(Kitco News) – Silver has long held the promise of significant upside potential amid increasing demand from industrial uses, but as every silver bug knows, resistance at $30 has been a tough nut to crack and continues to stand in the way of all bullish attempts to break out higher.
Despite the potential for the first interest rate cut in four years coming in less than a month, David Scutt, market analyst at City Index, warned that betting the farm on silver’s rise is still not recommended as its chart suggests continued struggles.
“Silver’s been on a nice run recently, benefitting from an easing of concerns towards the trajectory for global US economy,” Scutt wrote. “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,” he noted. “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.”
Scutt noted that silver’s history at the current price level leaves much to be desired for traders as “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,” he said.
“With RSI (14) rolling over, warning of waning bullish momentum, I wonder whether we may see a similar outcome soon?” he questioned. “Wednesday’s candle, while incomplete [at the time of writing], 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.”
His observations proved prescient as silver closed Wednesday lower, and while bulls made an attempt to reverse the price action on Thursday, the downtrend resumed on Friday, dropping the gray metal below $29.
“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,” he said. “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 favor, consider lowering your stop to entry level or lower, allowing for a free hit on downside,” Scutt concluded.
According to TradingView analyst Mohemati, silver is in the process of completing a correction wave that could see it fall to $28.60 or lower before heading higher.
“Silver has formed a 5-wave bullish impulsive move and has since begun a bearish move, which could be labeled as wave A,” he said. “As we know, corrective waves typically occur in three waves. I believe we are nearing the completion of wave B, which could lead to another bearish leg to complete wave C.”
“This entire 3-wave bearish move could then form wave 2 of 5 on a higher degree,” Mohemati said. “Therefore, while we might be looking at a short-term bearish move, according to Elliott Wave theory, there is still significant bullish potential in the coming weeks.”
