Silver Technical Update
After Bernanke's Testimonial to congress on Feb. 29 left out mention of QE3, commodity prices dropped as the USD gained. The expected affect of QE3 would have been the opposite (weaker USD, stronger commodities). For silver, this fundamental trigger came after it has rallied above a declining trendline that connected the 49.76 high on 4/25/2011 and the 44.16 high on 8/22-8/23. This also was a break above the 200-day simple moving average and completion of a double bottom.
Bernanke's statement essentially made this a false breakout to the upside. The rejection from the breakout formed an engulfing pattern seen on the daily chart. The strength of that reaction suggests the bearish outlook in the short-term, and puts silver back into a consolidation mode. In such mode, a concept is reversion back to the mean. You can see some pivots near 30.75. (61.8% retracement of the latest bull run from the start of the year is at 30.44. This could be the short-term target for the week of 3/4-3/9 or even into the next week if volatility drops drastically, in which case, the bearish outlook may need some upward adjustment toward the 31.00 handle.
At this point, there is a pivot above, near 35.68. If the market stays below 35.70, the bearish outlook is strong. Above 36.00, the 1-day bearish signal would become invalidated, and the bull-run would still be intact. To the downside, a close below 34.30 would probably be needed to kick off the bearish outlook. This is the resistance pivot for the previous consolidation period seen in the 4H chart.. Also, the RSI in the 4H chart is held above 40. A break below this can confirm the loss of bullish momentum and improves the chances for the short-term bearish scenario.
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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