Key Points:
- We may have finally reached a bottom for the metal.
- Technical bias is reversing to bullish.
- Fundamentals remain in play and could help to push silver higher.
Silver prices have been in free fall over the past few weeks but the bulls look as though they are finally mounting some sort of resistance. Specifically, there is mounting evidence that the embattled metal may finally be reaching a turning point which could mean some near-term gains are now on the way. However, given the sheer velocity of the plunge, it may be prudent to take a closer look at why we expect to see momentum reverse as the week comes to an end.
The most obvious impediment to ongoing losses is the rather well tested long-term trend line shown below. As has been illustrated, the metal has come into conflict with the ascending trend line on numerous occasions and, as a result, the bulls have rallied around this support level. This has already had the effect of moderating downside risks over the past few sessions which leaves silver with a sound footing from which to mount a recovery.
Whilst the presence of the trend line is a fairly strong indication that losses are capped, it doesn’t exactly require the metal to have the notable recovery that we are currently forecasting. Fortunately, a handful of other technical measures are signalling that just such a move to the upside is warranted. For one, both stochastics and the RSI are heavily oversold and are in desperate need of being relieved. However, the parabolic SAR is also on the cusp of inverting to bullish which might indicate a medium-term change in momentum is almost upon us.
If this is the case, we can expect to see gains extend to somewhere in the realm of the 17.224 – 16.758 band. This is largely due to the fact that this band falls between the 38.2% and 61.8% Fibonacci levels and a move to at least the lower end of this range would relieve the oversold readings. Additionally, the 17.224 level should prove to be a near-term peak for silver as it the 100 day EMA will also be exerting some selling pressure around this price which will severely limit upside potential.
Ultimately, despite the strong technical bias, remember to keep an eye on the fundamentals as they are likely to remain in play this week. Notably, safe havens like silver are going to be reacting to headline risks and the like which makes keeping a watch on Trump a fairly good bet, especially now that the French elections are out of the way and he seems to once again be making divisive political manoeuvres.
