Silver Entrenched in Consolidation Pattern Below Key MA and Falling Trendline
After late February’s dramatic false upside breakout in silver that peaked at the $37.48 level on February 29th stunned many technical traders who were expecting a follow-on rally, its subsequent price action fell into what many analysts considered could be a potentially toppish head and shoulders pattern, which had been forming since the early part of this year.
Nevertheless, the failure of silver’s trading volume to confirm a tentative downside neckline break, combined with the market’s subsequent lack of follow through on it, seems to have invalidated this chart pattern.
Silver Trapped in Range as Downside Momentum Wanes
Although silver did indeed decline as far as $30.99 from its late February high point, the white metal has been taking an extended break from its volatile price action of the past, as it now seems be stuck in an extended consolidation pattern that has been forming since the middle of March.
This consolidating type of price action typically reflects indecision in the market, as demand from buyers provides support, while resistance from sellers provides supply. The result of their competing activities keeps the market price trapped within a relatively tight trading range.
Initial resistance for silver is currently noted on the charts from peaks at $33.05, $33.16, $33.26, while initial support is seen at recent dips down to $31.61, $31.08 and $30.99. Collectively, those levels define the recent consolidating trading range for silver. Additional resistance shows up at the $34.40 and $37.48 levels.
In addition, momentum for the downside seems to be waning since silver’s 14-day RSI showed a higher reading at the $30.99 low than at the $31.08 low, a somewhat bullish signal. The successive highs at $33.05, $33.16, $33.26 also showed successively higher readings on the 14-day RSI.
Since none of these peaks or troughs managed to take the indicator into overbought or oversold territory, they indicate a lack of conviction in the silver market about its future direction. With that noted, a break of either side of this $30.99 to $33.05 range would be expected to yield a further move of $2.06 in the direction of the breakout.
Silver Continues Trading Below Key 200-day Moving Average and Declining Trendline
The price of silver during this prolonged consolidation phase has remained steadfastly below its key 200-day Moving Average, which currently reads at the $34.30 level and offers considerable resistance to the price.
This closely watched medium term indicator’s slope has also turned mildly negative, indicating a bearish medium term outlook for the metal, which is consistent with its overall decline from the heady heights of the $49.78 peak it attained on April 24th of last year.
Furthermore, after briefly breaking above its 200-day Moving Average and an important declining trend line in late February, the silver market has remained below them both during its recent consolidation phase. That falling trend line is currently drawn at the $33.65 level, which should provide additional resistance to any tentative price rises in silver.