Silver Broke Range to Push Above 200 Day Before The Counterintuitive Fall

Thursday March 08, 2012 13:40

As February drew to a close, the price of silver staged a notably bullish break above both its closely watched 200 day Moving Average and the neckline of a potential Double Bottom pattern that many technical precious metal traders and analysts had been watching attentively.

Not only was the upside break in silver accompanied and confirmed by a rise in trading volume, but it also resulted in a fresh recent peak on the precious metal’s 14-day Relative Strength indicator.

Although the following day’s sharply declining price action reversed those gains, the initial upward certainly set up the start of a more impressive rally in silver, which had been range bound since late January, as the market gathered the momentum needed to take the price higher.

Break of Key Resistance at $34.38 Pushed Silver Over its 200-Day MA

The first sign that silver was starting to rally again came as its spot price exceeded key resistance at the $34.38 level that was last seen in early February.

This move broke the aforementioned trading range to the upside and led to another bullish break of the metal’s 200-day Moving Average level on February 23rd, which was then reading at the $34.82 level. 

Following that signal, silver’s price initially breached its closely watched resistance level at $35.66 on the very next day, and has since traded as high as the $37.48 level on February 29th.
Nevertheless, in the wake of the latest in a series of huge selling seemingly out of nowhere occurring over the last few years, the metal has since retraced to trade right below 200-Day Moving Average’s current level of $34.79.

Potential Double Bottom Pattern’s Neckline Tested

The $35.66 price level has received considerable attention among technical silver traders because it was the maximum height of the intervening peak located between two major lows in the same region of $26.05 and $26.15 that were respectively seen on September 26th and December 29th of last year.

Technical chart analysts would traditionally draw the horizontal neckline of the resulting double bottom pattern at the $35.66 level of the intervening peak.  Should that neckline level break convincingly and on a rise in volume, they would then typically compute a measuring objective equal to the vertical distance between the $26.05/15 lows and the $35.66 neckline, or $9.56 projected upwards from the neckline level. 

This analysis would have put a target for the pattern’s neckline break in the $45 region for silver, once a neckline break was confirmed on a closing basis.  

Obviously, the selling that suddenly ‘appeared’ in very non-profitable manner, was well-targeted and successful at prompting weak and recent longs to unload positions, adding further downside pressure.  

By Dr. Jeff Lewis,
Editor of: and

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.

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