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: Silver-Coin-Investor.com and Hard-Money-Newsletter-Review.com
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