A Double Top can be a signal for some corrective bearish action. A double top is not simply 2 attempts that fail to break above a resistance (in this case silver found resistance near 43.95, but also a break below the base (in this case 43.20).
- The 1H chart shows silver successfully forming a double top and is in the process of a bearish correction.
- Price action is relatively strong to the downside when compared with the candlesticks within the double top.
- The decline is also closing a gap the market started with this week.
- Note also that as the second top is slightly above the first, the corresponding RSI reading was lower, setting up a bearish divergence that is being resolved now. Still, a close below 43.20 from a 1H candle will be needed to technically call this a double top. A failure to do so simply reflects a sideways pause, and if 43.95-44.00 breaks, we have a bullish continuation scenario.
- If the market does complete a double top, a conservative target is the 42.40-42.45 level, which is near the 61.8% retracement of Friday's part of the recent rally. This is also a double top breakout target (taking the width of the top, and projecting it towards the direction of the breakout.
- The bearish target is conservative because the market is very strong to the upside as evidenced by the RSI readings and the fact that the market is far from the 200SMA and has been spreading further.
- We may get a correction larger than 42.40 area. The 42.00 level (78.6% retracement) represents the most recent consolidation zone (aside from the double top), and may be a more aggressive target.
- The daily chart also shows why the bearish scenario is conservative at the moment, as Friday's price action was a marabuzo candle that confirmed a break above 39.60, and suggests a breakout projection at least to 45.85, and maybe even open up the 49.50-49.85 highs.
Fan Yang CMT
Chief Technical Strategist