The technical picture for spot silver has been decidedly bullish since the grey metal made what seems to be a double bottom pattern on its price chart.Basically, the price of silver has fallen to a set of notable medium term lows, first at the $26.05 level on September 26th of last year, and more recently at the $26.15 level on December 29th.
The neckline of that pattern, or the intervening high point between those lows, was located at $35.66 on silver’s spot chart. That price now represents the key resistance level that the market needs to overcome to see additional strong buying pressure emerge in silver.
Nevertheless, silver is currently range trading just below that neckline level within a short term consolidation period, although its prevailing upward trend is still expected to reassert itself eventually.
Silver Range Trading Before Probable Move Higher
Since January 26th, the spot price of silver has appeared to be treading water, as it seems to be gathering momentum for what is likely to be yet another attempt for the market to push it higher to test the critical $35.66 double bottom neckline level.
The result has been a period of ranging trading in silver, as the market trades higher and lower between the levels of $32.94 on the downside and $34.50 on the upside.
The width of this range is $1.56, so the computed price targets once a sustained break of this range occurs would be $36.06, if the market ultimately breaks above the range, or $31.38, if the market eventually breaks below the range.
Should the break come to the upside, which is the favored direction given the recent upwards trend in silver and its impulsive nature that is characteristic of trend following movements, the resulting move should take silver firmly over the aforementioned double bottom neckline.
This latter possibility would yield an even more bullish outlook for the precious metal, with a double bottom price objective computed in the $45.22 region.
Bearish Regular Price-RSI Divergence Signaled Pause in Silver’s Uptrend
Interestingly, the day after silver entered its most recent consolidation period, its 14-day Relative Strength Index or RSI peaked in overbought territory at the 72.0 level.
The closely watched indicator subsequently failed to make a new high, even as silver’s spot price was trading to new recent highs at $34.38 and $34.50.When the price makes a new high in overbought territory, but the RSI fails to do the same, this is typically taken as a bearish sign, which can lead to a period of consolidation or correction during an upwards trend.
Dr. Jeffrey Lewis