Precious metals took a huge hit in last week's volatile trading, dragged lower by falling prices in the equities as well as the broader commodities complex. Gold futures were the first to break down through long term key level support as outlined in last week's Autochartist commodities update. Silver futures quickly followed suit, dropping to the lowest price in months after falling through support near the $31.00 before falling briefly into the $28 handle.
With all eyes watching for signs of a cyclical precious metals bottom to be confirmed in the trading week ahead, a chart analysis reveals some signs of optimism for silver. The severity of the sell-off likely encouraged some panic selling and large position liquidation as stop-loss orders were triggered. The subsequent bounce from the lows was equally impressive, however, with the price coming up $1.50 per ounce from the lows by Friday's settlement.
The price action from the low aligns with a Channel Up chart pattern, illustrated here as an emerging pattern on the Autochartist 30-minute time interval. This is a continuation pattern, inferring the potential for a further recovery in the price towards the top of the channel. The correction from the rising trend line near $29.50 also coincides with lateral key level support at the same price, further encouraging a retest of upside resistance from here. This would result in a rise back above the $30 handle, opening the door for a potential technical breakout above the Channel Up chart pattern and establishing last week's sell-off as a longer term cyclical low.
Conversely, a reversal back beneath the channel support would also be a key level failure, triggering a short-term downside breakout with a lower price target. If his occurs it would strengthen the bearish case for silver, and may trigger a decline below last week's lows.
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