The precious metals have been getting smoked for the past 6 months. When Sunday night futures opened in silver, the price dropped almost 10%, as sell stops were hit when it made a new low. That initial bout of panicky selling likely marked an important short-term low in silver, as the commodity is now higher on the day, a vicious rally after such a down move.
The 6 month chart of the silver futures contract shows a few signs for optimism, despite the relentless nature of the selling in that period:
Most importantly, the futures made that brief new overnight low, but is now trading higher, indicating potential exhaustion of sellers. The bottom panel shows that the RSI has made a positive divergence, as April’s crash lower was the stronger move, while last night’s new low was a weaker down move on a momentum basis.
On a longer-term basis, silver has bounced from an important support area. The 6 year weekly chart shows that SLV encountered resistance around the 20 level multiple times from 2007 to 2009, before finally beginning its major move upon breaking that level:
That prior resistance at 20 is now the crucial long-term support level to watch. Buyers have arrived near 20 twice now in the past month. Many probably view it as good risk/reward entry on the long side given the obvious level to use as a stop.
With today’s bounce, what to make of silver here? The 6 month chart above shows that silver still has a declining 50 day moving average, and ample overhead supply around 24. This type of chart setup, where an important short-term bottom might have been made near long-term support, but a longer-term downtrend still in tact, usually implies near-term consolidation. My short-term bias in silver is to the upside, but I don’t see a lot of upside. Put it all together, and here’s my short-term forecast for SLV – rangebound price action between 21 and 25. Nothing to get too excited about either way.