At its current price, silver has hit a confluence of long-term resistance points. Here are the key levels, and what they might mean.
- Silver is currently trading at the top end of a range
- Range resistance might offer a favorable risk reward scenario for a short entry
- Longer term, silver is trading at the top end of a downwards sloping channel
After suffering substantial declines during the last three months of 2013, silver prices have stabilized somewhat since December and now trade within a relatively tight range between 19.10 and 20.50. If the range continues, it could offer swing traders entry points with favorable risk reward ratios, but what are the levels to watch, and what if they break?
Daily Silver Price Chart - XAG/USD
Take a look at the silver price chart above. The range is highlighted. The first key point is that the price of silver closed out every day last week at a gain from the previous day. The biggest rise came on Wednesday, which saw silver move almost to range resistance, but stop just short and close mid-range. While not yet reaching Wednesday's highs, silver prices edged up on Thursday and Friday towards the top of the range.
The assumption now is that prices will reach 20.50 (or just below), but mid-range trades can be risky as prices can be extremely volatile as it makes its way between the upper and lower boundaries. A more reliable trade, and one that offers superior risk reward, is one placed at support or resistance in expectation of a reversal. In light of this, if silver prices reach 20.50, yet fail to close above it, this could indicate a downside reversal with a target at the range's support at 19.00. If price breaks, and closes above, 20.50 however, this would be a bullish sign.
The Initial target in this scenario would be 21.00, which has acted as key support fairly recently and falls in confluence with the 50% Fibonacci retracement of the October highs and the December lows. This level could offer some resistance, perhaps cause a short-term correction back down to the range's upper trendline, but if broken, look to the 61.8% Fibonacci retracement just short of 21.50 as a secondary target.
Silver Prices Daily Chart 2 - What Does the Future Hold?
Now take a look at the second daily chart. A longer-term perspective of the market highlights the fact that the price of silver has been trending downwards within a relatively tight channel. From early December lows of around 19.00 flat, silver prices have traded towards the upper trendline of the channel, and now sit at 20.00, right on the trendline. On a number of occasions in the past, this trendline has held as resistance, and in turn, caused a decline in the price of silver. If history repeats itself, as is so often the case in the commodities market, silver's current price may turn out to be a medium term top. In this bearish scenario, an initial target would be at 19.00, the low of the aforementioned range. If price breaks this range, as a longer term perspective suggests it might, targets beyond the range low could be 18.50, a level from which the price has reversed on numerous historical occasions, and beyond that, the lower trendline of the channel anywhere between 17.00 and 17.50, depending on how long price take to fall.
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