Silver continues to trade where historical resistance no longer offers a roadmap. Without reference to the left side of the chart, technical traders may shift toward tools like Fibonacci extensions, and use long-term moving averages to assess how stretched (or not) current price might be.
In terms of Fibonacci extension (shown below), price blew past the 1.0 zone, and it wouldn't be surprising to see the 1.618 level hit in short order. While 1.618 is traditionally the spot for traders to look for resistance, there is absolutely no certainty that resistance will present, or how. 1.618 is a level that should be paid attention to especially if price gets there very quickly which would steepen the parabolic move underway, increasing the probability of an eventual high magnitude high velocity mean reversion event.
What might mean reversion look like?
Silver currently trades at a 2.78x multiple of it's it 200 week average price and is doing so as a function of having accelerated higher during low liquidity holiday trading. At the April 2011 peak silver traded at about 2.3x its 200 week average price. Only in 1980 was the price stretched farther above its 200 week average.
In both 1980 and 2011 - longs holding on for just 1 more day saw chunks of profit evaporate, as in both instances reversals came violently in the 24 hour trading period immediately following the ultimate peaks. Can price blow past the 1.618 level and bee line to 2.618, or about $115.00? If silver ever had a chance, now in the midst of this relentless low liquidity squeeze must be it?
The gold to silver ratio seems to be preparing for a date with sub 45 - encouraging for silver longs looking to keep the squeeze going. However the ratio is also entering oversold levels historically not sustained uninterrupted for extended periods of time.
In 1980 the reversal was catalyzed by a raising in margin requirement by the COMEX, eventually leading to "liquidation only" rules IE: the establishment of new long futures positions was not allowed, with one way action permitted on the sell side only. In 2011 the story was similar, with the CME raising margin requirements 5 times in 9 days as price approached $50.
It is known that high impact rule changes occur in the silver futures market for the purpose of washing out speculation thereby driving down price. What's unknown is when, how, or if it will occur his time. In this traders opinion silver longs would probably do well to be prepared regardless.
A piece of information in sum: Implied volatility on SLV options sits at the top of its 1-year range and at it's maximum Rank/Percentile. Traders are paying all time high premium for optionality, meaning the market expects future price action to be characterized by massive volatility, regardless of direction.
