Silver Technical Update

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XAG/USD (Silver) 1H Chart 8/28/2012 8:20AM EDT

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Silver has been on a tear since breaking above consolidation resistance at 28.43. In August, it has rallied from a low near 26.70 up to 31.24 this week's high made on Monday (8/27). It has since starting coiling, as the 1H chart shows, falling between converging near-term support and resistance. You can say it is in a triangle congestion pattern as well.

Bearish Correction: In the near-term if the market breaks out of the current lack of volatility to the downside, the focus is on the near-term support pivots at 30.13 and 30.22. Breaking below these levels then complete a topping formation. Before that, the market still looks bullish, especially with the 1H RSI staying above 40 after repeatedly breaking above 70. A more aggressive correction, in a scenario where price "regresses back to the mean", could target the 200-H SMA near 29.60. At the moment, the most aggressive bearish outlook should probably be limited to the resistance of a bottom that was put in, at 28.43.

Upside Breakout: A break to the upside first focuses on the 31.25 resistance. In the daily chart (which is zoomed out to show more candles), you will see that silver has been coiling under a declining trendline connecting the high of 44.18 from 8/23/2011 (a year ago), with the high of about 37.50 made on 2/29/2012. A break above 31.25 therefore exposes the resistance pivots at 35.67 and 37.50.

XAG/USD (Silver) Daily Chart 8/28/2012

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Fan Yang CMT is a trader, analyst, educator and the Chief Technical Strategist FXTimes - provider of Forex News, Analysis, Education, Videos, Charts, and other trading resources.

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