Silver struggles at downtrend littered with reversal patterns

Silver has rallied 14% from the early August lows
It has been extremely correlated with other industrial metals such as copper over the past month, suggesting it’s more a play on the global economy
Silver rally stalls at downtrend that’s sparked bearish reversals in the past

Overview

Silver’s been on a nice run recently, benefitting from an easing of concerns towards the trajectory for global US economy. That’s because unlike gold which has been heavily influenced by movements in the US dollar and bond yields, silver has been extremely correlated with copper futures over the past month, another industrial metal closely tied to economic activity.

While concerns have eased recently, we’re about to receive a whole bunch of economic data that could easily see them flare again next week. Perhaps unsurprisingly, silver has struggled to extend the bullish reversal sparked by Jerome Powell’s speech last Friday, wobbling ahead of downtrend resistance dating back to the highs struck this year.

Silver looking at another bearish reversal?

When you look back to see how the silver price has interacted with this level previously, you can’t help but notice it’s littered with evening stars, bearish engulfing candles and key reversals, all notable topping patterns. It doesn’t like it.

With RSI (14) rolling over, warning of waning bullish momentum, I wonder whether we may see a similar outcome soon? Wednesday’s candle, while incomplete, looms as a potential bearish engulfing, while the price is threatening to break out of the rising wedge it’s been in for several weeks.

For those keen to take on the short trade, you could sell now or wait for better levels slightly higher with a stop above Monday’s high for protection. The initial trade target would be $28.77, conditional on the price being able to break the 50-day moving average. If $28.77 were to give way, $28.046 and $27.269 are the next levels to consider.

If the trade moves in your favour, consider lowering your stop to entry level or lower, allowing for a free hit on downside.

-- Written by David Scutt

Follow David on Twitter @scutty

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