Silver Technical Update

XAG/USD (Silver)

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Silver has been rallying since failing to break below 26.00 barrier (actually more like 25.96). It has broken above a pennant in the 2/19-24 trading week, but is now trading at a resistance cluster at 35.70. Here is the October 2011 high and resistance pivot. It is also the declining trendline connecting the 2011-high of 49.76 and the Aug. 2011-high of 44.16. At this resistance cluster, silver has slowed and has formed 2 doji candles.

A break above 36.00 can open up further bullish scenario, first toward the 40 handle, and then the 44.16 pivot. But if this bullish outlook is contained below 36.00, what could be a viable target? What mode is the market in?

To answer the second question first, we see that the RSI in the daily chart has tagged 30 twice since Sept. 2011, but now has hit 70 twice in 2012. This shows a short-term bullish mode, in a medium term sideways mode. Therefore, we do have a some reason to believe there can be resistance at this 35.70-36.00 area.

Looking at the 4H chart, we can see a first target being the previous consolidation high and pivot at 34.36-34.50(38.2% retracement). 50% retracement is at 34.13 and 61.8% retracement is at 33.77. The 34.00 handle can be seen as the average aggressive target for this correction scenario.

The reward to risk for a short trade initiated at 35.50 with a stop above 36.00 - ie. 36.25 would be 150 pips to about 75 pips, basically 2 to 1, which is not that attractive especially with silver's sharp 2011 bull run in mind. Still resistance should be noted for the 35.70-36.00 area.

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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.   

Information and opinions contained in this report are for educational purposes only and do not constitute an investment advice. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness. FXTimes will not accept liability for any loss of profit or damage which may arise directly, indirectly or consequently from use of or reliance on the trading set-ups or any accompanying chart analysis.