With 2011 in the rear-view mirror, traders will likely be focused on January as a pivotal month for determining how 2012 may unfold. One major driver of market forces over last year was the very close correlation of diverse investment sectors- be they commodities, currencies, equities, or interest rate products. All classes fell into a see-saw rhythm of reacting to uncertainty by moving in close relationship to one another. Perhaps the most challenging of all to navigate has been the volatile precious metals complex, which has contended with major sea changes in the broader markets by narrowly holding their gains to continue the multi-year bull market.
Silver futures appear to be one of the more well-behaved contracts when viewed by chart analysis alone, holding key support to finish the year. After a tumultuous December that saw heavy liquidation and a return to sub-$30 trade, the price has stabilized to for a Falling Wedge chart pattern. This emerging pattern is identified here on the Autochartist 240-minute time frame. The low at $26.00 per ounce appears to be a capitulation low based on the sharp retracement towards resistance at $29.00 per ounce.
The final trading day of the year witnessed a soft breach of the trend line that forms the top of the Falling Wedge chart pattern. As holiday trading tend to bring light volume and the absence of momentum trading, the start of trading next week will likely cement the move as a definitive breakout or else fail by reversing back into the wedge.
A follow-through of the current rally would lead the price towards the projected target range between $28.53 and $29.14 per ounce. This is a longer term key resistance level which also will need to be overcome for a sustained long term rally. Weaker trade to begin the year may signal a retest of the wedge's bottom with a bearish return to the $25.00 per ounce level.
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