011- early 2013), silver found support just around the $26 level, before finally breaking below and plummeting in April 2012 (blue horizontal trendline; sell signal – last blue arrow).
  • While, it can be said that silver, similar to gold, has been forming a large inverse H&S pattern since 2013 (neckline – yellow trendline), silver is further away from giving a buy signal based on this potential development. It is really the short-term view that reveals a well-defined pattern, whose completion may give a timelier signal.

Figure 1. Silver (XSLV.X) 8-Day Chart 

Short-Term View

  • Zooming in, the daily chart reveals a strong support in the $15.50 – $15.80 area (violet line at $15.70). Notice how when the commodity broke below $15.50 for the first time, it moved sharply lower, before finding support at the long-term support discussed in the long-term view (green arrow). Within a couple of trading sessions, silver was back above $15.50.
  • A much more well-defined inverse H&S pattern is observed on the daily chart (lows – orange ellipses, neckline – orange downward sloping trendline, target – orange vertical line).

Figure 2. Silver (XSLV.X) Daily Chart  

Implications

  • A break above the neckline of the small inverse H&S will activate an upward target of $21.75. Furthermore, such a breakout would trigger a buy on the larger inverse H&S.
  • While, a potential buy signal on the longer-term view may generate a target close to $28, the $26 level is expected to serve as a major resistance (i.e. resistance at $26 should take precedence over most other technical developments).

Outlook

  • Neutral with a bullish bias.
  • If silver breaks the orange trendline (a close above $17.80 should be used as a trigger) outlook will shift to bullish.
  • If the commodity breaks below $15.50, outlook will shift to bearish, as that would imply that both the $15.50 – $ 15.80 support area (violet trendline) and the long-term support (green trendline) have been breached.

Featured image courtesy of Shutterstock. 

Author:
http://www.linkedin.com/in/konstantindimov